-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GraxUCRIboBGgyFmuIqJwFIy+i1NOsc+2jLShmO7fWvpQHcrHQ4GGJPvyY8vXT6w nSJ487onduispt7DAU88oQ== 0000950150-96-000615.txt : 19960629 0000950150-96-000615.hdr.sgml : 19960629 ACCESSION NUMBER: 0000950150-96-000615 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19960627 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RALPHS GROCERY CO /DE/ CENTRAL INDEX KEY: 0000835676 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954356030 STATE OF INCORPORATION: DE FISCAL YEAR END: 0128 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005 FILM NUMBER: 96587150 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7147382000 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BOULEVARD CITY: LAHABRA STATE: CA ZIP: 90631 FORMER COMPANY: FORMER CONFORMED NAME: FOOD 4 LESS SUPERMARKETS INC DATE OF NAME CHANGE: 19931027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAWFORD STORES INC CENTRAL INDEX KEY: 0000025500 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-01 FILM NUMBER: 96587151 BUSINESS ADDRESS: STREET 1: 1100 WEST ARTESIA BLVD CITY: COMPTON STATE: CA ZIP: 90220 BUSINESS PHONE: 3108849000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALLEYS INC /KS/ CENTRAL INDEX KEY: 0000835678 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FOOD STORES [5400] IRS NUMBER: 480605992 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-02 FILM NUMBER: 96587152 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 2132671501 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALA FOODS INC CENTRAL INDEX KEY: 0000838196 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 941342664 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-03 FILM NUMBER: 96587153 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALPHA BETA COMPANY CENTRAL INDEX KEY: 0000880800 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 951456805 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-04 FILM NUMBER: 96587154 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL MARKETS INC CENTRAL INDEX KEY: 0000880801 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 941569281 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-05 FILM NUMBER: 96587155 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALA CO CENTRAL INDEX KEY: 0000880803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954200005 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-06 FILM NUMBER: 96587156 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA H\SRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS OF CALIFORNIA INC CENTRAL INDEX KEY: 0000880823 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330293011 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-07 FILM NUMBER: 96587157 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LAHABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS MERCHANDISING INC CENTRAL INDEX KEY: 0000880824 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330483193 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-08 FILM NUMBER: 96587158 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS OF SOUTHERN CALIFORNIA INC CENTRAL INDEX KEY: 0000880825 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330483203 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-09 FILM NUMBER: 96587159 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS GM INC CENTRAL INDEX KEY: 0000886141 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954390407 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-10 FILM NUMBER: 96587160 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAY AREA WAREHOUSE STORES INC CENTRAL INDEX KEY: 0000932721 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 931087199 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07005-11 FILM NUMBER: 96587161 BUSINESS ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD CITY: LA HARSERA STATE: CA ZIP: 90631 BUSINESS PHONE: 7147382000 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ RALPHS GROCERY COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5411 95-4356030 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) 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 CRAWFORD STORES, INC. CALIFORNIA 95-0657410 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 (I.R.S. EMPLOYER SPECIFIED IN ITS CHARTER) OF IDENTIFICATION INCORPORATION OR NUMBER) ORGANIZATION)
1100 WEST ARTESIA BOULEVARD COMPTON, CALIFORNIA 90220 (310) 884-9000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ JAN CHARLES GRAY, ESQ. SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY RALPHS GROCERY COMPANY 1100 WEST ARTESIA BOULEVARD COMPTON, CALIFORNIA 90220 (310) 884-9000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPY TO: THOMAS C. SADLER, ESQ. LATHAM & WATKINS 633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071 (213) 485-1234 ------------------------ 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 being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- PROPOSED TITLE OF EACH PROPOSED AGGREGATE AMOUNT OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE - ------------------------------------------------------------------------------------------------------- 10.45% Senior Notes due 2004........... $100,000,000 100% $100,000,000 $34,483 - ------------------------------------------------------------------------------------------------------- Subsidiary Guarantees of the 10.45% Senior Notes due 2004................ -- -- -- (2) - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. (2) Pursuant to Rule 457(n), no separate registration fee is payable with respect to the Subsidiary Guarantees. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 RALPHS GROCERY COMPANY CROSS REFERENCE SHEET PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus................. Outside Front Cover Page; Cross Reference Sheet; Inside 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.......................... Prospectus Summary; Risk Factors; Selected Historical Financial Data of the Company; Selected Historical Financial Data of Ralphs 4. Terms of the Transaction......................... The Exchange Offer; Certain Federal Income Tax Consequences; Description of the Notes 5. Pro Forma Financial Information.................. Prospectus Summary; Unaudited Pro Forma Combined Statement of Operations 6. Material Contacts with the Company Being Acquired....................................... Not Applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters................................... Not Applicable 8. Interests of Named Experts and Counsel........... Not Applicable 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................................... Not Applicable 10. Information with Respect to S-3 Registrants...... Not Applicable 11. Incorporation of Certain Information by Reference...................................... Not Applicable 12. Information with Respect to S-2 or S-3 Registrants.................................... Not Applicable 13. Incorporation of Certain Information by Reference...................................... Not Applicable 14. Information with Respect to Registrants Other Than S-3 or S-2 Registrants.................... Prospectus Summary; Capitalization; Selected Historical Financial Data of the Company; Selected Historical Financial Data of Ralphs; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Relationships and Related Transactions; Description of the New Credit Facility; Description of the Notes; Financial Statements 15. Information with Respect to S-3 Companies........ Not Applicable 16. Information with Respect to S-2 or S-3 Companies...................................... Not Applicable 17. Information with Respect to Companies Other Than S-2 or S-3 Companies........................... Not Applicable 18. Information if Proxies, Consents or Authorizations are to be Solicited............. Not Applicable 19. Information if Proxies, Consents or Authorizations are not to be Solicited or in an Exchange Offer................................. Management; The Exchange Offer; Certain Relationships and Related Transactions
3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JUNE 27, 1996 PROSPECTUS OFFER TO EXCHANGE 10.45% SENIOR NOTES DUE 2004 FOR ALL OUTSTANDING 10.45% SENIOR NOTES DUE 2004 OF RALPHS GROCERY COMPANY THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1996 UNLESS EXTENDED. Ralphs Grocery Company, a Delaware corporation (the "Company"), is hereby offering (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 10.45% Senior Notes due 2004 (the "Exchange Notes"), which exchange has been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a registration statement of which this Prospectus is a part (the "Registration Statement"), for each $1,000 principal amount of its outstanding 10.45% Senior Notes due 2004 (the "Private Notes"), of which $100,000,000 in aggregate principal amount was issued on June 6, 1996 and is outstanding as of the date hereof. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the exchange will have been registered under the Securities Act, and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Registration Rights Agreement (as defined herein), which rights will terminate upon the consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be entitled to the benefits of an indenture dated as of June 6, 1996 governing the Private Notes and the Exchange Notes (the "Indenture"). The Private Notes and the Exchange Notes are sometimes referred to herein collectively as the "Notes." See "The Exchange Offer" and "Description of the Notes." The Exchange Notes will bear interest at the same rate and on the same terms as the Private Notes. Consequently, the Exchange Notes will bear interest at the rate of 10.45% per annum and the interest thereon will be payable semi-annually on June 15 and December 15 of each year, commencing December 15, 1996. The Exchange Notes will bear interest from the date of the last interest payment on the Private Notes (June 15, 1996). Holders whose Private Notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Private Notes. The Exchange Notes will be redeemable, in whole or in part, at the option of the Company, at any time on and after June 15, 2000 at the respective redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to an aggregate of 35% of the Notes originally issued at the redemption prices set forth herein plus accrued and unpaid interest to the redemption date. Upon a Change of Control (as defined) each holder of Exchange Notes has the right to require the Company to repurchase such holder's Exchange Notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase. In addition, subject to certain conditions, the Company will be obligated to make an offer to repurchase the Exchange 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 terms of the Exchange Notes will be substantially identical to those of the Company's 10.45% Senior Notes due 2004 (the "1995 Senior Notes"), which were issued in a registered offering on June 14, 1995 and of which $520.3 million aggregate principal amount is outstanding. The Exchange Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with other senior unsecured indebtedness of the Company. However, the Exchange 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; Effects of Asset Encumbrances." The Exchange Notes will rank senior in right of payment to all subordinated indebtedness of the Company. At April 21, 1996, pro forma for the offering of the Exchange Notes and the application of proceeds therefrom, the Company and its subsidiaries would have had outstanding $771.5 million aggregate principal amount of secured indebtedness (not including obligations with respect to letters of credit issued under the New Credit Facility, of which $88.2 million were outstanding as of June 26, 1996), $619.6 million of senior unsecured indebtedness, and $671.2 million of subordinated indebtedness. The Exchange Notes will be unconditionally guaranteed (the "Guarantees") on a senior unsecured basis by each of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors"). The Company will accept for exchange any and all validly tendered Private Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1996, unless the Exchange Offer is extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. Private Notes may be tendered only in integral multiples of $1,000. The Exchange Offer is subject to certain customary conditions. See "The Exchange Offer -- Conditions." ------------------------ SEE "RISK FACTORS" ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is , 1996 4 Based on an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act; provided that the holder is acquiring the Exchange Notes in the ordinary course of its business and is not participating, and had no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Registration Rights Agreement, that such conditions have been met. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Company believes that none of the registered holders of the Private Notes is an affiliate (as such term is defined in Rule 405 under the Securities Act) of the Company. Prior to the Exchange Offer, there has been no public market for the Notes. The Company does not intend to list the Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Notes will develop. To the extent that a market for the Notes does develop, the market value of the Notes will depend on market conditions (such as yields on alternative investments), general economic conditions, the Company's financial condition and certain other factors. Such conditions might cause the Notes, to the extent that they are traded, to trade at a significant discount from face value. See "Risk Factors -- Absence of Public Market." Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has indicated its intention to make this Prospectus (as it may be amended or supplemented) available to any broker-dealer for use in connection with any such resale for a period of 90 days after the Expiration Date. See "Plan of Distribution." The Company will not receive any proceeds from, and has agreed to bear the expenses of, the Exchange Offer. No underwriter is being used in connection with this Exchange Offer. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. No person is authorized in connection with the Exchange Offer to give any information or to make any representation not contained in this Prospectus or the accompanying Letter of Transmittal, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company. Neither the delivery of this Prospectus or the accompanying Letter of Transmittal, nor any exchange made hereunder shall under any circumstances create any implication that the information contained herein is correct as of any date subsequent to the date hereof. Until , 1996 (90 days after the date of this Prospectus), all dealers offering transactions in the Exchange Notes, whether or not participating in the Exchange Offer, may be required to deliver a prospectus in connection therewith. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 2 5 The Exchange Notes will be available initially only in book-entry form. The Company expects that the Exchange Notes issued pursuant to the Exchange Offer will be issued in the form of one or more fully registered global notes that will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or the "Depositary") and registered in its name or in the name of Cede & Co., as its nominee. Beneficial interests in the global note representing the Exchange Notes will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary and its participants. After the initial issuance of such global note, Exchange Notes in certificated form will be issued in exchange for the global note only in accordance with the terms and conditions set forth in the Indenture. See "Description of the Notes -- Book Entry." 3 6 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the Financial Statements and notes thereto, appearing elsewhere in this Prospectus. Unless the context otherwise requires, the terms "Food 4 Less" and "Ralphs," as used herein, refer to Food 4 Less Supermarkets, Inc. ("Food 4 Less") and Ralphs Supermarkets, Inc. ("RSI") and their consolidated subsidiaries, respectively, prior to the consummation of the merger between them which occurred on June 14, 1995 (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, San Diego, Kern and Santa Barbara counties. Except as otherwise stated, references in this Prospectus to numbers of stores are as of April 21, 1996. The statements contained in this summary with respect to the Company's anticipated cost savings and future operational strategies or results are forward-looking statements which are inherently uncertain and subject to a number of factors that could cause actual results to differ materially from the current estimates. See "Risk Factors -- Ability to Achieve Anticipated Cost Savings." THE COMPANY The combination of Ralphs Grocery Company and Food 4 Less Supermarkets, Inc. on June 14, 1995 created the largest food retailer in Southern California. The Company operates 345 Southern California stores with an estimated 28% market share in Los Angeles and Orange Counties. The Company operates 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 operates 26 conventional format stores and 36 warehouse format stores in Northern California and the Midwest. Management believes the Merger has provided the Company with the following benefits: - - TWO LEADING COMPLEMENTARY FORMATS. The Company operates 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. The Company operates 269 Ralphs conventional format stores and 76 Food 4 Less warehouse format stores in the region. The Ralphs stores 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 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 offer consumers the lowest overall prices while providing product selections comparable to conventional supermarkets. Management believes that 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 16 new Food 4 Less warehouse stores and 20 new Ralphs stores during fiscal years 1996 and 1997. - - SUBSTANTIAL COST SAVINGS OPPORTUNITIES. At the time of the Merger, management estimated that approximately $90 million of net annual cost savings (as compared to the costs of Ralphs and Food 4 Less for the pro forma combined fiscal year ended June 25, 1994) could be achieved by the end of the fourth full year of combined operations following the Merger. Management also estimated that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs would be required to complete store conversions, integrate operations and expand warehouse facilities over the same period. Although the Company has experienced delays in the realization of certain of the cost savings anticipated at the time of the Merger, the Company believes that the full amount of the $90 million in estimated cost savings will still be realized within such time frame, as described in further detail below. Moreover, since the Merger the Company has invested approximately $70.1 million of the scheduled capital expenditures, spent approximately $45.0 million of other non-recurring costs in integrating its operations and expanding its warehouse facilities and has substantially completed the extensive store conversion program which was undertaken pursuant to the Merger. See "-- Post-Merger Events." 4 7 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 has eliminated most of the separate advertising associated with Food 4 Less' prior Alpha Beta, Boys and Viva formats. Since Ralphs' former advertising program covered the Southern California region, the Company was able to advertise for all of its Southern California stores under the existing Ralphs program. At the time of the Merger, management estimated that annual advertising cost savings of approximately $19 million, as compared to such costs for the pro forma combined fiscal year ended June 25, 1994, could be achieved in the first full year of combined operations following the Merger. On an annualized basis, such cost savings have been achieved. - -- REDUCED STORE OPERATIONS EXPENSE. Management plans to reduce store operations costs as a result of both reduced labor and benefit costs and reduced non-labor expenses. Store-level labor savings are expected to be achieved by applying Ralphs' labor scheduling, computerized record keeping and other advanced store systems 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. At the time of the Merger, management estimated that annual store operations cost savings of approximately $21 million could be achieved by the fourth full year of combined operations after certain required capital expenditures are made. Although the Company has experienced higher-than-anticipated store operations expenses and delays in realizing these cost savings, the Company continues to believe that such cost savings will be achieved by the fourth full year of combined operations. See "-- Post-Merger Events." - -- INCREASED VOLUME PURCHASING EFFICIENCIES. The combined volume requirements and leading market position of the Company have allowed 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. At the time of the Merger, management estimated that annual purchasing cost savings of approximately $19 million could be achieved by the second full year of combined operations. The Company believes that the realization of such cost savings is substantially on schedule. - -- WAREHOUSING AND DISTRIBUTION EFFICIENCIES. Consolidating the Company's warehousing and distribution operations into Ralphs' two primary facilities located in Compton, California and the Glendale, California vicinity and the modern distribution center located in Riverside, California (the "Riverside Facility") which was subleased in December 1995 from Smith's Food & Drug Centers, Inc. ("Smith's"), will result in lower outside storage, transportation and labor costs. In addition, occupancy costs have been reduced as a result of the closure of the Food 4 Less La Habra facility and certain other facilities. At the time of the Merger, management estimated that annual warehousing and distribution cost savings of approximately $16 million could be achieved by the third full year of combined operations after certain capital expenditures on existing facilities were completed. In the first year of combined operations, the Company experienced higher-than-expected distribution expenses for the reasons discussed below. See "-- Post-Merger Events." Moreover, the acquisition of the Riverside Facility resulted in revisions to the Company's operating plan following the Merger, necessitating some delay in the achievement of cost savings projected for the first and second years of combined operations. However, management believes that the Riverside Facility provides the Company with the opportunity to obtain substantial additional efficiencies, and that the annual cost savings of $16 million originally projected for the third year of combined operations can still be achieved. 5 8 - -- CONSOLIDATED MANUFACTURING. Ralphs and Food 4 Less operated manufacturing facilities that produced similar products or had excess capacity. At the time of the Merger, management believed that consolidating meat, bakery, dairy, and other manufacturing and processing operations, and discontinuing external purchases of certain goods that can be manufactured internally, should achieve annual cost savings of approximately $10 million by the second full year of combined operations. Due in part to plan revisions relating to the acquisition of the Riverside Facility, which includes a creamery, management believes that the realization of such level of cost savings will be deferred to the third year of combined operations. - -- CONSOLIDATED ADMINISTRATIVE FUNCTIONS. The Company has begun 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. At the time of the Merger, management estimated that annual savings of approximately $15 million associated with consolidating administrative functions should be achieved by the second full year of combined operations. To date, the Company has achieved annualized savings in administrative expense in excess of $15 million, and management believes that further savings in this area will be obtained. - - TECHNOLOGICALLY ADVANCED WAREHOUSING AND DISTRIBUTION. The Company utilizes technologically advanced warehousing and distribution systems, which include (i) the Riverside Facility, which is a one million square foot manufacturing and distribution center consisting of a creamery and an integrated warehouse for dry grocery, dairy/deli and frozen food storage, (ii) a 17 million cubic foot high-rise automated storage and retrieval system warehouse in the Glendale, California vicinity (the "ASRS") for non-perishable items and (iii) a 5.4 million cubic foot perishable service center in Compton, California (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 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' 123-year history and Alpha Beta Company's ("Alpha Beta") 92-year history in Southern California, the Company has valuable and well established store locations, many of which are in densely populated metropolitan areas. - - RECENTLY REMODELED AND NEW STORE BASE. The Company has a modern, technologically advanced store base. During the five years ended January 28, 1996, on a combined basis, Ralphs and Food 4 Less opened 81 new stores and remodeled 173 stores. Approximately 62.3% 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 Company's management expertise combines the strengths of the former management teams of both Ralphs and Food 4 Less, including strong store operations experience, a reputation for quality and service, and demonstrated effectiveness in cost control and the acquisition and integration of supermarket companies. THE MERGER On June 14, 1995, Food 4 Less Supermarkets, Inc. ("Food 4 Less") merged into Ralphs Supermarkets, Inc. ("RSI") (the "RSI Merger"). Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which was a wholly-owned subsidiary of RSI, merged with and into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI changed its name to Ralphs Grocery Company. The Company is a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("Holdings"). The purchase price for RSI was approximately $1.5 billion, including the assumption of debt. The consideration payable to the stockholders of RSI consisted of $388.1 million in cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 (the "Seller Debentures") issued by Holdings and 6 9 $18.5 million initial accreted value of the 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures") issued by Holdings. POST-MERGER EVENTS The Company has substantially completed its integration plan to convert and rationalize the store formats of Ralphs and Food 4 Less. Since the Merger, the Company has converted 111 former Alpha Beta, Boys and Viva stores to the Ralphs format, converted 13 former Ralphs stores to the Food 4 Less warehouse store format, and opened 21 new stores, including nine Southern California stores acquired from Smith's which became available when Smith's withdrew from the California market. The Company has sold or closed 56 stores as a result of divestitures required by the State of California and other steps taken to improve the average size and quality of its store base. As a result of the closure and divestiture of smaller stores and the opening of larger stores, the average square footage per store in Southern California has increased approximately 9% from 36,100 square feet to 39,400 square feet. Subsequent to the Merger, the Company experienced lower sales and higher costs in certain areas of its operations than originally anticipated. The shortfall in sales primarily resulted from achieving less benefit from the Company's advertising program and experiencing greater competitive activity than originally expected. Although the largest impact was experienced by the Company's Alpha Beta, Boys and Viva stores which were converted to the Ralphs format, the base Ralphs stores were also affected. In addition, the Company's operating margins were affected by delays in the implementation of certain buying and other programs to lower the cost of goods, excessive price markdowns in stores undergoing conversion and a less advantageous than expected product mix in certain stores. The realization of cost savings has been delayed in certain areas. In particular, store operating expenses were higher than anticipated, due primarily to lower productivity and higher labor costs than originally anticipated. In addition, the Company experienced higher than expected costs in introducing Ralphs merchandising and service standards into the smaller conventional supermarkets formerly operated by Food 4 Less. Also, as the Company's backstage facilities were integrated, the Company experienced higher than expected warehouse and distribution costs resulting from, among other things, higher than expected inventory levels, delays in the transfer of distribution personnel from Food 4 Less to Ralphs facilities, and other backstage operational inefficiencies. The Company is taking a number of specific steps to improve sales and margins, eliminate the recurrence of unexpected integration-related costs and fully realize opportunities for efficiencies afforded by the Merger, including the following: - - During the first quarter of fiscal 1996, the Company implemented the first phase of a new marketing program designed to improve sales at its smaller stores. The key component of this program involves streamlining and remerchandising the product and service offerings currently in those stores which the Company believes are more appropriately reserved for its larger stores. The Company also intends to implement a revised marketing plan designed to improve sales at its base Ralphs stores. - - During the first quarter of fiscal 1996, the Company implemented a labor productivity and cost reduction program. As part of this program, headcount reductions of approximately 1,100 at the store level and 200 at the corporate level have already been made. The earnings benefit of the foregoing reductions will be realized during the remainder of 1996 and beyond. - - In addition to the acquisition of the nine stores from Smith's, in December 1995 the Company subleased Smith's one million square foot distribution center and creamery facility in Riverside, California. The facility allows the Company to consolidate distribution operations into three modern, efficient facilities located in Compton, Glendale and Riverside, California. The elimination of six smaller and less efficient warehouse facilities will reduce transportation between facilities, management overhead and outside storage costs. Moreover, the consolidation will enable better inventory management, which is expected to result in the reduction of inventory levels. The Riverside Facility is also expected to reduce previously planned capital expenditures. Although such acquisition has resulted in substantial revisions to the Company's plan 7 10 with respect to its storage, distribution and manufacturing functions, and consequent delays in estimated cost savings, the Company expects that the consolidation of such functions will be completed by the third quarter of fiscal 1996, resulting in greatly strengthened and streamlined backstage operations. In March 1996 the Company amended the New Credit Facility to conform the financial covenants therein to the Company's actual post-Merger results and revised projections. Following the adoption of these amendments, the Company believes that the covenant levels contained in the New Credit Facility are consistent with anticipated operating results for fiscal 1996. THE YUCAIPA COMPANIES The Company is controlled by 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. The other supermarket companies presently controlled or managed by Yucaipa are Dominick's Finer Foods, Inc. and Smith's Food & Drug Centers, Inc. Such companies, together with the Company, operate a total of approximately 652 stores with aggregate sales of approximately $11 billion per year. 8 11 THE EXCHANGE OFFER THE EXCHANGE OFFER......The Company is hereby offering to exchange $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Private Notes that are properly tendered and accepted. The Company will issue Exchange Notes on or promptly after the Expiration Date. As of the date hereof, there is $100,000,000 aggregate principal amount of Private Notes outstanding. See "The Exchange Offer." Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act; provided that the holder is acquiring Exchange Notes in the ordinary course of its business and is not participating, and had no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "The Exchange Offer -- Resale of the Exchange Notes." REGISTRATION RIGHTS AGREEMENT.............The Private Notes were sold by the Company on June 6, 1996 to BT Securities Corporation (the "Initial Purchaser") pursuant to a Purchase Agreement, dated June 3, 1996, between the Company, the Subsidiary Guarantors and the Initial Purchaser (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company, the Subsidiary Guarantors and the Initial Purchaser entered into a Registration Rights Agreement, dated as of June 6, 1996 (the "Registration Rights Agreement"), which grants the holders of the Private Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such rights, which will terminate upon the consummation of the Exchange Offer. The holders of the Exchange Notes will not be entitled to any exchange or registration rights with respect to the Exchange Notes. See "The Exchange Offer -- Termination of Certain Rights." EXPIRATION DATE.........The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1996, unless the Exchange Offer is extended by the Company in its sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." ACCRUED INTEREST ON THE EXCHANGE NOTES AND THE PRIVATE NOTES.........The Exchange Notes will bear interest from the date of the last interest payment on the Private Notes (June 15, 1996). Holders whose Private Notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Private Notes. See "The Exchange Offer -- Interest on the Exchange Notes." 9 12 CONDITIONS TO THE EXCHANGE OFFER..........The Exchange Offer is subject to certain customary conditions that may be waived by the Company. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Private Notes being tendered for exchange. See "The Exchange Offer -- Conditions." PROCEDURES FOR TENDERING PRIVATE NOTES.........Each holder of Private Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Private Notes and any other required documentation to Norwest Bank Minnesota, National Association, as exchange agent (the "Exchange Agent"), at the address set forth herein. By executing the Letter of Transmittal, the holder will represent to and agree with the Company that, among other things, (i) the Exchange Notes to be acquired by such holder of Private Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of its business, (ii) such holder has no arrangement or understanding with any person to participate in a distribution of the Exchange Notes, (iii) that if such holder is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing the Exchange Notes, such holder will comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in no-action letters (see "The Exchange Offer -- Resale of the Exchange Notes"), (iv) such holder understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by such holder in exchange for Private Notes acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "The Exchange Offer -- Procedures for Tendering." SPECIAL PROCEDURES FOR BENEFICIAL OWNERS.....Any beneficial owner whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender such Private Notes in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable 10 13 time and may not be able to be completed prior to the Expiration Date. See "The Exchange Offer -- Procedures for Tendering." GUARANTEED DELIVERY PROCEDURES............Holders of Private Notes who wish to tender their Private Notes and whose Private Notes are not immediately available or who cannot deliver their Private Notes, the Letter of Transmittal or any other documentation required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Private Notes according to the guaranteed delivery procedures set forth under "The Exchange Offer -- Guaranteed Delivery Procedures." ACCEPTANCE OF THE PRIVATE NOTES AND DELIVERY OF THE EXCHANGE NOTES........Subject to the satisfaction or waiver of the conditions to the Exchange Offer, the Company will accept for exchange any and all Private Notes that are properly tendered in the Exchange Offer prior to the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered on the earliest practicable date following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." WITHDRAWAL RIGHTS.......Tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. See "The Exchange Offer -- Withdrawal of Tenders." CERTAIN FEDERAL INCOME TAX CONSIDERATIONS....The exchange of Private Notes for Exchange Notes will be treated as a "non-event" for federal income tax purposes because the Exchange Notes will not be considered to differ materially from the Private Notes. As a result, no material federal income tax consequences will result to holders exchanging Private Notes for Exchange Notes. See "Certain Federal Income Tax Considerations." EXCHANGE AGENT..........Norwest Bank Minnesota, National Association is serving as the Exchange Agent in connection with the Exchange Offer. THE EXCHANGE NOTES The Exchange Offer applies to $100,000,000 aggregate principal amount of the Private Notes. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the exchange will have been registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Registration Rights Agreement, which rights will terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be issued under, and be entitled to the benefits of, the Indenture. For further information and for definitions of certain capitalized terms used below, see "Description of the Notes." ISSUER..................Ralphs Grocery Company. NOTES OFFERED...........$100,000,000 aggregate principal amount of 10.45% Senior Notes due 2004. The terms of the Exchange Notes will be substantially identical to those of the 1995 Senior Notes. However, the Exchange Notes will be issued with original issue discount. MATURITY DATE...........June 15, 2004. INTEREST RATE...........The Exchange Notes will bear interest at the rate of 10.45% per annum. 11 14 INTEREST PAYMENT DATES...................June 15 and December 15, commencing on December 15, 1996. OPTIONAL REDEMPTION.....The Exchange Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after June 15, 2000, at the following redemption prices if redeemed during the twelve-month period commencing on June 15 of the year set forth below:
REDEMPTION YEAR PRICE -------------------------------------------------------- ---------- 2000.................................................... 105.225% 2001.................................................... 103.483% 2002.................................................... 101.742% 2003 and thereafter..................................... 100.000%
in each case plus accrued and unpaid interest to the date of redemption. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds from one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Exchange Notes originally issued, at a redemption price equal to 110.450% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1995, 108.957% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1996 and 107.464% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid interest to the redemption date. RANKING.................The Exchange Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with other senior unsecured indebtedness of the Company. However, the Exchange Notes will be effectively subordinated to all secured indebtedness of the Company and its subsidiaries, including indebtedness under the New Credit Facility. The Exchange Notes will rank senior in right of payment to all subordinated indebtedness of the Company. At April 21, 1996, pro forma for the offering of the Private Notes (the "Offering") and the application of proceeds therefrom, the Company and its subsidiaries would have had outstanding $771.5 million aggregate principal amount of secured indebtedness (not including obligations with respect to letters of credit issued under the New Credit Facility, of which $88.2 million were outstanding as of June 26, 1996), $619.6 million of senior unsecured indebtedness, and $671.2 million of subordinated indebtedness. GUARANTEES..............Each Subsidiary Guarantor will unconditionally guarantee, jointly and severally, the full and prompt performance of the Company's obligations under the indenture governing the Exchange Notes (the "Indenture") and the Exchange Notes. The Guarantees will be senior unsecured obligations of the Subsidiary Guarantors and will rank pari passu in right of payment with other senior unsecured indebtedness of the Subsidiary Guarantors. CHANGE OF CONTROL.......Upon a Change of Control (as defined), each holder of the Exchange Notes has the right to require the Company to repurchase such holder's Exchange Notes at a price equal to 101% of the principal amount plus accrued and unpaid interest to the date of repurchase. CERTAIN COVENANTS.......The Indenture contains certain covenants, including, but not limited to, covenants with respect to the following: (i) limitation on restricted payments; (ii) limitation on incurrences of additional indebtedness; (iii) limitation on liens; (iv) limitation on asset sales; (v) limitation on dividend and other payment restrictions affecting subsidiaries; (vi) guarantees of certain indebted- 12 15 ness; (vii) limitation on transactions with affiliates; (viii) limitation on mergers and certain other transactions; and (ix) limitations on preferred stock of subsidiaries. RISK FACTORS............Holders of Private Notes should carefully consider the specific factors set forth under "Risk Factors," as well as other information and data included elsewhere in this Prospectus. 13 16 SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY The following table sets forth summary historical financial data of the Company and its predecessor Food 4 Less as of and for the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996 which have been derived from the financial statements of the Company and Food 4 Less audited by Arthur Andersen LLP, independent public accountants. The summary historical financial data of the Company presented below as of and for the 12 weeks ended April 23, 1995 and April 21, 1996 have been derived from unaudited financial statements of the Company 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus.
12 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 12 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED APRIL JUNE 29, JUNE 27, JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, APRIL 21, 1991(A) 1992 1993 1994(B) 1995(C) 1996(D) 23, 1995 1996(D) -------- -------- -------- -------- ----------- ----------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT STORE DATA) (UNAUDITED) OPERATING DATA: Sales............... $1,606.6 $2,913.5 $2,742.0 $2,585.2 $1,556.5 $ 4,335.1 $ 623.6 $1,230.8 Gross profit(e)..... 265.7 520.8 484.2 469.3 262.4 849.1 107.2 248.6 Selling, general, administrative and other, net........ 213.1 469.7 434.9 388.8 222.4 785.6 91.4 217.3 Interest expense(f)........ 50.1 70.2 69.7 68.3 42.2 178.8 16.9 56.1 Net loss(g)......... (9.6) (33.8) (27.4) (2.7) (11.5) (283.2) (2.8) (32.0) Ratio of earnings to fixed charges(h)........ --(h) --(h) --(h) 1.0x --(h) --(h) --(h) --(h) BALANCE SHEET DATA (end of period)(i): Working capital surplus (deficit)......... $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (74.8) $ (178.5) $ (80.4) $ (230.2) Total assets........ 980.0 998.5 957.8 980.1 1,000.7 3,188.1 971.2 3,144.8 Total debt(j)....... 558.9 525.3 538.1 517.9 533.8 2,082.3 536.3 2,059.7 Stockholder's equity............ 84.6 50.8 72.9 69.0 57.8 59.1 55.0 27.1 OTHER DATA: Depreciation and amortization(k)... $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 36.6 $ 125.3 $ 14.7 $ 36.7 Capital expenditures...... 34.7 60.3 53.5 57.5 49.0 122.4 18.2 34.2 Stores open at end of period......... 259 249 248 258 267 408 268 408 EBITDA (as defined)(l)....... $ 80.7 $ 101.7 $ 103.8 $ 130.6 $ 76.9 $ 245.1 $ 30.1 $ 70.1 EBITDA margin(m).... 5.0% 3.5% 3.8% 5.1% 4.9% 5.7% 4.8% 5.7%
- --------------- (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 10 Food Barn stores, which were not material, from March 29, 1994, the date of the Food Barn acquisition. (c) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week period which ends on the last Saturday in June to the 52 or 53-week period which ends on the Sunday closest to January 31, resulting in a 31-week transition period. (d) Operating data for the 52 weeks ended January 28, 1996 and the 12 weeks ended April 21, 1996 reflect the acquisition of Ralphs on June 14, 1995. (e) Cost of sales has been principally determined using the last-in, first-out ("LIFO") method of valuing inventory. If cost of sales had been determined using the first-in, first-out ("FIFO") method, gross profit would have been greater by $2.1 million, $3.6 million, $4.4 million, $0.7 million, $2.7 million, $2.2 million, $1.0 million and $1.3 million for the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 12 weeks ended April 23, 1995 and April 21, 1996, respectively. 14 17 (f) Interest expense includes non-cash charges related to the amortization of deferred financing costs of $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June 26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $3.4 million for the 31 weeks ended January 29, 1995, $8.2 million for the 52 weeks ended January 28, 1996, $1.4 million for the 12 weeks ended April 23, 1995 and $3.3 million for the 12 weeks ended April 21, 1996. (g) 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 $15.1 million, $51.1 million, $43.9 million, $25.7 million, $9.8 million, $32.6 million, $5.1 million and $10.6 million for the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21, 1996, respectively. Included in the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 12 weeks ended April 21, 1996 are reduced employer contributions of $8.1 million, $14.3 million, $26.1 million and $1.0 million, respectively, related to union health and welfare benefit plans. (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 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 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21, 1996, by approximately $3.4 million, $25.6 million, $25.9 million, $11.5 million, $259.6 million, $2.5 million and $32.0 million, respectively. However, such earnings included non-cash charges of $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, $40.0 million for the 31 weeks ended January 29, 1995, $202.6 million for the 52 weeks ended January 28, 1996, $16.1 million for the 12 weeks ended April 23, 1995 and $40.0 million for the 12 weeks ended April 21, 1996, primarily consisting of depreciation and amortization and the write-off of property and equipment associated with stores closed as a result of the Merger, stores closed due to under-performance, stores closed in connection with the acquisition of the nine stores from Smith's, and warehouses to be closed as a result of the acquisition of the Riverside Facility. In addition, earnings for the 52 weeks ended January 28, 1996 were reduced by cash restructuring charges of $54.1 million. (i) Balance sheet data as of June 29, 1991, June 27, 1992 and June 26, 1993 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, January 29, 1995 and April 23, 1995 relate to Food 4 Less and reflect the acquisition of 10 Food Barn stores. Balance sheet data as of January 28, 1996 and April 21, 1996 relate to the Company and reflect the Merger and the financings associated therewith. (j) Total debt includes long-term debt, current maturities of long-term debt and capital lease obligations. (k) For the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21, 1996, depreciation and amortization includes amortization of goodwill of $5.3 million, $7.8 million, $7.6 million, $7.7 million, $4.6 million, $21.8 million, $1.8 million and $7.2 million, respectively. (l) "EBITDA (as defined)," as presented historically by the Company, represents income before interest expense, depreciation and amortization expense, the LIFO provision, provision for income taxes, provision for earthquake losses, provision for restructuring, a one-time charge in the 1995 transition period for Teamsters Union sick pay benefits, $75.0 million of one-time costs incurred in connection with the Merger in fiscal year 1995 and $7.6 million of one-time costs incurred in connection with the acquisition of the Riverside Facility and nine former Smith's stores in the first quarter of fiscal year 1996. 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." (m) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 15 18 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of RSI and RGC and related notes thereto included elsewhere in this Prospectus.
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, EXCEPT STORE DATA) 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 30, 1994 and the 52 weeks ended January 29, 1995 are reduced employer contributions of $11.8 million and $12.7 million, respectively, related to union health and welfare benefit plans. (d) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary item and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to 16 19 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 the 52 weeks ended January 30, 1994 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.). 17 20 RISK FACTORS Holders of the Private Notes that are considering participation in the Exchange Offer should carefully consider the following risk factors in addition to the other information contained in this Prospectus. LEVERAGE AND DEBT SERVICE The Company is highly leveraged. At April 21, 1996, after giving effect to the offering of the Private Notes (the "Offering") and the application of proceeds therefrom, the Company's total indebtedness (including current maturities) and stockholder's equity were $2,062.3 million and $25.0 million, respectively, and the Company had an additional $158.3 million available to be borrowed under the New Revolving Facility (as defined). In addition, as of January 28, 1996, scheduled payments under operating leases of the Company and its subsidiaries for the twelve months following such date were $143.5 million. For the 52 weeks ended January 28, 1996, after giving pro forma effect to the Merger and the related financings (and certain related assumptions) and the Offering (and the application of proceeds therefrom), the Company's earnings before fixed charges were inadequate to cover fixed charges by $289.1 million. However, such earnings included non-cash charges of $236.1 million primarily consisting of the write-off of property and equipment associated with stores closed as a result of the Merger, stores closed due to under-performance, stores closed in connection with the acquisition of the nine stores from Smith's, warehouses to be closed as a result of the acquisition of the Riverside Facility and depreciation and amortization. In addition, pro forma earnings for the 52 weeks ended January 28, 1996 were reduced by cash restructuring charges of $54.1 million. For the 12 weeks ended April 21, 1996, the Company's earnings before fixed charges were inadequate to cover fixed charges by $32.0 million. However, such earnings included non-cash charges of $40.0 million primarily consisting of depreciation and amortization. Holdings will be required to make semi-annual cash payments of interest on the New Discount Debentures and the Seller Debentures commencing in June 2000 in the amount of approximately $61 million per annum. The Indenture permits the Company (in the absence of a default or event of default thereunder) to pay cash dividends to Holdings in an amount sufficient to allow 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 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. Based upon the current level of operations, anticipated cost savings from the Merger and future growth, the Company believes that its cash flow from operations, together with available borrowings under the New Revolving Facility and its other sources of liquidity (including leases), will be adequate to meet its anticipated requirements for working capital, capital expenditures, 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 future cost savings and growth can be 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 and the fact that substantially all of its assets are pledged to secure the borrowings under the New Credit Facility and other secured obligations. 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 Indenture will require the Company to meet certain financial tests and will restrict its ability to borrow additional funds, to dispose of assets or to pay cash dividends; and (c) because of the Company's debt service requirements, funds available for working capital, capital expenditures, acquisitions and general corporate purposes, may be limited. The 18 21 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 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 "Summary -- Post-Merger Events" and "Business -- The Merger." The cost savings estimates have been prepared solely by members of the management of the 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 formerly maintained by either Food 4 Less or Ralphs can continue to be achieved by the combined Company for all periods 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. The estimates of potential cost savings contained in this Prospectus are forward looking statements that are inherently uncertain. Except for savings already realized, actual cost savings, if any, could differ materially from those projected. All of these forward looking statements are based on estimates and assumptions made by management of the Company, which although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such estimates. There can be no assurance that the savings anticipated in these forward looking statements will be achieved. The following important factors, among others, could cause the Company not to achieve the cost savings contemplated herein (principally those set forth in "Summary -- the Company" and "-- Post Merger Events") or otherwise cause the Company's results of operations to be adversely affected in future periods: (i) increased competitive pressures from existing competitors and new entrants, including price-cutting strategies, store openings and remodels; (ii) further unanticipated costs and difficulties related to the Merger and the integration strategy; (iii) loss or retirement of key members of management or the termination of the Company's Consulting Agreement with Yucaipa; (iv) inability to negotiate more favorable terms with suppliers; (v) increases in interest rates or the Company's cost of borrowing or a default under any material debt agreements; (vi) inability to develop new stores in advantageous locations or to successfully convert or remodel existing stores; (vii) prolonged labor disruption; (viii) deterioration in general or regional economic conditions; (ix) adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; (x) loss of customers or continuing sales weakness as a result of the conversion of store formats; (xi) adverse determinations in connection with pending or future litigations or other material claims against the Company; (xii) inability to achieve future sales levels or other operating results that support the cost savings; (xiii) the unavailability of funds for capital expenditures; (xiv) increases in labor costs; (xv) inability to control inventory levels; and (xvi) continuing operational inefficiencies in distribution or other Company systems. Many of such factors are beyond the control of the Company. In addition, there can be no assurance that unforeseen costs and expenses or other factors will not offset the estimated cost savings or other components or the Company's plan in whole or in part. It should be noted that numerous unanticipated costs, and delays in the realization of certain projected cost savings, have arisen since the Merger, as described above under "Summary -- The Company" and "-- Post-Merger Events." There can be no assurance that such costs and delays will not continue to be ongoing, or that new or additional unforeseen costs or delays will arise either in connection with the integration or the Company's operations or the ongoing conduct of its business. REGIONAL ECONOMIC CONDITIONS A substantial percentage of the Company's business (representing approximately 90% of sales) is conducted in Southern California. Southern California began to experience a significant economic downturn 19 22 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 in recent periods. For the 52 weeks ended January 28, 1996, the Company experienced a 1.9% decline in comparable store sales as compared to the comparable period in the prior year (giving pro forma effect to the combined sales of Food 4 Less and Ralphs for the period prior to the Merger). Excluding stores scheduled for divestiture or closing, pro forma comparable store sales declined 1.2%. 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 corresponding period in the prior year. These declines primarily reflected the weak economy in Southern California, lower levels of price inflation in certain food product categories, and increased competitive store openings in Southern California. Additionally, the decline during the 52 weeks ended January 28, 1996 reflected the impact of the Company's own new store openings and conversions. The Company's comparable store sales declines have begun to moderate in the recent fiscal year. For the 12 weeks ended April 21, 1996, the Company experienced a 0.7% decline in comparable store sales as compared to the corresponding period in the prior year (pro forma for the Merger). 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 A significant portion of the Company's operating income is 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 Notes. Should the Company fail to satisfy any payment obligation under the 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 are pledged to secure the obligations of the Company and such subsidiaries under the New Credit Facility and other secured obligations. The Indenture limits, but does 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 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 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 Notes. The Guarantees of the Notes by any Subsidiary Guarantor will be released upon the sale of such Subsidiary Guarantor or upon the release by the lenders 20 23 under the New Credit Facility of such Subsidiary Guarantor's Guarantee of the Company's obligation under the New Credit Facility. The Indenture limits the ability of the Company and its subsidiaries to incur additional indebtedness and to enter into agreements that would restrict the ability of any subsidiary to make distributions, loans or other payments to the Company. However, these limitations are subject to certain exceptions. See "-- Fraudulent Conveyance Risks" and "Description of the Notes." CONTROL OF THE COMPANY All of the Company's outstanding common stock is held by Holdings. Affiliates of Yucaipa and Apollo Advisors, L.P. have beneficial ownership of approximately 42.3% and 30.2%, respectively, of the outstanding capital stock of Holdings. Pursuant to a stockholders' agreement (the "1995 Stockholders Agreement") which was entered into by the 1995 Equity Investors (as defined herein) and certain other stockholders and warrantholders of the Company, Holdings and the Company have boards consisting of nine and ten members, respectively, and (i) Yucaipa has the right to elect six directors to the board of Holdings and seven directors to the board of the Company, (ii) Apollo has the right to elect two directors to the board of each of Holdings and the Company and (iii) the other 1995 Equity Investors have the right to elect one director to the board of each of Holdings and the Company. Under the 1995 Stockholders Agreement, unless and until Holdings has effected an initial public offering of its equity securities meeting certain criteria, Holdings and its subsidiaries, including the Company, may not take certain actions without the approval of the Holdings directors which the 1995 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 1995 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 is a party to a consulting agreement with the Company, pursuant to which Yucaipa renders certain management and advisory services to the Company, and receives fees for such services. Yucaipa also received certain fees in connection with the consummation of the Merger, including an advisory fee of $21.5 million, of which $17.5 million was paid through the issuance of New Discount Debentures by Holdings. See "Certain Relationships and Related Transactions," "Principal Stockholders" and "Description of Capital Stock." 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 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 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 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 Notes and void such transactions. Alternatively, in such event, claims of the holders of such Notes could be subordinated to claims of the other creditors of the Company. The Company's obligations under the 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 21 24 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 Notes. To the extent any Guarantees were avoided as a fraudulent conveyance or held unenforceable for any other reason, holders of the 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 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 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 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 Notes or its Guarantees, as the case may be, (ii) will have sufficient capital for carrying on its business after such issuance, and (iii) will be able to pay its debts as they mature. See "Management's Discussions and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." NET LOSSES The Company reported net losses of $283.2 million for the 52 weeks ended January 28, 1996 and $32.0 million for the 12 weeks ended April 21, 1996. After giving pro forma effect to the Merger and the related financings (and certain related assumptions) and the Offering, as though they had occurred at the beginning of fiscal year 1995, the Company would have reported a net loss of approximately $314.3 million for the 52 weeks ended January 28, 1996. Food 4 Less reported a net loss of $11.5 million for the 31 weeks ended January 29, 1995, $2.7 million for the 52 weeks ended June 25, 1994, $27.4 million for the 52 weeks ended June 26, 1993, $33.8 million for the 52 weeks ended June 27, 1992 and $9.6 million for the 52 weeks ended June 29, 1991. Ralphs has reported net earnings of $32.1 million for the 52 weeks ended January 29, 1995, $138.4 million for the 52 weeks ended January 30, 1994, a net loss of $76.1 million for the 52 weeks ended January 31, 1993, a net loss of $41.2 million for the 52 weeks ended February 2, 1992 and a net loss of $51.4 million for the 53 weeks ended February 3, 1991. There can be no assurance that the Company will not continue to report net losses in the future. ABSENCE OF PUBLIC MARKET The Private Notes have not been registered under the Securities Act and are subject to significant restrictions on resale. The Exchange Notes constitute a new issue of securities with no established trading market. The Company does not intend to list the Exchange Notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation system. The Company has been advised by the Initial Purchaser of the Notes in the Offering (the "Initial Purchaser") that it presently intends to make a market in the Notes. However, the Initial Purchaser is not obligated to do so and any market-making activities with respect to the Notes may be discontinued at any time without notice. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may be limited during the Exchange Offer. If a trading market does not develop or is not maintained, holders of the Notes may experience difficulty in reselling the Notes or may be unable to sell them at all. If a market for the Notes develops, any such market may be discontinued at any time. If a public trading market develops for the Notes, future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. 22 25 FAILURE TO EXCHANGE PRIVATE NOTES Exchange Notes will be issued in exchange for Private Notes only after timely receipt by the Exchange Agent of such Private Notes, a properly completed and duly executed Letter of Transmittal and all other required documentation. Therefore, holders of Private Notes desiring to tender such Private Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor the Company is under any duty to give notification of defects or irregularities with respect to tenders of Private Notes for exchange. Private Notes that are not tendered or are tendered but not accepted will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof. In addition, any holder of Private Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or any other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. To the extent that Private Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Private Notes could be adversely affected due to the limited amount, or "float," of the Private Notes that are expected to remain outstanding following the Exchange Offer. Generally, a lower "float" of a security could result in less demand to purchase such security and could, therefore, result in lower prices for such security. For the same reason, to the extent that a large amount of Private Notes are not tendered or are tendered and not accepted in the Exchange Offer, the trading market for the Exchange Notes could be adversely affected. See "Plan of Distribution" and "The Exchange Offer." THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The Private Notes were sold by the Company on June 6, 1996 (the "Closing Date") to the Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser subsequently sold the Private Notes to (i) "qualified institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule 144A"), in reliance on Rule 144A and (ii) a limited number of institutional "accredited investors" ("Accredited Institutions"), as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. As a condition to the sale of the Private Notes, the Company, the Subsidiary Guarantors and the Initial Purchaser entered into the Registration Rights Agreement on June 6, 1996. Pursuant to the Registration Rights Agreement, the Company agreed that, unless the Exchange Offer is not permitted by applicable law or Commission policy, it would (i) file with the Commission a Registration Statement under the Securities Act with respect to the Exchange Notes within 30 days after the Closing Date, (ii) use its best efforts to cause such Registration Statement to become effective under the Securities Act within 150 days after the Closing Date and (iii) use its best efforts to consummate the Exchange Offer prior to the 60th day following the date on which the Registration Statement is declared effective. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement. The Registration Statement is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement and the Purchase Agreement. RESALE OF THE EXCHANGE NOTES With respect to the Exchange Notes, based upon an interpretation by the staff of the Commission set forth in certain no-action letters issued to third parties, the Company believes that a holder (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchanges Private Notes for Exchange Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement with any person to participate, in a distribution of the Exchange Notes, will be allowed to resell Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of 23 26 Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in the distribution of the Exchange Notes or is a broker-dealer, such holder cannot rely on the position of the staff of the Commission enumerated in certain no-action letters issued to third parties and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes where such Private Notes were acquired by such broker-dealer as a result of market-making or other trading activities. Pursuant to the Registration Rights Agreement, the Company and the Subsidiary Guarantors have agreed to make this Prospectus, as it may be amended or supplemented from time to time, available to broker-dealers and other persons, if any, with similar prospectus delivery requirements for use in connection with any resale for a period of 90 days after consummation of the Exchange Offer. See "Plan of Distribution." TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Private Notes validly tendered and not withdrawn prior to the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Private Notes surrendered pursuant to the Exchange Offer. Private Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the exchange will be registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to any of the rights of holders of Private Notes under the Registration Rights Agreement, which rights will terminate upon the consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be issued under, and be entitled to the benefits of, the Indenture, which also authorized the issuance of the Private Notes, such that both series of Notes will be treated as a single class of debt securities under the Indenture. As of the date of this Prospectus, $100,000,000 in aggregate principal amount of the Private Notes are outstanding and registered in the name of Cede & Co., as nominee for DTC. Only a registered holder of the Private Notes (or such holder's legal representative or attorney-in-fact) as reflected on the records of the Trustee under the Indenture may participate in the Exchange Offer. There will be no fixed record date for determining registered holders of the Private Notes entitled to participate in the Exchange Offer. Holders of the Private Notes do not have any appraisal or dissenters' rights under the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Private Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Private Notes for the purposes of receiving the Exchange Notes from the Company. Holders who tender Private Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Private Notes pursuant to the Exchange Offer. The Company will pay all charges and 24 27 expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time on , 1996, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will (i) notify the Exchange Agent of any extension by oral or written notice, (ii) mail to the registered holders an announcement thereof and (iii) issue a press release or other public announcement which shall include disclosure of the approximate number of Private Notes deposited to date, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Company may choose to make a public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. The Company reserves the right, in its sole discretion, (i) to delay accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any conditions set forth below under "-- Conditions" shall not have been satisfied, to terminate the Exchange Offer by giving oral or written notice of such delay, extension or termination to the Exchange Agent. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest at a rate equal to 10.45% per annum. Interest on the Exchange Notes will be payable semi-annually on each June 15 and December 15, commencing December 15, 1996. Holders of Exchange Notes will receive interest on December 15, 1996 from the date of initial issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Private Notes from the date of the last interest payment (June 15, 1996) to the date of exchange thereof for Exchange Notes. Holders of Private Notes that are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Private Notes. PROCEDURES FOR TENDERING Only a registered holder of Private Notes may tender such Private Notes in the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile to the Exchange Agent at the address set forth below under "-- Exchange Agent" for receipt prior to the Expiration Date. In addition, either (i) certificates for such Private Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such procedure is available, into the Exchange Agent's account at the Depositary pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. The tender by a holder that is not withdrawn prior to the Expiration Date will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. 25 28 THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner(s) of the Private Notes whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal described below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Private Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box titled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be made by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Private Notes listed therein, such Private Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Private Notes. If the Letter of Transmittal or any Private Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Exchange Agent and the Depositary have confirmed that any financial institution that is a participant in the Depositary's system may utilize the Depositary's Automated Tender Offer Program to tender Private Notes. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Private Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Private Notes not properly tendered or any Private Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Private Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Private Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Private Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Private Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. 26 29 While the Company has no present plan to acquire any Private Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any Private Notes that are not tendered pursuant to the Exchange Offer, the Company reserves the right in its sole discretion to purchase or make offers for any Private Notes that remain outstanding subsequent to the Expiration Date or, as set forth below under "--Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Private Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each holder of Private Notes will represent to the Company that, among other things, (i) Exchange Notes to be acquired by such holder of Private Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of business of such holder, (ii) such holder has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iii) such holder acknowledges and agrees that any person who is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (iv) such holder understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by such holder in exchange for Private Notes acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for such holder's own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. RETURN OF PRIVATE NOTES If any tendered Private Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Private Notes are withdrawn or are submitted for a greater principal amount than the holders desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be returned without expense to the tendering holder thereof (or, in the case of Private Notes tendered by book-entry transfer into the Exchange Agent's account at the Depositary pursuant to the book-entry transfer procedures described below, such Private Notes will be credited to an account maintained with the Depositary) as promptly as practicable. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Private Notes at the Depositary for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Depositary's systems may make book-entry delivery of Private Notes by causing the Depositary to transfer such Private Notes into the Exchange Agent's account at the Depositary in accordance with the Depositary's procedures for transfer. However, although delivery of Private Notes may be effected through book-entry transfer at the Depositary, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address set forth below under "-- Exchange Agent" on or prior to the Expiration Date or pursuant to the guaranteed delivery procedures described below. 27 30 GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Private Notes and (i) whose Private Notes are not immediately available or (ii) who cannot deliver their Private Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Private Notes and the principal amount of Private Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or a facsimile thereof), together with the certificate(s) representing the Private Notes in proper form for transfer or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Private Notes in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Private Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. To withdraw a tender of Private Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn (including the certificate number or numbers and principal amount of such Private Notes) and (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Private Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole discretion, whose determination shall be final and binding on all parties. Any Private Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Private Notes so withdrawn are validly retendered. Properly withdrawn Private Notes may be retendered by following one of the procedures described above under "The Exchange Offer -- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange the Exchange Notes for, any Private Notes, and may terminate the Exchange Offer as provided herein before the acceptance of such Private Notes, if the Exchange Offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the Commission. If the Company determines in its sole discretion that any of these conditions are not satisfied, the Company may (i) refuse to accept any Private Notes and return all tendered Private Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Private Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Private Notes that have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement 28 31 that will be distributed to the registered holders of the Private Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. TERMINATION OF CERTAIN RIGHTS All rights under the Registration Rights Agreement (including registration rights) of holders of the Private Notes eligible to participate in the Exchange Offer will terminate upon consummation of the Exchange Offer except with respect to the Company's continuing obligations (i) to indemnify such holders (including any broker-dealers) and certain parties related to such holders against certain liabilities (including liabilities under the Securities Act), (ii) to provide, upon the request of any holder of a transfer-restricted Private Note, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Private Notes pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration Statement effective to the extent necessary to ensure that it is available for resales of transfer-restricted Private Notes by broker-dealers for a period of up to 90 days from the Expiration Date and (iv) to provide copies of the latest version of the Prospectus to broker-dealers upon their request for a period of up to 90 days after the Expiration Date. SHELF REGISTRATION In the event that applicable interpretations of the staff of the Commission do not permit the Company and the Subsidiary Guarantors to effect the Exchange Offer, or if for any other reason the Exchange Offer is not consummated within 240 days after the Closing Date, or, under certain circumstances, if the Initial Purchaser shall so request, each of the Company and the Subsidiary Guarantors, jointly and severally, will at its cost, (a) as promptly as practicable, file a shelf registration statement covering resales of the Notes (a "Shelf Registration Statement"), (b) use its best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act and (c) use its best efforts to keep effective such Shelf Registration Statement until the earlier of three years after the Closing Date and such time as all of the applicable Notes have been sold thereunder. The Company will, in the event of the filing of a Shelf Registration Statement, provide to each holder of the Notes copies of the prospectus which is a part of such Shelf Registration Statement, notify each such holder when such Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Notes (and the related guarantees). A holder that sells its Notes pursuant to a Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). LIQUIDATED DAMAGES If the Company and the Subsidiary Guarantors fail to fulfill their obligations under the Registration Rights Agreement, then the Company shall pay, as liquidated damages ("Liquidated Damages"), to the holders of the Notes as follows: (i) if the Registration Statement or Shelf Registration Statement is not filed within 30 days following the Closing Date, Liquidated Damages shall accrue at a rate of .50% per annum of the principal amount of the Notes for the first 90 days commencing on the 31st day after the Closing Date, such Liquidated Damages rate increasing by an additional .25% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; (ii) if the Registration Statement or Shelf Registration Statement is not declared effective within 120 days following the date on which such registration statement is required to be filed, then, commencing on the 121st day after the date on which such registration statement is required to be filed, Liquidated Damages shall accrue at a rate of .50% per annum of the principal amount of the Notes for the first 90 days immediately following the 121st day after the date on which such registration statement 29 32 is required to be filed, such Liquidated Damages rate increasing by an additional .25% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period or; (iii) if (A) the Company and the Subsidiary Guarantors have not exchanged Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to 60 days after the date on which the Registration Statement was declared effective or (B) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the third anniversary of the Closing Date (unless all the Notes have been sold thereunder), then Liquidated Damages shall accrue at a rate of .50% per annum of the principal amount of the Notes for the first 90 days commencing on (x) the 61st day after such effective date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective in the case of (B) above, such Liquidated Damages rate increasing by an additional .25% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; provided, however that the Liquidated Damages rate may not exceed in the aggregate 1.0% per annum of the principal amount of the Notes; and provided, further, that (1) upon the filing of the Registration Statement or Shelf Registration Statement (in the case of clause (i) above), (2) upon the effectiveness of the Registration Statement or Shelf Registration Statement (in the case of clause (ii) above), or (3) upon the exchange of Exchange Notes for all Private Notes tendered (in the case of clause (iii)(A) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (iii)(B) above), Liquidated Damages as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. Any amounts of Liquidated Damages due pursuant to clauses (i), (ii) or (iii) above will be payable in cash, on the same original interest payment dates as the Notes. The amount of Liquidated Damages will be determined by multiplying the applicable Liquidated Damages rate by the principal amount of the Notes multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, all the provisions of the Registration Rights Agreement, a copy of which will be available upon request to the Company. EXCHANGE AGENT Norwest Bank Minnesota, National Association has been appointed as Exchange Agent of the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Registered or Certified Mail: In Person: Norwest Bank Minnesota, Northstar East Bldg. National Association 608 2nd Ave S. Corporate Trust Operations 12th Floor P.O. Box 1517 Corporate Trust Ser. Minneapolis, MN 55480-1517 Minneapolis, MN By Hand or Overnight Courier: By Facsimile (for Eligible Institutions Norwest Bank Minnesota, only): National Association (612) 667-4927 Corporate Trust Operations Norwest Center Confirm Receipt of Notice of Sixth and Marquette Guaranteed Delivery by Telephone: Minneapolis, MN 55479-0113 (612) 667-9764
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 30 33 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately $100,000. Such expenses include registration fees, fees and expenses of the Exchange Agent and the Trustee, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Private Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. CONSEQUENCE OF FAILURES TO EXCHANGE Participation in the Exchange Offer is voluntary. Holders of the Private Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. The Private Notes that are not exchanged for the Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Private Notes may be resold only (i) to a person whom the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting the requirements of Rule 144 under the Securities Act, (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, (iv) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (v) to the Company or (vi) pursuant to an effective registration statement and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. ACCOUNTING TREATMENT For accounting purposes, the Company will recognize no gain or loss as a result of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. 31 34 THE MERGER AND THE FINANCING On June 14, 1995, Food 4 Less merged into RSI. Immediately following the RSI Merger, Ralphs Grocery Company, which was a wholly-owned subsidiary of RSI, merged with and into RSI pursuant to the RGC Merger, and RSI changed its name to Ralphs Grocery Company. The purchase price for RSI was approximately $1.5 billion, including the assumption of debt. The consideration payable to the stockholders of RSI consisted of $388.1 million in cash, $131.5 million principal amount of the Seller Debentures and $18.5 million initial accreted value of the New Discount Debentures which were issued by Holdings. The Merger was financed through the following principal transactions: - Borrowings of $600 million aggregate principal amount pursuant to term loans (the "New Term Loans") under a senior bank facility (the "New Credit Facility") provided by a syndicate of banks led by Bankers Trust. The New Credit Facility also provides for a $325 million revolving credit facility (the "New Revolving Facility"). - The issuance by the Company of $350 million of 10.45% Senior Notes due 2004 (the "1995 Senior Notes") and $100 million of 11% Senior Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes"). - The issuance of preferred stock in a private placement by Holdings to a group of investors (the "1995 Equity Investors") led by Apollo Advisors, L.P. and Apollo Advisors II, L.P. (on behalf of one or more managed entities) or their respective affiliates and designees ("Apollo") and including affiliates of BT Securities Corporation ("BT Securities"), CS First Boston Corporation ("CS First Boston") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and other institutional investors, yielding cash proceeds of $140 million pursuant to the 1995 Equity Investment. Concurrently with the 1995 Equity Investment, the 1995 Equity Investors purchased outstanding shares of Holdings capital stock from a stockholder of Holdings for a purchase price of $57.8 million. - The exchange by Food 4 Less of (a) $170.3 million aggregate principal amount of the 10.45% Senior Notes due 2000 of Food 4 Less (the "1992 Senior Notes") for $170.3 million aggregate principal amount of the 1995 Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged and (b) $140.2 million aggregate principal amount of the 13.75% Senior Subordinated Notes due 2001 of Food 4 Less (the "1991 Senior Subordinated Notes") for $140.2 million aggregate principal amount of the 13.75% Senior Subordinated Notes due 2005 of the Company (the "1995 13.75% Senior Subordinated Notes") plus $20.00 in cash per $1,000 principal amount exchanged, together with the solicitation of consents from the holders of the 1992 Senior Notes and 1991 Senior Subordinated Notes to certain amendments to the indentures governing such notes. - The offers by Food 4 Less to (i) exchange up to $450 million aggregate principal amount of the Old RGC Notes (as defined herein) for up to $450 million aggregate principal amount of the 1995 11% Senior Subordinated Notes plus $20.00 in cash per $1,000 principal amount of Old RGC Notes exchanged and (ii) purchase Old RGC Notes for $1,010.00 in cash per $1,000 principal amount of Old RGC Notes accepted for purchase, together with the solicitation of consents from holders of Old RGC Notes to certain amendments to the indenture governing the Old RGC Notes. - The placement by 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 included (a) $18.5 million that was issued to the RSI stockholders, (b) $17.5 million, $2.5 million and $2.5 million that was issued to Yucaipa, BT Securities and Apollo, respectively, in satisfaction of fees otherwise payable by the Company and Holdings in connection with the Merger and the related financing and (c) $59 million that was issued for cash to the partnership described above. The $41 million initial accreted value of New Discount Debentures issued to the RSI stockholders, Apollo, BT Securities and Yucaipa were contributed to such partnership by the recipients thereof. 32 35 - The assumption by the Company, pursuant to the Merger, of approximately $162.9 million of other indebtedness of RGC and Food 4 Less. USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Private Notes in like principal amount, the terms of which are identical to the Exchange Notes. The Private Notes surrendered in exchange for Exchange Notes will not result in any increase in the indebtedness of the Company. 33 36 CAPITALIZATION The following table sets forth the capitalization of the Company as of April 21, 1996, and as adjusted to give effect to the issuance of the Private Notes and the application of the proceeds therefrom. The table should be read in conjunction with the historical consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus.
AT APRIL 21, 1996 ----------------------------- ACTUAL AS ADJUSTED ------------- ----------- (DOLLARS IN MILLIONS) Cash................................................................ $ 58.5 $ 58.5 ======== ======== Short-term and current portion of long-term debt: New Term Loans.................................................... $ 27.3 $ 4.6 Other indebtedness................................................ 11.7 11.7 Capital leases.................................................... 23.3 23.3 -------- -------- Total short-term and current portion of long-term debt.... $ 62.3 $ 39.6 ======== ======== Long-term debt: New Term Loans.................................................... $ 562.3 $ 540.6 New Revolving Facility(a)......................................... 110.0 62.4 1996 Senior Notes................................................. -- 94.6 1995 Senior Notes................................................. 520.3 520.3 1992 Senior Notes................................................. 4.7 4.7 Other senior indebtedness......................................... 2.7 2.7 Capital leases.................................................... 126.2 126.2 1995 11% Senior Subordinated Notes................................ 524.0 524.0 1995 13.75% Senior Subordinated Notes............................. 140.2 140.2 1991 Senior Subordinated Notes.................................... 7.0 7.0 -------- -------- Total long-term debt...................................... $ 1,997.4 $ 2,022.7 -------- -------- Stockholder's equity: Common stock, $.01 par value...................................... -- -- Additional paid-in capital........................................ 466.8 466.8 Notes receivable(b)............................................... (0.6) (0.6) Retained deficit.................................................. (439.1) (441.2) -------- -------- Total stockholder's equity..................................... 27.1 25.0 -------- -------- Total capitalization...................................... $ 2,024.5 $ 2,047.7 ======== ========
- --------------- (a) The New Revolving Facility provides for a $325 million line of credit which is available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support 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. As of June 26, 1996, letters of credit for approximately $88.2 million had been issued under the New Revolving Facility, primarily to satisfy the State of California's requirements relating to workers' compensation self-insurance. (b) Represents notes receivable from shareholders of Holdings with respect to the purchase of Holdings' common stock. 34 37 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS The following unaudited pro forma combined statement of operations of the Company for the 52 weeks ended January 28, 1996 gives effect to the Merger and the financing thereof (and certain related assumptions set forth below) and the Offering (and the application of the proceeds therefrom) as if such transactions occurred on January 30, 1995. Such pro forma information combines the results of operations of the Company for the 52 weeks ended January 28, 1996 with the results of operations of Ralphs for the period from January 30, 1995 to June 13, 1995 (unaudited). The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable. The Merger was accounted for by the Company as a purchase of Ralphs by Food 4 Less and Ralphs' assets and liabilities were 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 the Company and Ralphs, together with the related notes thereto, included elsewhere in this Prospectus.
RALPHS COMPANY (HISTORICAL) (HISTORICAL) (UNAUDITED) (AUDITED) JUNE 13, JANUARY 28, PRO FORMA PRO FORMA 1995 1996 ADJUSTMENTS COMBINED ----------- ----------- ----------- --------- (DOLLARS IN MILLIONS) Sales........................................ $ 1,025.7 $ 4,335.1 $ $5,360.8 Cost of sales................................ 794.4 3,486.0 1.6(a) 4,282.0 --------- --------- ------- -------- Gross profit............................... 231.3 849.1 (1.6) 1,078.8 Selling, general, administrative and other, net........................................ 179.1 785.6 3.1(a) 968.6 0.6(b) 0.2(c) Amortization of goodwill..................... 4.1 21.8 4.9(d) 30.8 Provision for restructuring.................. 0.0 123.1 123.1 --------- --------- ------- -------- Operating income (loss).................... 48.1 (81.4) (10.4) (43.7) Other expense Interest expense........................... 38.9 170.5 26.7(e) 236.1 Amortization of debt issuance costs........ 2.1 8.2 (0.2)(e) 10.1 Gain on disposal of assets................... (0.3) (0.5) (0.8) --------- --------- ------- -------- Earnings (loss) before income tax provision and extraordinary charges............... 7.4 (259.6) (36.9) (289.1) Income tax expense (benefit)................. 0.0 0.5 (0.5)(f) -- --------- --------- ------- -------- Earnings (loss) before extraordinary charges................................. 7.4 (260.1) (36.4) (289.1) Extraordinary charges........................ 0.0 23.1 2.1(g) 25.2 --------- --------- ------- -------- Net earnings (loss)........................ $ 7.4 $ (283.2) $ (38.5) $ (314.3) ========= ========= ======= ======== Ratio of earnings to fixed charges(h)...... 1.15x -- -- ========= ========= ========
35 38 NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (a) 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. (b) Reflects additional Yucaipa management fees ($0.8 million) and the elimination of an annual guarantee fee ($0.2 million) paid by Ralphs to EJDC. (c) Reflects increased compensation resulting from new employment agreements with certain of the current executive officers of Ralphs. (d) Reflects the amortization of goodwill acquired in the Merger ($9.0 million) and elimination of Ralphs' historical amortization ($4.1 million). Amortization has been calculated on the straight line basis over a period of 40 years. (e) The following table presents a reconciliation of pro forma interest expense and amortization of deferred financing costs:
52 WEEKS ENDED JANUARY 28, 1996 --------------------- (DOLLARS IN MILLIONS) Historical interest expense......................................... $ 209.4 ------- Plus: Interest on borrowings under: New Credit Facility............................................ 21.0 1996 Senior Notes.............................................. 11.0 1995 Senior Notes.............................................. 14.1 1995 Senior Subordinated Notes................................. 22.2 Less: Interest on borrowings associated with indebtedness retired at the time of the Merger: Old bank term loans: Ralphs....................................................... (10.1) Food 4 Less.................................................. (6.2) Old RGC Notes.................................................. (16.9) Other debt..................................................... (8.4) ------- Pro forma adjustment.............................................. 26.7 ------- Pro forma interest expense.......................................... $ 236.1 ======= Historical amortization of debt issuance costs...................... $ 10.3 Plus: Financing and exchange/consent fees............................ 3.8 Less: Historical financing costs associated with indebtedness retired at the time of the Merger: Ralphs....................................................... (2.1) Food 4 Less.................................................. (1.9) ------- Pro forma adjustment.............................................. (0.2) ------- Pro forma amortization of debt issuance costs....................... $ 10.1 =======
(f) Represents the elimination of the historical Food 4 Less income tax expense. (g) Relates to the write-off of debt issuance costs associated with indebtedness retired in connection with the Offering. (h) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, 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). The Company's pro forma earnings were inadequate to cover pro forma fixed charges by approximately $289.1 million. However, such pro forma earnings included non-cash charges of $236.1 million primarily consisting of the write-off of property and equipment associated with stores closed as a result of the Merger, stores closed in connection with the acquisition of the nine stores from Smith's, warehouses to be closed as a result of the acquisition of the Riverside Facility and depreciation and amortization. In addition, pro forma earnings for the 52 weeks ended January 28, 1996 were reduced by cash restructuring charges of $54.1 million. 36 39 SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY The following table sets forth certain selected consolidated historical financial data of the Company and its predecessor Food 4 Less. The operating and balance sheet data of the Company and Food 4 Less set forth in the table below as of and for the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996 have been derived from the financial statements of the Company and Food 4 Less which have been audited by Arthur Andersen LLP, independent public accountants. The summary historical financial data of the Company presented below as of and for the 12 weeks ended April 23, 1995 and April 21, 1996 have been derived from unaudited financial statements of the Company 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus.
31 WEEKS 52 WEEKS 12 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED 12 WEEKS ENDED ENDED ENDED ENDED JANUARY JANUARY APRIL ENDED JUNE 29, JUNE 27, JUNE 26, JUNE 25, 29, 28, 23, APRIL 21, 1991(A) 1992 1993 1994(B) 1995(C) 1996(D) 1995 1996(D) ---------- ---------- ---------- ---------- ---------- ---------- -------- ---------- (DOLLARS IN THOUSANDS, EXCEPT STORE DATA) (UNAUDITED) OPERATING DATA: Sales....................... $1,606,559 $2,913,493 $2,742,027 $2,585,160 $1,556,522 $4,335,109 $623,598 $1,230,808 Cost of sales(e)............ 1,340,841 2,392,655 2,257,835 2,115,842 1,294,147 3,485,993 516,430 982,171 ---------- ---------- ---------- ---------- ---------- ---------- -------- ---------- Gross profit(e)............. 265,718 520,838 484,192 469,318 262,375 849,116 107,168 248,637 Selling, general, administrative and other, net....................... 213,083 469,751 434,908 388,836 222,359 785,576 91,352 217,335 Amortization of goodwill.... 5,315 7,795 7,571 7,691 4,615 21,847 1,829 7,202 Restructuring charge........ -- -- -- -- 5,134(f) 123,083(g) -- -- ---------- ---------- ---------- ---------- ---------- ---------- -------- ---------- Operating income (loss)(e)................. 47,320 43,292 41,713 72,791 30,267 (81,390) 13,987 24,100 Interest expense(h)......... 50,084 70,211 69,732 68,250 42,222 178,774 16,916 56,084 Loss (gain) on disposal of assets.................... 623 (1,364) (2,083) 37 (455) (547) (417) (3) Provision for earthquake losses.................... -- -- -- 4,504(i) -- -- -- -- Provision for income taxes..................... 2,505 3,441 1,427 2,700 -- 500 300 -- ---------- ---------- ---------- ---------- ---------- ---------- -------- ---------- Loss before extraordinary charges................... (5,892) (28,996) (27,363) (2,700) (11,500) (260,117) (2,812) (31,981) Extraordinary charges....... 3,757(j) 4,818(k) -- -- -- 23,128(l) -- -- ---------- ---------- ---------- ---------- ---------- ---------- -------- ---------- Net loss(m)................. $ (9,649) $ (33,814) $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (2,812) $ (31,981) ========== ========== ========== ========== ========== ========== ======== ========== Ratio of earnings to fixed..................... --(n) -- (n) --(n) 1.0x --(n) --(n) --(n) --(n) charges(n) NON-CASH CHARGES: Depreciation and amortization of property and equipment............. $ 20,399 $ 37,898 $ 37,426 $ 41,380 $ 25,966 $ 92,282 $ 10,010 $ 28,107 Amortization of goodwill and other assets.............. 11,453 16,979 20,214 15,703 10,657 33,047 4,679 8,575 Amortization of deferred financing costs........... 5,177 6,304 4,901 5,472 3,413 8,193 1,394 3,336 BALANCE SHEET DATA (end of period)(o): Working capital surplus (deficit)................. $ 13,741 $ (66,254) $ (19,222) $ (54,882) $ (74,776) $ (178,456) $(80,399) $ (230,188) Total assets................ 979,958 998,451 957,840 980,080 1,000,695 3,188,129 971,240 3,144,775 Total debt(p)............... 558,943 525,340 538,083 517,872 533,804 2,082,304 536,284 2,059,749 Stockholder's equity........ 84,557 50,771 72,863 69,021 57,803 59,119 55,001 27,138 OTHER DATA: Depreciation and amortization(q)........... $ 31,852 $ 54,877 $ 57,640 $ 57,083 $ 36,623 $ 125,329 $ 14,689 $ 36,682 Capital expenditures........ 34,652 60,263 53,467 57,741 49,023 122,355 18,238 34,222 Stores open at end of period.................... 259 249 248 258 267 408 268 408 EBITDA (as defined)(r)...... $ 80,667 $ 101,723 $ 103,794 $ 130,573 $ 76,853 $ 245,146 $ 30,128 $ 70,118 EBITDA margin(s)............ 5.0% 3.5% 3.8% 5.1% 4.9% 5.7% 4.8% 5.7%
37 40 (a) Operating data for the 52 weeks ended June 29, 1991 include the results of Alpha Beta from June 17, 1991, the date of its acquisition only. 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 10 Food Barn stores, which were not material, from March 29, 1994, the date of the Food Barn acquisition. (c) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week period which ends on the last Saturday in June to the 52 or 53-week period which ends on the Sunday closest to January 31, resulting in a 31-week transition period. (d) Operating data for the 52 weeks ended January 28, 1996 and the 12 weeks ended April 21, 1996 reflect the acquisition of Ralphs on June 14, 1995. (e) Cost of sales has been principally determined using the last-in, first-out ("LIFO") method of valuing inventory. If cost of sales had been determined using the first-in, first-out ("FIFO") method, gross profit and operating income would have been greater by $2.1 million, $3.6 million, $4.4 million, $0.7 million, $2.7 million, $2.2 million, $1.0 million and $1.3 million for the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 12 weeks ended April 23, 1995 and April 21, 1996, respectively. (f) The Company converted 11 of its conventional supermarkets to warehouse stores. During the 31 weeks ended January 29, 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. (g) The Company recorded a $75.2 million restructuring charge associated with the closing of 58 stores and one warehouse facility in the 52 weeks ended January 28, 1996. Pursuant to the settlement agreement with the State of California, 24 Food 4 Less stores (as well as 3 Ralphs stores) were required to be divested and an additional 34 under-performing stores were closed. The Company also recorded a $47.9 million restructuring charge associated with the closing of 9 stores and one warehouse facility in the 52 weeks ended January 28, 1996, in conjunction with the agreement with Smith's to lease the Riverside warehouse facility and 9 stores. (h) Interest expense includes non-cash charges related to the amortization of deferred financing costs. (i) 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 damage to the affected stores. 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, subject to deductibles, against earthquake losses (including business interruption). The pre-tax charge to earnings, net of insurance recoveries, was approximately $4.5 million. (j) Represents an extraordinary charge of $3.8 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. (k) 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' bank term loan, 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. (l) Represents an extraordinary charge of $23.1 million relating to the refinancing of Food 4 Less' old credit facility, 10.45% Senior Notes due 2000 (the "1992 Senior Notes"), 13.75% Senior Subordinated Notes due 2001 (the "1991 Senior Subordinated Notes") and Holdings' 15.25% Senior Discount Notes due 2004 in connection with the Merger and the write-off of their related debt issuance costs. (m) 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 $15.1 million, $51.1 million, $43.9 million, $25.7 million, $9.8 million, $32.6 million, $5.1 million and $10.6 million for the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21, 1996, respectively. Included in the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 12 weeks ended April 21, 1996 are reduced employer contributions of $8.1 million, $14.3 million, $26.1 million and $1.0 million, respectively, related to union health and welfare benefit plans. (n) 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 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21, 1996, by approximately $3.4 million, $25.6 million, $25.9 million, $11.5 million, $259.6 million, $2.5 million and $32.0 million, respectively. However, such earnings included non-cash charges of $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, $40.0 million for the 31 weeks ended January 29, 1995, $202.6 million for the 52 weeks ended January 28, 1996, $16.1 million for the 12 weeks ended April 23, 1995 and $40.0 million for the 12 weeks ended April 21, 1996, primarily consisting of depreciation and amortization and the write-off of property and equipment associated with stores closed as a result of the Merger, stores closed due to under-performance, stores closed in connection with the acquisition of the nine stores from Smith's, and warehouses to be closed as a result of the acquisition of the Riverside Facility. In addition, earnings for the 52 weeks ended January 28, 1996 were reduced by cash restructuring charges of $54.1 million. (o) Balance sheet data as of June 29, 1991, June 27, 1992 and June 26, 1993 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, January 29, 1995 and April 23, 1995 relate to Food 4 Less and reflect the acquisition of 10 Food Barn stores. Balance sheet data as of January 28, 1996 and April 21, 1996 relate to the Company and reflect the Merger and the financings associated therewith. (p) Total debt includes long-term debt, current maturities of long-term debt and capital lease obligations. (q) Depreciation and amortization includes amortization of goodwill. (r) "EBITDA (as defined)," as presented historically by the Company, represents income before interest expense, depreciation and amortization expense, the LIFO provision, provision for income taxes, provision for earthquake losses, provision for restructuring, a 38 41 one-time charge in the 1995 transition period for Teamsters Union sick pay benefits, $75.0 million of one-time costs incurred in connection with the Merger in fiscal year 1995 and $7.6 million of one-time costs incurred in connection with the acquisition of the Riverside Facility and nine former Smith's stores in the first quarter of fiscal year 1996. 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." (s) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 39 42 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of RSI and RGC and related notes thereto included elsewhere in this Prospectus.
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, EXCEPT STORE DATA) 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 post- retirement 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 40 43 January 31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995, respectively. (d) Loss on disposal of assets was $6.4 million, $13.0 million, $2.6 million, $1.9 million and $0.8 million for the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and January 29, 1995, respectively. The 52 weeks ended February 2, 1992 includes approximately $12.2 million representing a reserve against losses related to the closing of three stores. Provision for legal settlement was $7.5 million for the 52 weeks ended January 31, 1993. Provision for earthquake losses was $11.0 million for the 52 weeks ended January 30, 1994. This represents reserve for losses, net of anticipated insurance recoveries, resulting from the January 17, 1994 Southern California earthquake. (e) Includes recognition of $109.1 million of deferred income tax benefit and $1.1 million current income tax expense for Fiscal 1993 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.). (f) 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. 41 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW On June 14, 1995, Food 4 Less completed its acquisition of RSI and its wholly owned subsidiary, Ralphs Grocery Company ("RGC" and together with RSI, "Ralphs"). The acquisition was effected through the merger of Food 4 Less with and into RSI (the "RSI Merger"), followed by the merger of RGC with and into RSI (the "RGC Merger" and, together with the RSI Merger, the "Merger"). The surviving corporation in the Merger was renamed Ralphs Grocery Company (the "Company"). Concurrently with the consummation of the Merger, the Company received a significant equity investment from its parent, Food 4 Less Holdings, Inc. ("Holdings") and refinanced a substantial portion of the existing indebtedness of Food 4 Less and RGC. See "Liquidity and Capital Resources." The Company's results of operations for the 52 weeks ended January 28, 1996 include 20 weeks of the operations of Food 4 Less prior to the Merger and 32 weeks of operations of the combined Company. Management believes that the Company's results of operations for periods ending after the consummation of the Merger are not directly comparable to its results of operations for periods ending prior to such date. This lack of comparability as a result of the Merger is attributable to several factors, including the size of the combined Company (since the Merger approximately doubled Food 4 Less' annual sales volume), the addition of 174 conventional stores to the Company's overall store mix and the material changes in the Company's capital structure. The Merger is being accounted for as a purchase of Ralphs by Food 4 Less. As a result, all financial statements for periods subsequent to June 14, 1995, the date the Merger was consummated, reflect Ralphs' net assets at their estimated fair market values as of June 14, 1995. The purchase price in excess of the fair market value of Ralphs' net assets was recorded as goodwill and is being amortized over a 40-year period. The purchase price allocation reflected in the Company's balance sheet at January 28, 1996 is based on management's preliminary estimates. The actual purchase accounting adjustments, including adjustments to loss contingency accruals, will be determined within one year following the Merger and may vary from the preliminary estimates at January 28, 1996. At January 28, 1996, the Company operated 277 conventional supermarkets and 68 Food 4 Less warehouse stores in Southern California. It also operated 63 stores in Northern California and certain areas of the Midwest. Following the Merger, the Company converted Food 4 Less' Alpha Beta, Boys and Viva stores to the Ralphs format and converted selected Ralphs stores to the Food 4 Less warehouse format. As of January 28, 1996, the Company's bakery, creamery and deli manufacturing operations and the management of major corporate departments had been consolidated. The full integration of the Company's administrative departments is expected to be completed by June 1996. The previously planned integration and consolidation of the Company's warehousing and distribution facilities into three primary facilities will be delayed and modified as a result of the agreement with Smith's to lease its Riverside, California distribution and creamery facility. See "Southern California Division -- Purchasing, Manufacturing and Distribution." Following the consummation of the Merger, sales in the Company's Southern California Division fell short of anticipated levels for the second half of fiscal 1995. This shortfall resulted primarily from achieving less benefit from the Company's advertising program and experiencing greater competitive activity than originally expected. Although the largest impact was experienced by the Company's Alpha Beta, Boys and Viva stores which were converted to the Ralphs format, the base Ralphs stores were also affected. In addition, the Company's operating margins were affected by delays in the implementation of certain buying and other programs to lower the cost of goods, excessive price markdowns in stores undergoing conversion and a less advantageous than expected product mix in certain stores. Greater than anticipated transition expenses were also experienced in integrating store operation and inventory distribution functions. As a result of these various factors, in March 1996, the Company amended the New Credit Facility to conform the financial covenants contained therein to the Company's actual post-Merger results. Following the adoption of these amendments, 42 45 the Company believes that the covenant levels contained in the New Credit Facility are consistent with anticipated operating results for fiscal 1996. See "Summary -- The Company -- Post-Merger Events." Food 4 Less changed its fiscal year end from the 52 or 53-week period which ends on the last Saturday in June to the 52 or 53-week period which ends on the Sunday closest to January 31, resulting in a 31-week transition period ended January 29, 1995. References to fiscal year 1993, fiscal year 1994, the 1995 transition period and fiscal year 1995 are to the 52-week period ended June 26, 1993, the 52-week period ended June 25, 1994, the 31-week period ended January 29, 1995, and the 52-week period ending January 28, 1996, respectively. The operating results for the 1995 transition period are not directly comparable to those of fiscal 1993, fiscal 1994 or fiscal 1995, as these periods include 52 weeks of operations. RESULTS OF OPERATIONS OF THE COMPANY The following table sets forth the selected unaudited operating results of the Company for the 12 weeks ended April 23, 1995 and April 21, 1996:
12 WEEKS ENDED --------------------------------------- APRIL 23, 1995 APRIL 21, 1996 ---------------- ------------------ (DOLLARS IN MILLIONS) (UNAUDITED) Sales.......................................................................... $623.6 100.0% $1,230.8 100.0% Gross profit................................................................... 107.2 17.2 248.6 20.2 Selling, general, administrative and other, net................................ 91.4 14.7 217.3 17.7 Amortization of goodwill....................................................... 1.8 0.3 7.2 0.6 Operating income............................................................... 14.0 2.2 24.1 2.0 Interest expense............................................................... 16.9 2.7 56.1 4.6 Loss (gain) on disposal of assets.............................................. (0.4) (0.1) (0.0) (0.0) Provision for income taxes..................................................... 0.3 0.0 -- -- Net loss....................................................................... (2.8) (0.4) (32.0) (2.6)
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED APRIL 21, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED APRIL 23, 1995. Sales Sales per week increased $50.6 million, or 97.3 percent, from $52.0 million in the 12 weeks ended April 23, 1995 to $102.6 million in the 12 weeks ended April 21, 1996. The increase in sales for the 12 weeks ended April 21, 1996 was primarily attributable to the addition of 174 conventional supermarkets acquired through the Merger. The sales increase was partially offset by a comparable store sales decline of 0.7 percent for the 12 weeks ended April 21, 1996. Excluding stores being divested or closed in connection with the Merger, and excluding the impact from last year's Northern California labor dispute, comparable store sales decreased 0.2 percent for the 12 weeks ended April 21, 1996. Management believes that the decline in comparable store sales is partially attributable to additional competitive store openings and remodels in Southern California, as well as the Company's own new store openings and conversions. Management believes that, following the consummation of the Merger, the decline in comparable store sales was also attributable to smaller than anticipated benefits from the Company's advertising program and greater than expected competitive pressure. Though the largest impact was experienced by the Company's Alpha Beta, Boys and Viva stores which were converted to the Ralphs format, the base Ralphs stores were also affected. Gross Profit Gross profit increased as a percentage of sales from 17.2 percent in the 12 weeks ended April 23, 1995 to 20.2 percent in the 12 weeks ended April 21, 1996. The increase in gross profit margin was primarily attributable to the addition of 174 conventional supermarkets which offset the effect of the Company's warehouse stores (which have lower gross margins than the Company's conventional supermarkets) on its overall gross margin for the period. Gross profit during the 12 weeks ended April 21, 1996 was also negatively 43 46 impacted by certain one-time costs associated with the integration of the Company's operations. See "-- Operating Income" below. Selling, General, Administrative and Other, Net Selling, general, administrative and other expenses ("SG&A") were $91.4 million and $217.3 million for the 12 weeks ended April 23, 1995 and April 21, 1996, respectively. SG&A increased as a percentage of sales from 14.7 percent to 17.7 percent for the same periods. The increase in SG&A as a percentage of sales was due primarily to the addition of 174 conventional supermarkets acquired through the Merger. The additional conventional supermarkets offset the effect of the Company's warehouse stores (which have lower SG&A than the Company's conventional supermarkets) on its SG&A margin for the period. SG&A during the 12 weeks ended April 21, 1996 was also impacted by certain one-time costs associated with the integration of the Company's operations. See "-- Operating Income" below. Operating Income In addition to the factors discussed above, operating income for the 12 weeks ended April 21, 1996 was impacted by approximately $7.6 million for costs associated with the consolidation of warehousing and distribution and other continuing integration of the Company's operations. Management anticipates these integration costs to continue during the second quarter of 1996 until the consolidation plans are completed. Interest Expense Interest Expense (including amortization of deferred financing costs) was $16.9 million and $56.1 million for the 12 weeks ended April 23, 1995 and April 21, 1996, respectively. The increase in interest expense was primarily due to the increased indebtedness incurred in conjunction with the Merger. See "Liquidity and Capital Resources." Net Loss Primarily as a result of the factors discussed above, the Company's net loss increased from $2.8 million in the 12 weeks ended April 23, 1995 to $32.0 million in the 12 weeks ended April 21, 1996. The following table sets forth the historical operating results of the Company for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996:
FISCAL YEAR FISCAL YEAR 1995 FISCAL YEAR 1993 1994 TRANSITION PERIOD 1995 ------------------ ------------------ ------------------ ------------------ (DOLLARS IN MILLIONS) Sales................................. $2,742.0 100.0% $2,585.2 100.0% $1,556.5 100.0% $4,335.1 100.0% Gross profit.......................... 484.2 17.7 469.3 18.1 262.4 16.9 849.1 19.6 Selling, general, administrative and other, net.......................... 434.9 15.9 388.8 15.0 222.4 14.3 785.6 18.1 Amortization of goodwill.............. 7.6 0.3 7.7 0.3 4.6 0.3 21.8 0.5 Restructuring charge.................. 0.0 0.0 0.0 0.0 5.1 0.3 123.1 2.8 Operating income (loss)............... 41.7 1.5 72.8 2.8 30.3 1.9 (81.4) (1.9) Interest expense...................... 69.8 2.5 68.3 2.6 42.2 2.7 178.8 4.1 Loss (gain) on disposal of assets..... (2.1) (0.1) 0.0 0.0 (0.5) (0.0) (0.5) (0.0) Provision for earthquake losses....... 0.0 0.0 4.5 0.2 0.0 0.0 0.0 0.0 Provision for income taxes............ 1.4 0.1 2.7 0.1 0.0 0.0 0.5 0.0 Loss before extraordinary charge...... (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (260.1) (6.0) Extraordinary charge.................. 0.0 0.0 0.0 0.0 0.0 0.0 23.1 0.5 Net loss.............................. (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (283.2) (6.5)
44 47 COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 28, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 31 WEEKS ENDED JANUARY 29, 1995. Sales Sales per week increased $33.2 million, or 66.1 percent, from $50.2 million in the 31 weeks ended January 29, 1995 to $83.4 million in the 52 weeks ended January 28, 1996. The increase in sales was primarily attributable to the addition of 174 conventional supermarkets acquired through the Merger. The sales increase was partially offset by a pro forma comparable store sales (includes the combined sales of Food 4 Less and RGC for the period prior to the Merger) decline of 1.9 percent for the 52 weeks ended January 28, 1996 as compared to the 52 weeks ended January 28, 1995. Excluding stores scheduled for divestiture or closing, pro forma comparable store sales decreased 1.2 percent. Management believes the decline in comparable store sales was primarily attributable to additional competitive store openings and remodels in Southern California, as well as the Company's own new store openings and conversions. Gross Profit Gross profit increased as a percentage of sales from 16.9 percent in the 31 weeks ended January 29, 1995 to 19.6 percent in the 52 weeks ended January 28, 1996. The increase in gross profit margin was primarily attributable to the addition of 174 conventional supermarkets which diluted the effect of the Company's warehouse stores (which have lower gross margins than the Company's conventional supermarkets) on its overall gross margin for the period. Gross profit was also impacted by certain one-time costs associated with the integration of the Company's operations. See "Operating Income (Loss)." Selling, General, Administrative and Other, Net SG&A expenses were $222.4 million and $785.6 million for the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996, respectively. SG&A increased as a percentage of sales from 14.3 percent to 18.1 percent for the same periods. The increase in SG&A as a percentage of sales was due primarily to the addition of 174 conventional supermarkets acquired through the Merger. The additional conventional supermarkets diluted the effect of the Company's warehouse stores (which have lower SG&A than the Company's conventional supermarkets) on its SG&A margin for the period. The Company participates in multi-employer health and welfare plans for its store employees who are members of the United Food and Commercial Workers Union ("UFCW"). As part of the renewal of the Southern California UFCW contract in October 1993, employers contributing to UFCW health and welfare plans received a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. The Company's share of the excess reserves recognized in fiscal 1995 was $26.1 million, which partially offset the increase in SG&A. SG&A was also impacted by certain one-time costs associated with the integration of the Company's operations. See "-- Operating Income (Loss)." Restructuring Charge During fiscal 1995, the Company recorded a $75.2 million charge associated with the closure of 58 stores formerly owned by Food 4 Less and one former Food 4 Less warehouse facility. Twenty-four of these stores were required to be closed pursuant to a settlement agreement with the State of California in connection with the Merger. Three RGC stores were also required to be sold. Thirty-four of the closed stores were under-performing stores formerly owned by Food 4 Less. The $75.2 million restructuring charge consisted of write-downs of property and equipment ($52.2 million) less estimated proceeds ($16.0 million); reserve for closed stores and warehouse facility ($16.1 million); write-off of the Alpha Beta trademark ($8.3 million); write-off of other assets ($8.0 million); lease termination expenses ($4.0 million); and miscellaneous expenses ($2.6 million). During fiscal year 1995, the Company utilized $34.7 million of the reserve for restructuring costs ($50.0 million of costs partially offset by $15.3 million of proceeds from the divestiture of stores). The charges consisted of write-downs of property and equipment ($33.2 million); write-off of the Alpha Beta trademark ($8.3 million); and expenditures associated with the closed stores and the warehouse facility, write-off of other assets, lease termination expenditures and miscellaneous expenditures ($8.5 million). Future lease 45 48 payments of approximately $19.1 million will be offset against the remaining reserve. Management believes that the remaining reserve is adequate to complete the planned restructuring. On December 29, 1995, the Company entered into an agreement with Smith's to sublease its one million square foot distribution center and creamery facility in Riverside, California for approximately 23 years, with renewal options through 2043, at an annual rent of approximately $8.8 million. Concurrently with such agreement, the Company also acquired certain operating assets and inventory at that facility for a purchase price of approximately $20.2 million. In addition, the Company also acquired nine of Smith's Southern California stores which became available when Smith's withdrew from the California market. As a result of the acquisition of the Riverside distribution center and creamery, the Company closed its La Habra distribution center in the first quarter of fiscal year 1996. Also, the Company closed nine of its stores which were near the acquired former Smith's stores. During the fourth quarter of fiscal year 1995, the Company recorded an additional $47.9 million restructuring charge to recognize the cost of closing these facilities, consisting of write-downs of property and equipment ($16.1 million), closure costs ($2.2 million), and lease termination expenses ($29.6 million). Operating Income (Loss) In addition to the factors discussed above, operating income includes charges of approximately $75 million for costs associated with the conversion of stores and integration of the Company's operations. These costs related primarily to (i) markdowns on clearance inventory at Food 4 Less' Alpha Beta, Boys and Viva stores converted to the Ralphs format, (ii) an advertising campaign announcing the Merger, and (iii) incremental labor cost associated with the training of Company personnel following store conversions. In addition, the Company has experienced higher than anticipated warehousing and distribution costs since the Merger, primarily due to the delay in the planned consolidation of the Company's distribution facilities resulting from the acquisition of the Smith's Riverside distribution center. The Company has taken steps to reduce these increased costs in future periods. Interest Expense Interest expense (including amortization of deferred financing costs) was $42.2 million for the 31 weeks ended January 29, 1995 and $178.8 million for the 52 weeks ended January 28, 1996. The increase in interest expense was primarily due to the increased indebtedness incurred in conjunction with the Merger. See "Liquidity and Capital Resources." Loss Before Extraordinary Charge Primarily as a result of the factors discussed above, the Company's loss before extraordinary charge increased from $11.5 million for the 1995 transition period to $260.1 million for fiscal year 1995. Extraordinary Charge An extraordinary charge of $23.1 million was recorded during fiscal year 1995 relating to retirement of indebtedness of Food 4 Less in connection with the Merger and the write-off of the related deferred financing costs. COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 25, 1994 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26, 1993. Sales Sales decreased $156.8 million or 5.7 percent from $2,742.0 million in the 52 weeks ended June 26, 1993 to $2,585.2 million in the 52 weeks ended June 25, 1994. The decrease in sales resulted primarily from a 6.9 percent decline in comparable store sales. The decline in comparable store sales primarily reflected (i) the weak 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 promotional activity. This 46 49 decrease in sales was partially offset by sales from new and remodeled stores opened or acquired during fiscal 1994. Gross Profit Gross profit increased as a percent of sales from 17.7 percent in the 52 weeks ended June 26, 1993 to 18.1 percent in the 52 weeks ended June 25, 1994. The increase in gross profit margin was attributable to improvements in product procurement and an increase in vendors' participation in the Company's promotional costs. These improvements were partially offset by an increase in the number of warehouse format stores (which have lower gross margins) 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 expenses were $434.9 million and $388.8 million for fiscal year 1993 and fiscal year 1994, respectively. SG&A decreased as a percent of sales from 15.9 percent to 15.0 percent for the same periods. The Company experienced a reduction of workers' compensation and general liability self-insurance costs of $18.2 million due primarily to cost control programs implemented by the Company, 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 the Company's exposure. In addition, the Company maintained tight control of administrative expenses and store level expenses, including payroll (due primarily to increased productivity), advertising, and other controllable store expenses. Because the Company's 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. The Company recognized $8.1 million in fiscal 1994 for its share of the excess UFCW health and welfare plan reserves. Offsetting the reduction in employer contributions was a $5.5 million contract ratification bonus and contractual wage increases. 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. Interest Expense Interest expense (including amortization of deferred financing costs) decreased $1.5 million from $69.8 million to $68.3 million for the 52 weeks ended June 26, 1993 and June 25, 1994, respectively. The decrease in interest expense was due primarily to reduced borrowings under the Company's revolving and term loans. Provision for Earthquake Losses On January 17, 1994, Southern California was struck by a major earthquake which resulted in the temporary closure 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. The Company is insured against earthquake losses (including business interruption), subject to certain deductibles. The pre-tax loss, net of insurance recoveries, was approximately $4.5 million. Net Loss Primarily as a result of the factors discussed above, the Company's net loss decreased from $27.4 million in fiscal 1993 to $2.7 million in fiscal 1994. 47 50 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, 1993 JANUARY 30, 1994 JANUARY 29, 1995 ----------------- ----------------- ----------------- (DOLLARS 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, sales were $2,724.6 million, a decrease of $5.6 million or 0.2% from the fifty-two weeks ended January 30, 1994. During Fiscal 1994, Ralphs opened ten new stores (four in Los Angeles County, three in Orange County, one in San Diego County and two in Riverside County), closed two stores (in conjunction with new stores opening in the same areas), and completed five store remodels. Comparable store sales decreased 3.7%, which included an increase of 0.3% for replacement store sales, from $2,707.9 million in Fiscal 1993 to $2,606.4 million in Fiscal 1994. Ralphs sales continued to be adversely affected by the continuing softness of the economy in Southern California, continuing competitive new store and remodeling activity and recent pricing and promotional changes by competitors. Ralphs continued to take steps to mitigate the impact of the weak retailing environment in its markets, which included continuing its own new store and remodeling program and initiating the Ralphs Savings Plan in February 1994, a new marketing campaign specifically designed to enhance customer value. See "Business -- Advertising and Promotion." 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. 48 51 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 SG&A expenses 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. 49 52 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. 50 53 Cost of Sales Cost of sales decreased $123.5 million or 5.6% from $2,217.2 million in Fiscal 1992 to $2,093.7 million in Fiscal 1993. As a percentage of sales, cost of sales declined to 76.7% in Fiscal 1993 from 78.0% in Fiscal 1992. The decrease in cost of sales as a percentage of sales was the result of savings in warehousing and distribution costs, the pass-through of increased operating costs and increases in relative margins where allowed by competitive conditions. Selling, General and Administrative Expenses SG&A increased $1.0 million or 0.2% from $470.0 million in Fiscal 1992 to $471.0 million in Fiscal 1993. As a percentage of sales, SG&A increased from 16.5% in Fiscal 1992 to 17.2% in Fiscal 1993. The increase in SG&A as a percentage of sales was the result of several factors including the soft sales environment. Increases in expense were partially offset by cost savings programs instituted by Ralphs. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both Fiscal 1992 and Fiscal 1993 the UFCW multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During Fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans are to receive a pro rata share of the excess reserve in these health care benefit plans through a reduction in current maintenance payments. Ralphs' share of the excess reserve was approximately $24.5 million of which $11.8 million was recognized in Fiscal 1993 and the remainder will be recognized in the fiscal year ending January 29, 1995. The change in health and welfare plan expenses resulted from the $11.8 million credit associated with the collective bargaining agreement as well as a reduction in the current year plan expense due to the overfunded status of the plan. Since employers are required to make contributions to the benefit funds at whatever level is necessary to maintain plan benefits, there can be no assurance that plan maintenance payments will remain at current levels. Partially offsetting the reductions of health and welfare maintenance payments was a $6.0 million contract ratification bonus paid by Ralphs at the conclusion of contract negotiations with the UFCW in Fiscal 1993. The $6.0 million contract ratification payment was an item separate from either of these plans. Operating Income Operating income in Fiscal 1993 increased to $152.1 million from $138.5 million in Fiscal 1992, a 9.8% increase. Operating margin increased in Fiscal 1993 to 5.6% from 4.9% in Fiscal 1992. This increase was primarily the result of the aforementioned improvements in Ralphs' cost of sales percentage. EBITDA, defined as net earnings before interest expense, income tax expense (benefit), depreciation and amortization expenses, postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses and loss on disposal of assets, improved to $230.2 million or 8.4% of sales in Fiscal 1993 from $227.3 million or 8.0% of sales in Fiscal 1992. Net Interest Expense Net interest expense for Fiscal 1993 was $108.8 million, compared to $125.6 million for Fiscal 1992. The reduction in net interest expense was attributable to the refinancing and defeasance of Ralphs 14% Senior Subordinated Debentures due 2000 (the "14% Debentures") with the proceeds from the issuance of the Old RGC 9% Notes (as defined herein) 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. 51 54 Earthquake Losses Several Ralphs stores suffered earthquake damage from the January 17, 1994 earthquake in Southern California and 54 stores were completely shutdown on the morning of January 17th. Management believes that there was some negative impact on sales resulting from the temporary disruption of business resulting from the earthquake. Ralphs is partially insured for earthquake losses. The pre-tax financial impact, net of expected insurance recoveries, is expected to be approximately $11.0 million and Ralphs reserved for this loss in Fiscal 1993. The gross earthquake loss is approximately $25.3 million and the expected insurance recovery is approximately $14.3 million. Income Taxes In Fiscal 1993, Ralphs recorded the incremental impact of The Omnibus Budget Reconciliation Act of 1993 on net deductible temporary differences and Ralphs increased its deferred income tax assets by a net amount of $109.1 million. Income tax expense (benefit) for Fiscal 1993 includes recognition of $109.1 million of deferred income tax benefit and $1.1 million current income tax expense for Fiscal 1993. See Note 11 of Notes to Ralphs Consolidated Financial Statements. Net Earnings In Fiscal 1993, Ralphs reported net earnings of $138.4 million compared to a net loss of $76.1 million for Fiscal 1992. This increase in net earnings was primarily the result of Ralphs' recognition of $109.1 million of deferred income tax benefit for Fiscal 1993 and the following items recorded in Fiscal 1992: (1) an extraordinary charge, net of tax benefit, of $70.6 million relating to Ralphs' recapitalization plan, (2) a provision of $7.1 million made for expenses related to the closure of the central bakery operation (an additional charge of $2.4 million was recorded in Fiscal 1993) and (3) a provision of $7.5 million made for the maximum loss under a judgment rendered against Ralphs. LIQUIDITY AND CAPITAL RESOURCES The Company and Holdings utilized new financing proceeds of approximately $525 million, which were paid to the former RSI stockholders, to consummate the Merger. The new financing proceeds included the issuance of preferred stock by Holdings to the 1995 Equity Investors for cash proceeds of approximately $140 million. In addition, the Company entered into the New Credit Facility pursuant to which, upon the closing of the Merger, it incurred $600 million under the New Term Loans and approximately $91.6 million of standby letters of credit under the $325 million New Revolving Facility. The Company also issued $350 million aggregate principal amount of new 10.45% Senior Notes due 2004 (the "1995 Senior Notes") and $100 million aggregate principal amount of new 11% Senior Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes") pursuant to public offerings (the "Public Offerings"). The proceeds from the New Credit Facility, Public Offerings and the 1995 Equity Investment and the issuance by Holdings of $59.0 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures") for cash, $41.0 million in initial accreted value of additional New Discount Debentures as consideration for the Merger and for associated fees and $131.5 million aggregate principal amount of 13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 (the "Seller Debentures"), provided the sources of financing required to consummate the Merger and to repay outstanding bank debt of approximately $176.5 million at Food 4 Less and $228.9 million at RGC, existing mortgage debt of $174.0 million (excluding prepayment fees) at RGC and $84.4 million to the holders of the Senior Discount Notes due 2004 of Holdings (the "Discount Notes") (excluding related fees). Proceeds from the New Credit Facility and the Public Offerings also were used (i) to pay the cash portions of Food 4 Less' exchange offers and consent solicitations with respect to the 10.25% Senior Subordinated Notes due 2002 of RGC (the "Old RGC 10.25% Notes"), the 9% Senior Subordinated Notes due 2003 of RGC (the "Old RGC 9% Notes," and together with the old RGC 10.25% Notes, the "Old RGC Notes") (collectively, the "RGC Exchange Offers"), the 10.45% Senior Notes due 2000 of Food 4 Less (the "1992 Senior Notes") and the 13.75% Senior Subordinated Notes due 2001 of Food 4 Less (the "1991 Senior Subordinated Notes") (collectively, 52 55 the "F4L Exchange Offers," and together with the RGC Exchange Offers, the "Exchange Offers"), as well as the Change of Control Offer (as defined below) and accrued interest on all exchanged debt securities in the amount of $27.8 million, (ii) to pay $17.8 million to the holders of the RGC Equity Appreciation Rights, (iii) to loan $5.0 million to an affiliate for the benefit of such holders, (iv) to pay approximately $93.3 million of fees and expenses of the Merger and the related financing, and (v) to pay $3.5 million to purchase shares of common stock of Holdings from certain dissenting shareholders. In addition, Holdings issued $22.5 million of its New Discount Debentures in consideration for certain Merger-related services. The Company assumed certain existing indebtedness of Food 4 Less and RGC in connection with the Exchange Offers, pursuant to which (i) holders of the Old RGC Notes exchanged approximately $424.0 million aggregate principal amount of Old RGC Notes for an equal principal amount of 1995 11% Senior Subordinated Notes, (ii) holders of the 1992 Senior Notes exchanged approximately $170.3 million aggregate principal amount of 1992 Senior Notes for an equal principal amount of 1995 Senior Notes, and (iii) holders of the 1991 Senior Subordinated Notes exchanged approximately $140.2 million aggregate principal amount of 1991 Senior Subordinated Notes for an equal principal amount of new 13.75% Senior Subordinated Notes due 2005 (the "1995 13.75% Senior Subordinated Notes"). In addition, pursuant to the terms of the indentures governing the Old RGC Notes, the consummation of the Merger required the Company to make an offer to purchase all of the outstanding Old RGC Notes that were not exchanged in the RGC Offers (the "Change of Control Offer"). The Change of Control Offer resulted in the purchase of an additional $1.1 million of outstanding Old RGC Notes. At April 21, 1996, there were borrowings of $110.0 million under the New Revolving Facility and $104.3 million of letters of credit had been issued. Under the terms of the New Credit Facility, the Company was required to repay $1.6 million of the New Term Loans in fiscal 1995. The New Term Loans require quarterly amortization payments (after giving effect to application of the proceeds of the Offering) aggregating $2.3 million in fiscal year 1996, $39.2 million in fiscal year 1997 and increasing thereafter. The level of borrowings under the Company's New Revolving Facility is dependent upon cash flows from operations, the timing of disbursements, seasonal requirements and capital expenditure activity. The Company is required to reduce loans outstanding under the New Revolving Facility to $150.0 million for a period of not less than 30 consecutive days during the period between the first day of the fourth fiscal quarter of 1996 and the last day of the first fiscal quarter of 1997. The estimated net proceeds of the Offering were used to prepay $44.4 million in borrowings under the New Term Loans, including $22.7 million in principal installments due within the twelve months following the Offering, and to repay $47.6 million in borrowings under the New Revolving Facility, without any reduction in amounts available for future borrowing under the New Revolving Facility. At April 21, 1996, pro forma for the Offering and the application of proceeds therefrom, the Company had $158.3 million available for borrowing under the New Revolving Facility. On October 11, 1995, the Company entered into an interest rate collar which effectively set interest rate limits on $300 million of the Company's bank term debt. This interest rate collar, which was effective as of October 19, 1995, limits the interest rate payable on $300 million of outstanding debt under the New Credit Facility to a range of 4.5 percent to 8.0 percent for two years, thus satisfying the interest rate protection requirements under the New Credit Facility. Cash flow from operations, amounts available under the New Revolving Facility and lease financing are the Company's principal sources of liquidity. The Company believes that these sources will be adequate to meet its anticipated capital expenditure, working capital and debt service requirements during fiscal 1996. During fiscal year 1995, cash used by operating activities was approximately $16.8 million as compared to cash provided by operating activities of approximately $17.6 million for the 1995 transition period. The decrease in cash from operating activities is due to changes in operating assets and liabilities in fiscal year 1995 and a decrease in operating income due primarily to the impact of certain costs associated with the integration of the Company's operations subsequent to the Merger. The Company's principal use of cash in its operating activities is inventory purchases. The Company's high inventory turnover allows it to finance a substantial portion of its inventory through trade payables, thereby reducing its short-term borrowing needs. At January 28, 1996, this resulted in a working capital deficit of $178.5 million. 53 56 Cash used for investing activities was $405.4 million for fiscal year 1995. Investing activities consisted primarily of $303.3 million of acquisition costs associated with the Merger and capital expenditures of $122.4 million, partially offset by $4.1 million of sale/leaseback transactions. The capital expenditures, net of the proceeds from sale/leaseback transactions, were financed primarily from cash provided by operating and financing activities. The capital expenditures discussed above were made to (i) build 20 new stores (11 of which have been completed), (ii) remodel 11 stores, (iii) convert 111 conventional format stores to the Ralphs banner in conjunction with the Merger, and (iv) convert 13 Ralphs stores to the Food 4 Less warehouse format. The Company also acquired three stores in Northern California during fiscal 1995. The Company currently anticipates that its aggregate capital expenditures for fiscal 1996 will be approximately $105.0 million (or $95.0 million, net of expected capital leases), of which approximately $96.0 million relate to ongoing expenditures for new stores, equipment and maintenance (including a project to repair earthquake damage at the Company's Glendale "picking" warehouse) and approximately $9.0 million relate to Merger-related and other non-recurring items. Consistent with past practices, the Company intends to finance these capital expenditures primarily with cash provided by operations and through leasing transactions. At April 26, 1996, the Company had approximately $18.0 million of unused equipment leasing facilities. No assurance can be given that sources of financing for capital expenditures will be available or sufficient to finance its anticipated capital expenditure requirements; however, management believes the capital expenditure program has substantial flexibility and is subject to revision based on various factors, including changes in business conditions and cash flow requirements. Management believes that if the Company were to substantially reduce or postpone these programs, there would be no substantial impact on short-term operating profitability. However, management also believes that the construction of new stores is an important component of its future operating strategy. Consequently, management believes if these programs were substantially reduced, future operating results, and ultimately its cash flow, would be adversely affected. The capital expenditures discussed above do not include potential acquisitions which the Company could make to expand within its existing markets or to enter other markets. The Company has grown through acquisitions in the past and from time to time engages in discussions with potential sellers of individual stores, groups of stores or other retail supermarket chains. Cash provided by financing activities was $470.7 million for fiscal year 1995. Financing activities consisted primarily of the following; (i) proceeds from issuance of new debt in the amount of $950.0 million including proceeds of $600 million under the New Credit Facility, $350 million from the issuance of 1995 Senior Notes and $100 million from the issuance of 1995 11% Senior Subordinated Notes, net of issuance costs of $100.0 million and (ii) proceeds from cash capital contributions by Holdings of $12.1 million. These sources were partially offset by principal payments on long-term debt of $576.7 million including: $125.7 million to retire borrowings under the old credit agreement, $228.9 million to extinguish the old RGC term loan; and $174.0 million to repay certain real estate loans. The Company is a wholly-owned subsidiary of Holdings. Holdings has outstanding $100 million initial accreted value of New Discount Debentures and $131.5 million principal amount of Seller Debentures outstanding. Holdings is a holding company which has no assets other than the capital stock of the Company. Holdings will be required to commence semi-annual cash payments of interest on the New Discount Debentures and the Seller Debentures commencing December 15, 2000 in the amount of approximately $61 million per annum. Subject to the limitations contained in its debt instruments, the Company intends to make dividend payments to Holdings in amounts which are sufficient to permit Holdings to service its cash interest requirements. The Company may pay other dividends to Holdings in connection with certain employee stock repurchases and for routine administrative expenses. RSI and Food 4 Less had significant net operating loss carryforwards for regular federal income tax purposes. As a result of the Merger, the Company's ability to utilize such loss carryforwards in future periods is limited to approximately $15.6 million per year with respect to Food 4 Less net operating loss carryforwards and approximately $15.0 million per year with respect to RSI's net operating loss carryforwards. Holdings files a consolidated federal income tax return, under which the federal income tax liability of Holdings and its subsidiaries is determined on a consolidated basis. Holdings is a party to a federal income tax sharing 54 57 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 Holdings and has taxable income, the Company will pay to Holdings 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 Holdings and its other subsidiaries, Holdings will credit to the Company the amount of such reduction in the consolidated tax liability. These credits are passed between Holdings 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 Holdings and the Company of such state and local taxes. See "Certain Relationships and Related Transactions." The Company will continue to be a party to an indemnification agreement with Federated Department Stores, Inc. and certain other parties. Pursuant to the terms of such agreement, the Company made an annual tax payment of $1.0 million in 1995 and will make an annual tax payment of $1.0 million in 1996, with the final tax payment of $5.0 million in 1997. The Company is highly leveraged. At April 21, 1996, after giving effect to the Offering and the application of proceeds therefrom, the Company's total indebtedness (including current maturities) and stockholder's equity were $2,062.3 million and $25.0 million, respectively, and the Company had an additional $158.3 million available to be borrowed under the New Revolving Facility. Based upon current levels of operations, anticipated cost savings from the Merger and future growth, the Company believes that its cash flow from operations, together with available borrowings under the New Revolving Facility and its other sources of liquidity (including lease financing), will be adequate to meet its anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments over the next several years. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that future cost savings and growth can be achieved. EFFECTS OF INFLATION AND COMPETITION The Company's primary costs, inventory and labor, are affected by a number of factors that are beyond its control, including availability and price of merchandise, the competitive climate and general and regional economic conditions. As is typical of the supermarket industry, the Company has generally been able to maintain margins by adjusting its retail prices, but competitive conditions may from time to time render it unable to do so while maintaining its market share. 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. RECENT ACCOUNTING PRONOUNCEMENTS In the first quarter of fiscal year 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). The adoption of SFAS 121 had no impact on the Company's financial position or on its results of operations. 55 58 BUSINESS Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less Supermarkets, Inc. ("Food 4 Less"), a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("Holdings"), is a retail supermarket company with a total of 408 stores which are located in Southern California (345), Northern California (27) and certain areas of the Midwest (36). The Company is the largest supermarket company in Southern California. The Company operates 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. The Company has achieved strong competitive positions in each of its marketing areas by successfully tailoring its merchandising strategy to the particular needs of the individual communities it serves. In addition, the Company is a vertically integrated supermarket company with major manufacturing facilities, including a bakery and creamery operations, and full-line warehouse and distribution facilities servicing its Southern California operations. On June 14, 1995, Holdings acquired all of the common stock of Ralphs Supermarkets, Inc. ("RSI") in a transaction accounted for as a purchase by Food 4 Less. The consideration for the acquisition consisted of $388.1 million in cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 of Holdings (the "Seller Debentures") and $18.5 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 of Holdings (the "New Discount Debentures"). Food 4 Less, RSI and RSI's wholly-owned subsidiary, Ralphs Grocery Company ("RGC"), combined through mergers (the "Merger") in which RSI remained as the surviving entity and changed its name to Ralphs Grocery Company. Food 4 Less was organized by The Yucaipa Companies ("Yucaipa"), a private investment group, in connection with the June 1989 acquisition of Breco Holding Company, Inc. ("BHC"), which owned Boys, Viva, and Cala stores. Concurrently with the acquisition of BHC (the "BHC Acquisition"), Food 4 Less, Inc. ("FFL"), a corporation controlled by an affiliate of Yucaipa, contributed to Food 4 Less all of the outstanding capital stock of Falley's, Inc. ("Falley's"), which owned Food 4 Less' Midwestern stores and its Food 4 Less Southern California stores. Food 4 Less added six stores to its Northern California Division by acquiring Bell Markets, Inc. ("Bell") on June 30, 1989, and added seven stores to its Southern California Division by acquiring certain operating assets of ABC Market Corp. ("ABC") on January 15, 1990. On June 17, 1991, Food 4 Less acquired all of the outstanding capital stock of Alpha Beta Company ("Alpha Beta"), which operated 142 stores in seven Southern California counties (the "Alpha Beta Acquisition"). On March 29, 1994, Food 4 Less added ten warehouse format stores (formerly operated under the name "Food Barn") to its Midwestern Division which it acquired from Associated Wholesale Grocers, Inc. The Company operates both conventional and warehouse format stores under various names. The following table sets forth by retail format the number of stores operated by each of the Company's three divisions at January 28, 1996:
SOUTHERN NORTHERN CALIFORNIA CALIFORNIA MIDWESTERN TOTAL ---------- ---------- ---------- ----- Ralphs.............................. 277 -- -- 277 Cala................................ -- 9 -- 9 Bell................................ -- 13 -- 13 Falley's............................ -- -- 5 5 --- -- -- --- Total Conventional............. 277 22 5 304 Food 4 Less......................... 68 -- 31 99 FoodsCo............................. -- 5 -- 5 --- -- -- --- Total Warehouse................ 68 5 31 104 --- -- -- --- Total Stores................... 345 27 36 408 === == == ===
56 59 SOUTHERN CALIFORNIA DIVISION The Southern California Division operates 345 supermarkets in eight counties under the names "Ralphs" and "Food 4 Less." The Company's Southern California stores account for approximately 90 percent of the Company's sales. The combination of RGC and Food 4 Less has created the largest food retailer in Southern California. Since the Merger, the Company has consolidated all of its stores in the region under its two leading complementary formats. The Company operates the second largest conventional supermarket chain in the region under the "Ralphs" name and the largest price impact warehouse supermarket chain under the "Food 4 Less" name. Management believes the consolidation of its formats in Southern California has improved 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. Ralphs Conventional Format. The Company operates 277 Ralphs stores in Southern California. All of the Company's conventional stores in the region use the "Ralphs" name and are operated under a single format. Each store is merchandised to appeal to the local community it serves and offers competitive pricing with emphasis on overall value. 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. 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 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 many in-store branch banks) and 24-hour operations in most stores. Food 4 Less Warehouse Format. The Company operates 68 stores in Southern California which target the price-conscious segment of the market in both urban and suburban areas under the name "Food 4 Less." Food 4 Less is a warehouse-style, price impact store which is positioned to offer the lowest overall prices in its marketing areas by passing on to the consumer savings achieved through labor efficiencies and lower overhead and advertising costs associated with the warehouse format, while providing the product selection and variety associated with a conventional 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 because the stores generally do not have labor-intensive 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. 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 the sales floor are used to store inventory, which 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. Management believes that there is a significant segment of the market, encompassing a wide range of demographic groups, which prefers to shop in a warehouse format supermarket because of its lowest overall pricing. The Company plans to continue its rapid growth of the Food 4 Less format by opening 10 new warehouse format stores in fiscal 1996, seven of which were acquired from Smith's. ADVERTISING AND PROMOTION As a result of the consolidation of conventional format stores in Southern California under the "Ralphs" name, the Company eliminated 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 57 60 California region, the Company will be able to expand the number of Ralphs stores without significantly increasing advertising costs. 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." The Ralphs Savings Plan, a marketing campaign designed to enhance customer value, 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 campaign, Ralphs' private label offering of approximately 2,800 products provides value to the customer. 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. 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. WAREHOUSING AND DISTRIBUTION In March 1996, the Company commenced operations in a state-of-the-art distribution and creamery facility located in Riverside, California which was acquired from Smith's (the "Riverside Facility"). The technologically-advanced 90-acre complex is expected to improve the quality, service and productivity of the Company's distribution and manufacturing operations. The Riverside Facility has more than one million square feet of warehousing and manufacturing space consisting of a 675,000 square foot dry grocery service center, 270,000 square foot refrigerated and frozen food facility and a 115,000 square foot creamery facility. The Riverside Facility sublease runs for approximately 23 years, with renewal options through 2043, and provides for annual rent of approximately $8.8 million. The Company also acquired certain operating assets and inventory at the Riverside Facility when it entered into the sublease for a purchase price of approximately $20.2 million. The acquisition of the Riverside Facility allows the Company to consolidate distribution into three modern, efficient facilities located in Compton, Glendale and Riverside, California. This consolidation is being accomplished by closing the Company's La Habra warehouse, Carson warehouse, Long Beach Avenue warehouse and the Slauson frozen food warehouse, as well as several other outside frozen food, deli and general merchandise facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." The elimination of the smaller and less efficient warehouse facilities will reduce transportation between facilities, management overhead and outside storage costs. Moreover, the consolidation will enable better inventory management, which is expected to result in the reduction of inventory levels. The Riverside Facility is also expected to reduce previously planned capital expenditures. The consolidation of the Company's distribution facilities is expected to be completed by the third quarter of fiscal year 1996, resulting in greatly strengthened and streamlined backstage operations. The Riverside Facility also increases distribution capacity of the Company by increasing storage capacity to 120,000 pallets and increasing the assortment of items that are internally supported (increasing dry grocery from 10,000 to 14,000 SKUs and perishable and frozen items by 1,500 SKUs). The Company also operates a 17 million cubic foot high-rise automated storage and retrieval system ("ASRS") warehouse for non-perishable items, near Glendale, California. The automated warehouse has a 58 61 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's Glendale "picking" warehouse was damaged in the Northridge earthquake and is scheduled to undergo renovation in the current fiscal year. Its operations will be transferred to the Riverside Facility during the renovation period. The ASRS facility can hold substantially more inventory and requires fewer employees to operate than a conventional warehouse of equal size. The Company's third major Southern California distribution center is its 5.4 million cubic foot facility in Compton, California designed to process and store all perishable products (the "Perishables Service Center" or "PSC"). This facility was constructed in 1992 and has enabled the Company to have the ability to deliver perishable products to its stores on a daily basis, thereby improving the freshness and quality of these products. Combined shipments from the Company's Southern California warehouse facilities accounted for approximately 75 percent of the Southern California Division's total purchases during the 52 weeks ended January 28, 1996. Additional purchases, consisting of mostly general merchandise, approximating 2 percent of the division's total during this same period, were made through Certified Grocers of California, Ltd. ("Certified"), a food distribution cooperative in which the Company is a member. The Company is party to a joint venture with a subsidiary of Certified which operates a general merchandise warehouse in Fresno, California. Management is continuing to evaluate the role of such warehouse in the operation of the combined Company. MANUFACTURING The Riverside Facility's creamery is the production point for all fluid milk products bound for sale in the Company's Food 4 Less warehouse stores. Bottled water, fruit juice and ice for the entire Company will also be processed and packaged at the Riverside creamery. Milk bound for the Company's Ralphs conventional stores, as well as all ice cream and ice cream products, will continue to be processed at the Company's existing creamery in Compton, California. The Compton facility also processes selected delicatessen items, including packaged salads and cheese, and produces cultured products including sour cream and yogurt. In addition to the foregoing facilities, the Company will continue to operate a 316,000 square foot bakery in La Habra, California to manufacture a broad line of baked goods. PRIVATE LABEL PROGRAM Through its private label program, the Company offers a diverse array of grocery and general merchandise items under its own brand names which include "Ralphs," "Private Selection," "Perfect Choice," "Plain Wrap" and "Equality." The Company has entered into several private label licensing arrangements which allow it to utilize recognized brand names on an exclusive basis 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, the Company has entered into an agreement to distribute private label dry grocery and frozen products under the "Sunny Select" and "Grocers Pride" labels. The Company's private label products provide quality comparable to that of national brands at significantly lower prices, while the Company's gross margins on private label products are generally higher than on national brands. The Company believes that its private label program is one of the most successful in the supermarket industry, and the Company intends to continue the growth of its private label program in the future. STORE OPERATIONS AND RETAIL SYSTEMS The Southern California Division's store equipment and facilities are generally in excellent condition. The Ralphs stores range in size from approximately 15,600 square feet to 69,500 square feet and average approximately 35,300 square feet. The Southern California Food 4 Less stores are generally larger and range 59 62 in size from approximately 27,400 square feet to 84,300 square feet, and average approximately 49,700 square feet. The Company believes the Southern California Division's warehouse and distribution system and the design of its stores permit the Company to decrease in-store stockroom space and thereby increase available selling area. The Southern California Division's management information systems and optical scanning technology reduce the labor costs attributable to product pricing and customer check-out, and provide the Company's management with information that facilitates purchasing and receiving, inventory management, warehouse reordering and management of accounts payable. All of the Company's Southern California Division stores currently offer an electronic funds transfer system which allows customers to make purchases, obtain cash or check approvals in transactions linked to their bank accounts. In addition, the Company's stores now offer customers the convenience of making purchases with major credit cards. EXPANSION AND DEVELOPMENT As a result of Ralphs' 123-year history and Alpha Beta's 92-year history in Southern California, the Company has valuable and well-established store locations, many of which are in densely populated metropolitan areas. Additionally, the Company has a technologically advanced store base. During fiscal 1995, the Company acquired 174 stores through the Merger, opened 6 new Food 4 Less stores and 5 new Ralphs stores in Southern California, converted 124 stores from Alpha Beta, Boys and Viva formats to the Ralphs and Food 4 Less formats, closed 44 stores and remodeled 11 stores. The Company plans to expand the Southern California Division by opening new stores as well as replacing older and smaller stores. The Company intends to continue to focus its new store construction and store conversion efforts during fiscal 1996 and future years on the Food 4 Less format, which has proven to have a strong appeal to value conscious consumers across a wide range of demographic groups. To this end, the Company plans to continue its store expansion program in Southern California by opening 25 new stores during fiscal 1996 (including the nine stores acquired from Smith's, seven of which will be Food 4 Less stores), and additional stores in subsequent years. During fiscal year 1996, in Southern California, the Company plans to remodel 21 conventional format stores and 4 of the warehouse format stores. The Company's merger, expansion, remodel and conversion efforts have required, and will continue to require, the funding of significant capital expenditures. See Item 7 -- "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." 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, there is competition for new store sites, and it is possible that this competition might adversely affect the timing of its new store program. From time to time, the Company also closes or sells marginal stores. NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS The Northern California Division of Food 4 Less operates 22 conventional supermarkets in the greater San Francisco Bay area under the "Cala" and "Bell" names, and five warehouse format stores under the "FoodsCo" name. Management believes that the Northern California Division has excellent store locations in the city of San Francisco that would be very difficult to replicate. The Midwestern Division of Food 4 Less operates 36 stores, of which 31, 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 36 stores, 32 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 60 63 Midwestern Division and the FoodsCo 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 8,500 square feet to 32,500 square feet, and average approximately 19,500 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 41,800 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 37,900 square feet. The Northern California Division purchases merchandise from a number of suppliers; however, approximately 36 percent 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. 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 70 percent 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 percent of all case-ready fresh meat items sold in its stores at its central meat plant located in Topeka, Kansas. Since the beginning of fiscal 1991, the Northern California Division has remodeled 13 stores, opened six new stores and, in fiscal 1995, acquired three stores from Roger Wilco, now operated as Bell stores. The Northern California Division Food 4 Less warehouse stores were renamed as FoodsCo warehouse stores in fiscal 1994 following the sale by the Company of the exclusive rights to use the "Food 4 Less" name in Northern California to Fleming Companies, Inc., which previously held a non-exclusive license. See "Licensing Operations" for further discussion of the amendment to the Fleming license. 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 28 at June 26, 1993 to 38 at January 28, 1996. During the last five fiscal years, the Midwestern Division has opened two new stores, acquired ten stores, closed three stores and remodeled eight stores. While the Company has no definitive plans to construct or acquire new stores in the Midwestern Division in fiscal 1996, the Company intends to focus future expansion there on its Food 4 Less 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. The Southern California Division competes with several large national and regional chains, principally Albertsons, Hughes, Lucky, 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 Albertson's and Dillons, as well as independent grocery and "alternative format" stores such as Hypermarket USA. The Company positions its warehouse format supermarkets as the overall low-price leaders in each marketing area in which they operate. 61 64 EMPLOYEES The Company believes that its relationship with its employees is excellent. At January 28, 1996, the Company had a total of 30,101 employees, as shown in the table below.
SOUTHERN NORTHERN CALIFORNIA CALIFORNIA MIDWESTERN TOTAL ---------- ---------- ---------- ------ Administrative............................ 1,573 64 41 1,678 Warehouse, manufacturing and transportation.......................... 3,318 -- 61 3,379 Stores.................................... 21,540 2,123 1,381 25,044 ------ ----- ----- ------ Total........................... 26,431 2,187 1,483 30,101 ====== ===== ===== ======
Of the Company's 30,101 total employees at January 28, 1996, there were 26,369 employees covered by union contracts, principally with the United Food and Commercial Workers Union (the "UFCW"). The table below sets forth information regarding the Company's union contracts which cover more than 100 employees.
DATE(S) OF UNION NUMBER OF EMPLOYEES COVERED EXPIRATION UFCW 15,737 Southern California October 3, 1999 Division clerks and meatcutters Hospital and Service Employees 606 Southern California January 19, 1997 Division store porters International Brotherhood of Teamsters 2,802 Southern California September 13, 1998 Division drivers and warehousemen UFCW 2,034 Northern California March 7, 1998 Division clerks and meatcutters UFCW 3,708 Southern California February 26, 2000 Division clerks and meatcutters Bakery and Confectionery Workers 219 Southern California February 9, 1997 Division bakers
LICENSING OPERATIONS The Company owns the "Food 4 Less" trademark and service mark and licenses the "Food 4 Less" name for use by others. In fiscal 1995, earnings from licensing operations were approximately $328,000. 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, the Company amended its licensing agreement with Fleming to give Fleming exclusive use of the Food 4 Less name in Northern California and the Company exclusive use in Southern California (the "Amendment"). With the exception of Northern California, and subject to the Amendment and certain proximity restrictions, the Company retains the right to open and operate its own "Food 4 Less" warehouse supermarkets throughout the United States. As of January 28, 1996, there were 174 Food 4 Less warehouse supermarkets in 15 states, including the 99 stores owned or leased and operated by the Company. Of the remaining 75 stores, Fleming operates 15 under license, 15 are operated under sublicenses from Fleming and 45 are operated by other licensees. 62 65 PROPERTIES At January 28, 1996 the Company operated 408 supermarkets, as set forth in the table below:
NUMBER OF SUPERMARKETS AVERAGE ---------------- TOTAL SQUARE FEET/ DIVISION OWNED LEASED SQUARE FEET FACILITY ------------------------------------------ ----- ------ ----------- ------------ Southern California....................... 60(a) 285 13,151,000 38,100 Northern California....................... -- 27 637,000 23,600 Midwestern................................ 2(b) 34 1,299,000 36,100
- --------------- (a) Includes fifteen stores located on real property subject to ground leases. (b) Includes one store that is partially owned and partially leased. Most of the Southern California Division's store locations are held pursuant to long-term leases, many of which, in the opinion of management, have below-market rental rates or other favorable lease terms. The average remaining term (including all renewal options) of the Company's supermarket leases is approximately 30 years. In addition to the supermarkets, the Company operates three main warehouse and distribution centers in Southern California. The newly acquired 90 acre Riverside Facility has more than one million square feet of warehousing and manufacturing space consisting of a creamery and several warehouses for dry grocery, dairy/deli and frozen food storage. The Riverside Facility sublease runs for approximately 23 years, with renewal options through 2043, and provides for annual rent of approximately $8.8 million. The 170,000 square foot high-rise automated storage and retrieval system warehouse ("ASRS") located in the Atwater district of Los Angeles, near Glendale, California (which for ease of reference is referred to throughout this Prospectus as the Glendale, California warehouse), opened in 1987, handles non-perishable items, is ten stories high and has a capacity of approximately 50,000 pallets. The Perishable Service Center ("PSC") in Compton, opened in 1992, is a 5.4 million cubic foot facility designed to process and store all perishable products. The Company also has manufacturing operations located in Compton that 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. The bakery operation is located at the La Habra complex and measures 316,000 square feet. The Company's former central office, manufacturing and warehouse complex in La Habra, California was leased for a term ending 2001. Due to the increase in warehouse space, the La Habra distribution center and a number of smaller warehouses used by the Company have become obsolete and it is expected that by the third quarter of fiscal year 1996, the Company will have consolidated its warehousing operations into the three main centers described above. The Company has recorded a restructuring charge which includes a $29.6 million provision for lease termination expenses in connection with the closure of the La Habra and other warehouses (as well as certain other properties). See "Management's Discussion and Analysis of Financial Condition and Results of Operation." LEGAL PROCEEDINGS 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 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. Merits discovery in these actions has been stayed pending discovery on class certification issues. Most defendants in the actions, not including the Company, have reached tentative settlement agreements, and certain of the settlements have been approved by the trial court, subject to pending appeals. The Company is continuing to actively defend itself in these class action suits. 63 66 The Company is 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 Company or its subsidiaries are defendants in a number of other cases currently in litigation or are the subject of 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. 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 its ASRS warehouse property located near Glendale. 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 the ASRS grocery warehouse 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 Ralphs' grocery warehouse. Since that time, the Regional Board has requested further investigation by Ralphs. Ralphs conducted the requested investigations and 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 ASRS grocery warehouse. The Company 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 its property. On or about October 12, 1995, the EPA mailed a Special Notice Letter to 44 parties, including the Company as owner and operator of the Glendale property, naming them as potentially responsible parties ("PRPs"). The Company and other PRPs have agreed to enter into negotiations over a consent decree with the EPA to implement a remedial design and reimburse oversight costs. The PRPs have also agreed to an Alternative Dispute Resolution Process to allocate the costs among themselves. 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. The Company removed underground storage tanks and remediated soil contamination at the Glendale warehouse 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 grocery warehouse property, management does not believe that the costs of remediating such contamination will be material to the Company. Apart from the ASRS warehouse property, the Company has had environmental assessments performed on most 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. 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 previously 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. The Company 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. 64 67 MANAGEMENT The following table sets forth certain information regarding the executive officers and directors of the Company as of April 29, 1996. Directors serve until the election and qualification of their successors.
NAME AGE POSITION - ---- --- -------- Byron E. Allumbaugh 64 Chairman and Director George G. Golleher 48 Chief Executive Officer and Director Alfred A. Marasca 54 President, Chief Operating Officer and Director Joe S. Burkle 73 Chief Executive Officer -- Falley's and Director Greg Mays 49 Executive Vice President -- Finance and Administration and Chief Financial Officer Harley DeLano 58 President -- Cala Foods Tony Schnug 51 Group Senior Vice President -- Support Operations Jan Charles Gray 49 Senior Vice President, General Counsel and Secretary Robert Beyer 36 Director Ronald W. Burkle 43 Director Peter Copses 37 Director Patrick L. Graham 46 Director John Kissick 54 Director Mark A. Resnik 48 Director
Byron E. Allumbaugh has been Chairman of the Board since January 1996 and a Director since June 1995. He was Chief Executive Officer from June 1995 to January 1996. He was Chairman of the Board and Chief Executive Officer of RGC from 1976 until the Merger. He also is a Director of the Ahmanson Company, El Paso Natural Gas Company, Automobile Club of Southern California and Ultramar, Inc. George G. Golleher has been Chief Executive Officer since January 1996 and a Director since June 1995. He was Vice Chairman from June 1995 to January 1996. He was a Director of Food 4 Less from its inception in 1989 and was the President and Chief Operating Officer of Food 4 Less from January 1990 until the Merger. From 1986 through 1989, Mr. Golleher served as Senior Vice President -- Finance and Administration of The Boys Markets, Inc. Mr. Golleher has served as a Director of Dominick's Finer Foods, Inc., an affiliate of The Yucaipa Companies, since March 1995. Alfred A. Marasca has been President, Chief Operating Officer and a Director since June 1995. He was President and Chief Operating Officer of RGC from February 1994 until the Merger. He was President of RGC from 1993 to 1994, Executive Vice President -- Retail from 1991 to 1993, and Executive Vice President -- Marketing from 1985 to 1991. Joe S. Burkle has been a Director since June 1995 and Chief Executive Officer of Falley's, Inc. since 1987. He was a Director and Executive Vice President of Food 4 Less from its inception in 1989 until the Merger. 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 & Administration and Chief Financial Officer since September 1995. He was Executive Vice President -- Finance & Administration from June 1995 to September 1995. He was Executive Vice President -- Finance & Administration and Chief Financial Officer of Food 4 Less and of Holdings from December 1992 until the Merger. From 1989 to 1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. and, from 1991 to December 1992, he was 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. 65 68 Harley DeLano has been President of Cala Foods, Inc. since 1990. Mr. DeLano was General Manager of ABC from 1980 to 1990. He serves as a Director of Certified Grocers. Tony Schnug has been Group Senior Vice President -- Support Operations since January 1996. He was Senior Vice President of Manufacturing and Construction from June 1995 to January 1996. He was Senior Vice President -- Corporate Operations of Food 4 Less from 1990 until the Merger. Before joining Food 4 Less, he was Managing Director of SAGE, a wholly-owned subsidiary of Ogilvy & Mather, and Vice President -- Management Information Systems of The Vons Company. Jan Charles Gray has been Senior Vice President, General Counsel and Secretary since June 1995. He was Senior Vice President, General Counsel and Secretary of RGC from 1988 until the Merger. He was Senior Vice President and General Counsel of RGC from 1985 to 1988 and Vice President and General Counsel from 1978 to 1985. Robert Beyer has been a Director since June 1995. He has been a Group Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer was Co-Chief Executive Officer of Crescent Capital Corporation, a registered investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986 to 1991, Mr. Beyer was a member of the investment banking department of Drexel Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of the investment banking department of Bear, Stearns & Co., Inc. Ronald W. Burkle has been a Director since June 1995. He was Chairman of the Board from June 1995 to January 1996. Mr. Burkle was a Director, Chairman of the Board and Chief Executive Officer of Food 4 Less from its inception in 1989 until the Merger. Mr. Burkle co-founded The Yucaipa Companies, Inc. in 1986 and served as Director, Chairman of the Board, President and Chief Executive Officer of FFL from 1987 and of Holdings from 1992 until the Merger, respectively. Mr. Burkle has been Chairman of the Board of Dominick's Finer Foods, Inc. since March 1995 and served as Chief Executive Officer from March 1995 until January 1996. Mr. Burkle also served as Chairman of the Board of Smitty's Supermarkets, Inc. from June 1994 until its merger in May 1996 with Smith's Food & Drug Center, Inc. ("Smith's"). Mr. Burkle now serves as a Director and the Chief Executive Officer of Smith's. He has also served as a Director of Kaufman & Broad Home Corporation, Inc. since March 1995. Mr. Burkle is the son of Joe S. Burkle. Peter Copses has been a Director since June 1995. He has been a Principal since 1990 of Apollo Advisors, L.P. which, together with an affiliate, acts as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P., private securities investment funds, and of Lion Advisors, L.P., which acts as financial advisor to and representative for certain institutional investors with respect to securities investments. Mr. Copses is a Director of Dominicks Finer Foods, Inc., Family Restaurants, Inc., Forum Group, Inc. and Zale Corporation. Patrick L. Graham has been a Director since June 1995. He joined The Yucaipa Companies 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 Paine Webber, Inc. from 1990 to 1992. From 1982 to 1990, he was a Managing Director of the Corporate Finance Department of Drexel Burnham Lambert, Inc. and an Associate Director of the Corporate Finance Department of Bear Stearns & Co., Inc. Mr. Graham served as a Director of Smitty's Supermarkets, Inc. from June 1994 until May 1996 and of Dominick's Finer Foods, Inc. since March 1995. John Kissick has been a Director since June 1995. He is a principal of Apollo Advisors, L.P. which, together with an affiliate, acts as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P., private securities investment funds, and of Lion Advisors, L.P., which acts as financial advisor to and representative for certain institutional investors with respect to securities investments. From 1990 to 1991, Mr. Kissick was a consultant with Kissick & Associates, a private investment advisory firm. He serves as Director of Continental Graphics Holdings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture Brands International, Inc. Mark A. Resnik has been a Director since June 1995. He was a Director, Vice President and Secretary of Food 4 Less from its inception in 1989 until the Merger. He co-founded The Yucaipa Companies, Inc. in 1986 66 69 and served as a Director, Vice President and Secretary of FFL from 1987 until the Merger. Mr. Resnik has served as a Director of Smitty's Supermarkets, Inc. from June 1994 until May 1996 and of Dominick's Finer Foods, Inc. since March 1995. The Company does not currently pay any fees or remuneration to its directors for service on the board or any board committee, but will reimburse directors for their ordinary out-of-pocket expenses. Messrs. R. Burkle, Allumbaugh, Golleher, J. Burkle, Beyer, Copses, Graham, Kissick and Resnik are directors of Holdings. 67 70 EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation of the Chief Executive Officer and the other four most highly compensated executive officers of the Company (the "Named Executive Officers"), whose total salary and bonus for the 52 weeks ended January 28, 1996 exceeded $100,000 for services rendered in all capacities to the Company and its subsidiaries for the same time period. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ---------------------------------------------------------------------------------- TRANSITION NO. OF SHARES PERIOD/FISCAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR ENDED SALARY BONUS OPTIONS(6) COMPENSATION(7) - ------------------------------ ---------------- -------- ---------- ------------- --------------- Byron E. Allumbaugh(1) January 28, 1996 $883,333 $ 547,692 820,227 $ 1,848 Chairman January 29, 1995(8) $ -- $ -- -- $ -- June 25, 1994 $ -- $ -- -- $ -- June 26, 1993 $ -- $ -- -- $ -- George G. Golleher(2) January 28, 1996 $503,205 $1,950,000(9) 200,000 $ 1,783 Chief Executive Officer January 29, 1995(8) $298,100 $ 300,000 -- $ 3,329 June 25, 1994 $500,000 $ 500,000 -- $ 3,937 June 26, 1993 $500,000 $ 500,000 -- -- Alfred A. Marasca(3) January 28, 1996 $466,667 $ 333,846 300,000 $ 3,000 President and January 29, 1995(8) $ -- $ -- -- $ -- Chief Operating Officer June 25, 1994 $ -- $ -- -- $ -- June 26, 1993 $ -- $ -- -- $ -- Greg Mays(4) January 28, 1996 $286,378 $ 355,000(9) -- $ 1,783 Executive Vice President -- January 29, 1995(8) $154,300 $ 85,000 -- $ 2,687 Finance/Administration and June 25, 1994 $250,000 $ 150,000 -- $ -- Chief Financial Officer June 26, 1993 $108,000 $ 75,000 -- $ -- Jan Charles Gray(5) January 28, 1996 $221,667 $ 147,901 204,940 $ 1,198 Senior Vice President, General January 29, 1995(8) $ -- $ -- -- $ -- Counsel and Secretary June 25, 1994 $ -- $ -- -- $ -- June 26, 1993 $ -- $ -- -- $ --
- --------------- (1) During fiscal 1995, Byron E. Allumbaugh became Chairman. (2) During fiscal 1995, George G. Golleher became Chief Executive Officer. (3) During fiscal 1995, Alfred A. Marasca became President and Chief Operating Officer. (4) During fiscal 1995, Greg Mays became Executive Vice President - Finance & Administration and Chief Financial Officer. (5) During fiscal 1995, Jan Charles Gray became Senior Vice President, General Counsel and Secretary. (6) All options shown were granted in connection with the Merger. Of such options, 220,227, 100,000 and 174,940 were granted to Messrs. Allumbaugh, Marasca and Gray, respectively, in exchange for the cancellation of certain payments to such individuals under RGC equity appreciation rights. (7) The amounts shown in this column represent annual payments by the Company to the Employee Profit Sharing and Retirement Program of the Company. (8) Food 4 Less changed its fiscal year from the 52 or 53-week period which ends on the last Saturday in June to the 52 to 53-week period which ends on the Sunday closest to January 31, resulting in a 31-week transition period. (9) Includes payment of a special bonus upon change of control, in connection with the Merger, for George Golleher and Greg Mays in the amount of $1,750,000 and $150,000, respectively. 68 71 The following table sets forth information concerning options granted in fiscal 1995 to each of the Named Executive Officers pursuant to Holdings' 1995 Stock Option Plan. All options are exercisable for shares of Holdings' Common Stock. OPTION GRANTS IN FISCAL 1995
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES INDIVIDUAL GRANTS OF STOCK PRICE --------------------------------------------------------------- APPRECIATION NO. OF % OF TOTAL OPTIONS EXERCISE OR FOR OPTION TERM OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ---------------------- GRANTED(1)(2) IN FISCAL YEAR ($/SH) DATE 5% ($) 10%($) ------------- -------------------- ----------- ---------- ---------- ---------- Byron E. Allumbaugh... 820,227 34.1% 7.32 6/14/05 7,356,572 15,270,514 George G. Golleher.... 200,000 8.3% 10.00 6/14/05 1,257,789 3,187,484 Alfred A. Marasca..... 300,000 12.5% 6.67 6/14/05 2,885,684 5,780,227 Greg Mays............. -- -- -- -- -- -- Jan Charles Gray...... 189,940 7.9% 0.79 6/14/05 2,943,870 4,776,502 15,000 0.6% 10.00 6/14/05 94,334 239,061
- --------------- (1) All options shown were granted in connection with the Merger. Of such options, 220,227, 100,000 and 174,940 were granted to Messrs. Allumbaugh, Marasca and Gray, respectively, in exchange for the cancellation of certain payments of such individuals under RGC equity appreciation rights. (2) All options are immediately exercisable except for 15,000 options held by Mr. Gray, which vest over a five-year period commencing June 14, 1996. The following tables sets forth for each of the Named Executive Officers, as to outstanding options at January 28, 1996, the number of unexercised options and the aggregate unrealized appreciation on "in-the-money" unexercised options held at such date. No options were exercised by any of the Named Executive Officers during fiscal 1995. 1995 FISCAL YEAR END OPTION VALUES
NUMBER OF SHARES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL YEAR END FISCAL YEAR END NAME EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($) - --------------------------------------------- ----------------------------- ----------------------------- Byron E. Allumbaugh.......................... 820,227/0 2,198,208/0 George G. Golleher........................... 200,000/0 0/0 Alfred A. Marasca............................ 300,000/0 999,000/0 Greg Mays.................................... -- -- Jan Charles Gray............................. 189,940/15,000 1,749,347/0
CONSULTING AND EMPLOYMENT AGREEMENTS The employment agreement between the Company and Byron Allumbaugh provides for a salary of $1 million for the first year following the Merger and $1.25 million for subsequent years. Mr. Allumbaugh is entitled to a bonus equal to his salary in each year if certain prescribed earnings targets (the "Earnings Targets") for the year are reached. In connection with the consummation of the Merger, Food 4 Less' board of directors 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 then existing employment agreement. As a condition of the payment of such bonus, Mr. Golleher's existing employment agreement was cancelled, and he entered into a new agreement which 69 72 provides for an annual salary currently equal to $750,000 plus a bonus equal to his salary in each year if the Earnings Targets are reached. Mr. Golleher's new employment agreement continues in effect certain additional rights, 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. The employment agreement between the Company and Alfred Marasca provides for a salary currently equal to $600,000 per annum and an annual bonus equal to his salary if the Earnings Targets for the year are reached. The employment agreement between the Company and Greg Mays provides for a salary currently equal to $300,000 per annum and an annual bonus equal to 60 percent of his salary if the Earnings Targets for the year are reached. Mr. Mays also received a special bonus of $150,000 in fiscal 1995 upon the change of control in connection with the Merger. The employment agreement between the Company and Jan Charles Gray provides for a salary currently equal to $225,000 per annum and an annual bonus equal to 50 percent of his salary if the Earnings Targets for the year are reached. The new employment agreements described above are for a term of three years and 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 specified period and the employee may terminate the agreement 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. The Company's consulting agreement with Mr. Joe Burkle provides for compensation of $3,000 per week. Mr. Burkle provides the management and consulting services of an executive vice president under the consulting agreement. 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 the Company terminates for reasons other than for good cause, the payments due under the agreement continue for the balance of the term. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company does not have a board committee performing the functions of a compensation committee. Byron E. Allumbaugh, Chairman, and George G. Golleher, Chief Executive Officer of the Company, together with Al Marasca, President, and Greg Mays, Executive Vice President, made decisions with regard to the Company's executive officer compensation for fiscal 1995. 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). The Company 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"). Non-Qualified Retirement Plans. To allow the Company's 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 the Company participate in the Ralphs Grocery Company Supplemental Executive Retirement Plan (the "SERP") and the Ralphs Grocery Company Retirement Supplement Plan (the "Supplement Plan"). The SERP and the Supplement Plan also modify the benefit formula under the Retirement Plan in other respects. The Company has purchased split dollar life insurance policies for participants under the SERP. Under certain circumstances, the cash surrender value of certain split dollar life insurance policies will offset the Company's obligations under the SERP. 70 73 The following table sets forth the combined estimated annual benefits payable in the form of a (single) life annuity under the Retirement Plan, the SERP and the Supplement Plan (unreduced by the cash surrender value of any life insurance policies) to a participant in the above plans who is retiring at a normal retirement date on January 1, 1996 for the specified final average salaries and years of credited service.
FINAL YEARS OF CREDITED SERVICE AVERAGE ------------------------------------------------------------ SALARY 15 20 25 30 35 - --------------------- -------- -------- -------- -------- -------- $ 100,000 $ 19,348 $ 25,798 $ 32,347 $ 38,697 $ 45,146 200,000 41,848 55,798 69,747 83,697 97,646 300,000 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 1,040,000 and above 312,000 416,000 520,000 624,000 624,000
Messrs. Allumbaugh, Golleher, Marasca, Mays and Gray have completed 38, 11, 39, 8 and 32 years of credited service, respectively. Compensation covered by the SERP and Supplement 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 SERP and Supplement 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 the Company pursuant to the insurance agreements entered into by the Company and the executive. Benefits are not subject to any deduction for social security offset. 71 74 PRINCIPAL STOCKHOLDERS The following table sets forth the ownership of Common Stock and Series A Preferred Stock and Series B Preferred Stock of Holdings by each person who, to the knowledge of Holdings, owns 5 percent or more of Holdings' outstanding voting stock, by each person who is a director or Named Executive Officer of the Company, and by all executive officers and directors of the Company as a group.
COMMON SERIES A SERIES B STOCK(1)(2) PREFERRED STOCK(1) PREFERRED 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)....... 17,795,939 63.1% -- -- -- -- 39.6% 37.1% 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 Blvd. Los Angeles, CA 90067 ---------- ---- ---------- ---- --------- ----- ---- ---- Total....................... 20,304,856 72.0% -- -- -- -- 45.2% 42.3% 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)........................ -- -- -- -- -- -- -- -- Jan Charles Gray(7)................. -- -- -- -- -- -- -- -- Apollo Advisors, L.P. Apollo Advisors II, L.P.(9) 2 Manhattanville Road Purchase, NY 10577................ 1,285,165 6.4% 10,733,244 64.3% -- -- 32.7% 30.2% BT Investment Partners, Inc.(10) 130 Liberty Street New York, NY 10006................ 509,812 2.5% 900,000 5.4% 3,100,000 100.0% 3.8% 11.3% Other 1995 equity investors as a group(11)......................... 40,172 0.2% 5,000,000 30.0% -- -- 13.7% 12.6% All directors and executive officers as a group (14 persons)(2)(4)(5)(6)(7)........... 21,104,856 74.8% -- -- -- -- 47.0% 44.0%
- --------------- (1) Gives effect to the assumed exercise of outstanding warrants, held by certain institutional investors, to acquire 2,008,874 shares of Holdings common stock. (2) Gives effect to the exercise of options held by Byron E. Allumbaugh, George G. Golleher and Alfred A. Marasca under a management stock option plan, covering 600,000, 200,000 and 200,000 shares, respectively. Does not give effect to the exercise of additional options to purchase up to 2,000,00 shares of Holdings common stock which have been or may be granted under such stock option plan. (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, Yucaipa F4L, LLC and Yucaipa/F4L Partners. These entities are affiliated partnerships which are controlled, directly or indirectly, by Ronald W. Burkle. The foregoing entities are parties to a stockholders agreement with other Holdings investors which gives to Yucaipa the right to elect a majority of the directors of Holdings. (5) Share amount and percentages shown for Yucaipa include a warrant to purchase 8,000,000 shares of Holdings Common Stock held by Yucaipa. Such warrant will become exercisable only upon the occurrence of an initial public offering or certain sale transactions involving Holdings. (6) Certain management stockholders who own in the aggregate 431,096 shares of Common Stock 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 June 14, 2005. The 431,096 shares have been 72 75 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 options). (7) Does not include additional options to purchase 220,227 shares, 100,000 shares and 174,940 shares of Holdings Common Stock held by Messrs. Allumbaugh, Marasca and Gray, respectively, which options were issued at the time of the Ralphs Merger in exchange for the cancellation of certain payments due to such individuals under RGC equity appreciation rights. (8) Mr. Mays owns 8,890 of the 431,096 shares of Common Stock which are subject to the Stockholder Voting Agreement and Proxy described in note (6) above. (9) Represents shares owned by one or more entities managed by or affiliated with Apollo Advisors, L.P. or Apollo Advisors II, L.P. (collectively, "Apollo"), 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 purchased Series A Preferred Stock of Holdings in connection with the Merger. Pursuant to the 1995 Stockholders Agreement, certain corporate actions by Holdings and its subsidiaries require the consent of the directors whom the 1995 equity investors, including Apollo and BTIP, are entitled to elect to the Holdings Board of Directors. 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 Holdings shares except for those shares held of record by each such investor or its nominees. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company is a party to a consulting agreement with Yucaipa which provides for certain management and financial services to be performed by Yucaipa for the benefit of the Company and its subsidiaries. The services of Messrs. R. Burkle, Graham and Resnik, acting in their capacities as directors, and the services of other Yucaipa personnel are provided to the Company pursuant to this agreement. See "Item 10 -- Directors and Executive Officers of the Registrant." Messrs. R. Burkle, Graham and Resnik are partners of Yucaipa. The consulting agreement provides for an annual management fee payable by the Company to Yucaipa in the amount of $4 million. In addition, the Company may retain Yucaipa in an advisory capacity in connection with acquisition or sale transactions, in which case the Company will pay Yucaipa an advisory fee, except that the retention of Yucaipa in connection with a sale of the entire Company would require approval by a majority of the disinterested directors. The agreement has a five-year term, which is 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 monthly payments for the remaining term of the agreement. Pursuant to the agreement, Yucaipa earned a total of $3.6 million in management fees for fiscal 1995. Pursuant to the Yucaipa consulting agreement, upon closing of the RSI Merger, Yucaipa received an advisory fee from Ralphs in the amount of $21.5 million, which was paid in cash and New Discount Debentures, plus reimbursement of expenses in connection with the RSI Merger and the related transactions. Upon closing of the RSI Merger, Yucaipa paid a cash fee of approximately $3.5 million to Soros Fund 73 76 Management in consideration for advisory services which Soros Fund Management has rendered since 1991. Additionally, upon closing of the RSI Merger, Yucaipa received a warrant to purchase 8,000,000 shares of Holdings common stock exercisable under certain conditions. In consideration for its commitment to purchase preferred stock as part of the 1995 Equity Investment, Apollo received a fee of $5 million from Holdings upon closing of the RSI Merger, which fee was paid in cash and notes. In connection with the execution of the definitive Agreement and Plan of Merger ("the Merger Agreement") between Food 4 Less, Holdings, FFL and RSI, Yucaipa entered into the Put Agreement with the majority stockholder of RSI, pursuant to which such RSI stockholder was entitled to put up to $10 million aggregate principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 (the "Seller Debentures"), issued as part of the consideration for the RSI Merger, to Yucaipa on the closing date of the Merger. The Yucaipa consulting agreement provided that the Company reimburse Yucaipa for any loss and expenses incurred by Yucaipa upon the resale of such Seller Debentures to any unaffiliated third party. Pursuant to such agreement, the Company reimbursed an affiliate of Yucaipa the amount of $3.5 million upon the closing of the Merger. Holdings files a consolidated federal income tax return, under which the federal income tax liability of Holdings and its subsidiaries is determined on a consolidated basis. Holdings is a party to 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 Holdings and has taxable income, the Company will pay to Holdings 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 Holdings and its other subsidiaries, Holdings will credit to the Company the amount of such reduction in the consolidated tax liability. These credits are passed between Holdings 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 Holdings and the Company of such state and local taxes. As part of the financing for the RSI Merger, New Holdings issued $100 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures"), which was acquired by a partnership comprised of an affiliate of Yucaipa and certain other investors. The $17.5 million initial accreted value of New Discount Debentures contributed to the partnership by the Yucaipa affiliate consists of New Discount Debentures issued in partial payment of the Yucaipa consulting fee due upon closing of the RSI Merger, as described above. New Holdings granted to the partnership certain registration rights with respect to the New Discount Debentures, and paid substantially all expenses of the partnership in connection with the resale of the New Discount Debentures, including underwriting discounts and brokers' commissions (subject to certain limitations). On October 20, 1995, the holder of the New Discount Debentures sold all of such New Discount Debentures at a price equal to 77 percent of the accreted value thereof. The sale of the New Discount Debentures was effected by BT Securities Corporation ("BT Securities"). BT Securities received a fee in the amount of 2 percent ($2.1 million) of the aggregate accreted value of the New Discount Debentures. Holdings reimbursed the selling holder for such fee and other expenses of the sale as contemplated by a registration rights agreement executed concurrently with the consummation of the Merger. A contribution of $5 million was made to the partnership that purchased and subsequently sold the New Discount Debentures, by an affiliate of the Company. This affiliate borrowed the $5 million from the Company to fund its contribution to the partnership. Holders of RGC equity appreciation rights ("EARs"), including Messrs. Allumbaugh, Marasca and Gray, agreed to defer the receipt of $5 million cash otherwise payable by RGC upon settlement of the EARs at the time of the Merger, pending repayment of the $5 million loan made by the Company as described above. When the New Discount Debentures were resold by the partnership, and the proceeds from such resale distributed to the partners, all of the approximately $2.1 million in total proceeds received by the affiliate were applied to repayment of the loan, and the portion of the loan not repaid was forgiven by the Company and the EAR holders. 74 77 Management believes that the terms of the transactions described above are or were fair to the Company and are or were on terms at least as favorable to the Company as those which could be obtained from unaffiliated parties (assuming that such transactions could be effected with such parties). DESCRIPTION OF CAPITAL STOCK Following is a description of the authorized and outstanding capital stock of the Company and Holdings, including the terms of the 1995 Equity Investment to which was made in Holdings in connection with the Merger. THE COMPANY The authorized capital stock of the Company consists of 1,600,000 shares of Common Stock, $.01 par value per share, of which 1,513,938 shares are outstanding. All of such outstanding shares are owned by Holdings. There is no public trading market for the Common Stock of the Company. The indentures that govern outstanding debt securities of the Company contain certain restrictions on the payment of cash dividends with respect to the Company's Common Stock. In addition, the New Credit Facility also restricts such payments. Subject to the limitations contained in the New Credit Facility and such indentures, holders of Common Stock of the Company are entitled to dividends when and as declared by the Board of Directors from funds legally available therefor, and upon liquidation, are entitled to share ratably in any distribution to holders of Common Stock. All holders of Common Stock are entitled to one vote per share on any matter coming before the stockholders for a vote. HOLDINGS The authorized capital stock of Holdings consists of 60,000,000 shares of Common Stock, $.01 par value, 25,000,000 shares of Non-Voting Common Stock, $.01 par value, 25,000,000 shares of Series A Preferred Stock, $.01 par value, and 25,000,000 shares of Series B Preferred Stock, $.01 par value. Of such authorized shares, (i) 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 are outstanding and held by approximately 100 holders of record, (ii) 2,008,874 shares of Common Stock are reserved for issuance upon the exercise of outstanding warrants held by institutional investors, and (iii) 3,000,000 shares of Common Stock are reserved for issuance upon the exercise of employee stock options. An additional 8,000,000 shares of Common Stock are reserved for issuance upon the exercise of a warrant issued to Yucaipa upon closing of the Merger. See "-- Yucaipa Warrant" below. There is no public trading market for the capital stock of Holdings. Holdings does not expect in the foreseeable future to pay any dividends on its capital stock. Holders of Common Stock of Holdings are entitled to dividends when and as declared by the Board of Directors of 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 Holdings Common Stock are entitled to one vote per share on any matter coming before the stockholders for a vote. Upon issuance, the Series A Preferred Stock initially had an aggregate liquidation preference of $166,832,440, or $10 per share, which accretes as described below. The holders of the Series A Preferred Stock 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 is convertible at the option of the holder thereof into a number of shares of 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 Holdings equity securities which meets certain criteria, the shares of Series A Preferred Stock will automatically convert into shares of Common Stock of Holdings at the same rate as applicable to an optional conversion. Upon issuance, the Series B Preferred Stock initially had an aggregate liquidation preference of $31,000,000, or $10 per share, which accretes as described below. The holders of Series B Preferred Stock 75 78 generally are not 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 Holdings Common Stock or Non-Voting Common Stock equal to the liquidation preference of such share of Series B Preferred Stock divided by $10. Upon consummation of an initial public offering of Holdings equity securities which meets certain criteria, shares of Series B Preferred Stock will automatically convert into shares of Non-Voting Common Stock of 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 accretes daily at the rate of 7% per annum, compounded quarterly, until the later of the fifth anniversary of the date of issuance or the date the Company first reports EBITDA (as defined) of at least $500 million for any twelve-month period. Thereafter, the liquidation preference will remain constant. The accretion rate of the liquidation preference will increase (a) by 2% per annum if the Company fails to report EBITDA of at least $400 million for the four fiscal quarters ending closest to the third anniversary of the date of issuance (or for the rolling four-quarter period ending on any of the three subsequent quarter-ends), (b) by 2% per annum if the Company fails to report EBITDA of at least $425 million for the four fiscal quarters ending closest to the fourth anniversary of the date of issuance (or for the rolling four-quarter period ending on any of the three subsequent quarter-ends) or (c) by 2% per annum if the Company fails to report EBITDA of at least $450 million for the four fiscal quarters ending closest to the fifth anniversary of the date of issuance, in each case, such increase to take effect on the first day after the last day of the fiscal quarter with respect to which such failure occurred; provided that the accretion rate of the liquidation preference will not at any time exceed 13% per annum. The accretion of the liquidation preference will result in a proportional increase in the number of shares of common stock issuable upon conversion of the Series A Preferred Stock and the Series B Preferred Stock. Shares of Series A Preferred Stock or Series B Preferred Stock may be converted (subject to certain conditions) at the option of the holder into shares of the other series. The holders of Series A Preferred Stock and Series B Preferred Stock have no rights to any fixed dividends in respect thereof. Subject to certain exceptions, Holdings is prohibited from declaring dividends with respect to, or redeem, purchase or otherwise acquire, shares of its capital stock without the consent of holders of a majority of the Series A Preferred Stock. If dividends are declared on the Series A Preferred Stock or the Series B Preferred Stock which are payable in voting securities of Holdings, 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 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. 1995 STOCKHOLDERS AGREEMENT Under the terms of the 1995 Stockholders Agreement (which was entered into by Holdings, Yucaipa and its affiliates, the 1995 Equity Investors and other stockholders), the 1995 Equity Investors holding Series A Preferred Stock are entitled to nominate three directors to the Board of Directors of each of Holdings and the Company (the "Series A Directors"), of which two directors are nominees of Apollo and one director is a nominee of the other 1995 Equity Investors holding Series A Preferred Stock. The 1995 Stockholders Agreement gives to Yucaipa the right to nominate six directors of Holdings and seven directors of the Company, and the boards of Holdings and the Company 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 Holdings has effected an initial public offering of its equity securities meeting certain criteria, Holdings and its subsidiaries may not take certain actions without the approval of the Series A Directors, including but not limited to certain mergers, sale transactions, transactions with affiliates, issuances of capital stock and payments of dividends on or repurchases of capital stock. In addition, under the 1995 Registration Rights Agreement the 1995 Equity Investors have certain "demand" and "piggyback" registration rights with respect to their Series A Preferred Stock and Series B Preferred Stock, as well as the right under the 1995 Stockholders Agreement to participate, on a pro rata basis, in sales by Yucaipa of the Holdings stock it holds. 76 79 In certain circumstances, Yucaipa will have the right to compel the participation of the 1995 Equity Investors and other stockholders in sales of all the outstanding shares of Holdings stock. YUCAIPA WARRANT Upon closing of the Merger, Holdings issued to Yucaipa a warrant to purchase up to 8,000,000 shares of Holdings Common Stock. The initial exercise price of such warrant is such that the warrant will have no value unless and until the value of the shares representing Holdings' equity on the Closing Date appreciates to $1.220 billion. Such warrant will be exercisable on a cashless basis at the election of Yucaipa in the event Holdings completes an initial public offering of equity securities meeting certain criteria, or in connection with certain sale transactions involving Holdings, in either case effected on or prior to the fifth anniversary of the Merger. 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 Merger if 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 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. DESCRIPTION OF THE NOTES GENERAL The Private Notes were issued under an indenture (the "Indenture") dated as of June 6, 1996, by and among the Company, the Subsidiary Guarantors and Norwest Bank Minnesota, National Association, as Trustee (the "Trustee"). The form and terms of the Exchange Notes will be the same as the form and terms of the Private Notes except that (i) the exchange will have been registered under the Securities Act, and therefore the Exchange Notes will not bear legends restricting the transfer thereof, and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Registration Rights Agreement, which rights will terminate upon the consummation of the Exchange Offer. The terms of the Notes are substantially identical to those of the Company's 10.45% Senior Notes due 2004 (the "1995 Senior Notes"), which were issued in a registered offering on June 14, 1995, and of which $520.3 million aggregate principal amount is outstanding. However, the Notes were issued with original issue discount. The following summary of certain provisions of the Notes and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Notes and the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." A copy of the forms of the Indenture may be obtained from the Company. The Exchange Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may be presented for registration or transfer and exchange at the offices of their respective Registrar, which for the Notes initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Notes (the "Holders"). The Company will pay principal (and premium, if any) on the Notes at the Trustee's corporate office located in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of the relevant Holders. As used below in this "Description of the Notes," the "Company" means Ralphs Grocery Company, but not any of its subsidiaries. 77 80 PRINCIPAL AND MATURITY OF AND INTEREST ON THE NOTES The Notes are limited in aggregate principal amount to $100,000,000. The Notes will mature on June 15, 2004. Interest on the Notes will accrue at the rate of 10.45% per annum and will be payable semi-annually on each June 15 and December 15, commencing on June 15, 1996, to the Holders of record on the immediately preceding June 1 and December 1, provided that with respect to the interest payment on June 15, 1996, the record date shall be the date of original issuance. Interest on the 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 original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. OPTIONAL REDEMPTION OF THE NOTES The 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, 2000, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing 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 ------------------------------------------ ---------- 2000...................................... 105.225% 2001...................................... 103.483% 2002...................................... 101.742% 2003 and thereafter....................... 100.000%
In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Notes originally issued, at a redemption price equal to 108.957% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1996 and 107.464% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. In order to effect the foregoing redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. NOTICES AND SELECTION In the event of a redemption of less than all of the Notes, Notes will be selected for redemption by the Trustee pro rata, by lot or by any other method that such Trustee considers fair and appropriate and, if such 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 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 Notes to be redeemed at such Holder's registered address. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption (unless the Company shall default in the payment of the redemption price or accrued interest). 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 Trustee for cancellation. RANKING OF THE NOTES The Notes rank senior in right of payment to all Subordinated Indebtedness of the Company, including the 1995 11% Senior Subordinated Notes, the 1995 13.75% Senior Subordinated Notes, the Old RGC Notes and the 1991 Senior Subordinated Notes. The 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 and the 1995 Senior Notes. The borrowings 78 81 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 Notes are senior unsecured obligations of the Company and its Subsidiaries. As of April 21, 1996, pro forma for the Offering and the application of proceeds therefrom, the aggregate amount of secured indebtedness of the Company and its Subsidiaries outstanding was approximately $771.5 million (not including obligations with respect to letters of credit issued under the New Credit Facility, of which $88.2 million were outstanding as of June 26, 1996). In addition, as of April 21, 1996, on the same pro forma basis, the Company had $619.6 million of senior unsecured indebtedness, $671.2 million of subordinated indebtedness, and $158.3 million available to be borrowed under the Credit Agreement. GUARANTEES Each Subsidiary Guarantor unconditionally guarantees, jointly and severally, the full and prompt performance of the Company's obligations under the Notes and the Indenture (the "Guarantees"). The Guarantees are senior unsecured obligations of the Subsidiary Guarantors and rank pari passu in right of payment with other senior unsecured indebtedness of the Subsidiary Guarantors. 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 Indenture, such Subsidiary Guarantor shall be deemed released from all its obligations under its Guarantee; provided, however, that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, such Indebtedness of the Company shall also terminate upon such release, sale or transfer. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. The Indenture will further provide that a Subsidiary Guarantor may consolidate with or merge into or sell its assets to a corporation other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor, but subject to the provisions described in the immediately preceding paragraph), provided that (a) if the surviving corporation is not the Subsidiary Guarantor, the surviving corporation agrees to assume such Subsidiary Guarantor's obligations under its Guarantee, and all its obligations under the Indenture and (b) such transaction does not (i) violate any covenants set forth in the Indenture or (ii) result in a Default or Event of Default under the Indenture immediately thereafter that is continuing. The obligations of each Subsidiary Guarantor under its Guarantee are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to its Guarantee) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee, or pursuant to its contribution obligations under the 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 payment or distribution under a Guarantee shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor. CHANGE OF CONTROL The Indenture provides that, upon the occurrence of a Change of Control, each Holder of Notes issued thereunder has the right to require the repurchase of such Holder's 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. 79 82 The Indenture provides 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 Notes, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. The Indenture requires that notice of an event giving rise to a Change of Control shall be given on the same date and in the same manner to all Holders. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the 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. The 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 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, the Indenture contains, among other things, the following covenants: Limitation on Restricted Payments. The Indenture provides that the Company shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) the Company could not incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" below or (c) the aggregate amount expended for all Restricted Payments, including such proposed Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment as determined in good faith by the Board of Directors of the Company), subsequent to June 14, 1995, 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 June 14, 1995 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 June 14, 1995 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 June 14, 1995, plus (iv) $25 million. The Indenture provides that if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of the Company or the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of the Company with an Average Life equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid and (4) Permitted Payments; provided, however, that the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (iii), (iv), (vii) and (viii) 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 80 83 pursuant to clause (3) above or pursuant to clause (i), (ii), (v), (vi), (ix) and (x) of the definition of the term "Permitted Payments" shall be so counted; provided further that to the extent any payments made pursuant to clause (vii) of the definition of the term "Permitted Payments" are deducted for purposes of computing the Consolidated Net Income of the Company, such payments shall not be counted for purposes of computing amounts expended as Restricted Payments pursuant to subclause (c) in the immediately preceding paragraph. Limitation on Incurrences of Additional Indebtedness. The Indenture provides 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 Notes or Event of Default under the 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. In addition, the Indenture provides 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 Notes or the 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. The Indenture provides 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 Notes are equally and ratably secured by the Liens covering such assets, except for (i) 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 Indenture, (ii) Permitted Liens, (iii) Liens securing Acquired Indebtedness; provided that such Liens (x) are not incurred in connection with, or in contemplation of the acquisition of the property or assets acquired and (y) do not extend to or cover any property or assets of the Company or any Subsidiary other than the property or assets so acquired, (iv) Liens to secure Capitalized Lease Obligations and certain other Indebtedness that is otherwise permitted under the 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; (v) Liens existing on the Issue Date; (vi) Liens in favor of the Trustee and any substantially equivalent Lien granted to any trustee or similar institution under any indenture for Indebtedness permitted to be incurred under the Indenture; and (vii) any replacement, extension or renewal, in whole or in part, of any Lien described in this or the foregoing clauses including in connection with any refinancing of the Indebtedness, in whole or in part, secured by any such Lien; provided that to the extent any such clause limits the amount secured or the assets subject to such Liens, no extension or renewal shall increase the amount or the assets subject to such Liens, except to the extent that the Liens associated with such additional assets are otherwise permitted hereunder. Limitation on Asset Sales. The Indenture provides 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 81 84 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) in the case of a sale of a store or stores, deem such Net Cash Proceeds to have been applied to the extent of any capital expenditures made to acquire or construct a replacement store in the general vicinity of the store sold within 365 days preceding the date of the Asset Sale; (iii) apply or cause to be applied such Net Cash Proceeds to the permanent repayment of Pari Passu 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; (iv) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (v) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of Notes tendered to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued interest to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets or equipment which are acquired or constructed by the Company or a Subsidiary subsequent to the date that is six months prior 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 Notes as shown on the register of Holders of such Notes not less than 325 nor more than 365 days after the relevant Asset Sale, with a copy to the Trustee, shall specify the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed) and shall otherwise comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders of Notes may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer, 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 Notes pursuant to a Net Proceeds Offer. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The Indenture provides 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 Indenture 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; 82 85 (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; and (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole than those provided for in such Indebtedness being refinanced, refunded, extended or renewed and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect on the Issue Date. Guarantees of Certain Indebtedness. The Indenture provides 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 Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Guarantee. Limitation on Transactions with Affiliates. The Indenture provides that neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities (other than equity securities which do not constitute Disqualified Capital Stock) from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of the Company or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under the following paragraph and (y) Affiliate Transactions in the ordinary course of business, that are fair to the Company or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (other than the requirement set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business), (B) with respect to Affiliate Transactions involving aggregate payments in excess of $5 million and less than $15 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (other than the requirement set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business) and that such Affiliate Transaction has received the approval of a majority of the disinterested members of the Board of Directors of the Company or the Subsidiary, as the case may be, or, in the absence of any such approval by the disinterested members of the Board of Directors of the Company or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may 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 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. 83 86 The provisions of the foregoing paragraph shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of the covenant described under "-- Limitation on Restricted Payments" above, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among the Company and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture, (v) any agreement as in effect as of June 14, 1995 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 Notes in any material respect, (vi) the existence of, or the performance by the Company or any of its Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or Holdings) is a party as of June 14, 1995 and any similar agreements which it (or 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 June 14, 1995 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 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 Indenture which are fair to the Company, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Limitations on Preferred Stock of Subsidiaries. The Indenture provides that the Company will not permit any of its Subsidiaries to issue any Preferred Stock (other than to the Company or to a wholly-owned Subsidiary) or permit any person (other than the Company or a wholly-owned Subsidiary) to own any Preferred Stock of any Subsidiary. Limitation on Mergers and Certain Other Transactions. The Indenture provides that the Company, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case, (1) either the Company shall be the continuing person, or the person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (the Company or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of the Company under the Indenture and the Notes; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company 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 Notes shall apply, without alteration or amendment as such Guarantee 84 87 applies on the date it was granted under the Indenture to the obligations of the Company under the Indenture and the Notes to the obligations of the Company or such Person, as the case may be, under the Indenture and the Notes, after the consummation of such transaction. The Indenture provides that upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company or any adoption of a Plan of Liquidation by the Company in accordance with the foregoing, the surviving person formed by such consolidation or into which the Company is merged or to which such transfer is made (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the 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. EVENTS OF DEFAULT The following events constitute "Events of Default" under the Indenture: (i) failure to make any interest payment on the 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 Notes when due, whether at maturity, upon acceleration, redemption, required repurchase or otherwise; (iii) failure to comply with any other agreement contained in the Notes or the Indenture, if such failure continues unremedied for 30 days after written notice given by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding (except in the case of a default with respect to the covenants described under "-- Certain Covenants -- Limitation on Restricted Payments," "-- Certain Covenants -- Limitations on Asset Sales," "-- Change of Control," and "-- Certain Covenants -- Limitations on Mergers and Certain Other Transactions," which shall constitute Events of Default with notice but without passage of time); (iv) a default under any Indebtedness of the Company or its Subsidiaries, whether such Indebtedness now exists or shall hereinafter be created, if both (A) such default either (1) results from the failure to pay any such Indebtedness at its stated final maturity or (2) relates to an obligation other than the obligation to pay such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, aggregate $20 million or more at any one time outstanding; (v) any final judgment or order for payment of money in excess of $20 million shall be entered against the Company or any Significant Subsidiary and shall not be discharged for a period of 60 days after such judgment becomes final and nonappealable; (vi) either the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (d) makes a general assignment for the benefit of its creditors; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary, in an involuntary case or proceeding; (b) appoints a Custodian of the Company or any Significant Subsidiary, or for all or any substantial part of their respective properties; or (c) orders the liquidation of the Company or any Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 days; (viii) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of the Company and its Subsidiaries; or (ix) any of the Guarantees issued under the 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 85 88 acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. If an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency, receivership or reorganization of the Company or a Subsidiary Guarantor) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare due and payable all unpaid principal and interest accrued and unpaid on the then outstanding Notes by notice in writing to the Company, the administrative agent under the Credit Agreement and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become due and payable upon the first to occur of an acceleration under the Credit Agreement, or five business days after receipt by 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 the Indenture, all unpaid principal of and accrued interest on all then outstanding Notes shall be immediately due and payable without any declaration or other act on the part of the Trustee or any of the Holders of such Notes. After a declaration of acceleration under the Indenture, subject to certain conditions, the Holders of a majority in principal amount of the then outstanding Notes, by notice to the Trustee, may rescind such declaration if all existing Events of Default under the Indenture are remedied. In certain cases the Holders of a majority in principal amount of outstanding Notes may waive a past default under the Indenture and its consequences, except a default in the payment of or interest on any of the Notes. For a description of certain risks that Holders may bear in connection with a Default under or acceleration of the Notes that precedes or results in the filing of a bankruptcy case involving the Company, see "Risk Factors -- Original Issue Discount Consequences." The Indenture provides that if a Default or Event of Default occurs and is continuing thereunder and if it is known to the Trustee, the Trustee shall mail to each Holder of Notes notice of the Default or Event of Default within 90 days after such Default or Event of Default occurs; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of or interest on any 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 Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders. The Indenture provides that no Holder may pursue any remedy thereunder unless the 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 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 Notes. The Indenture provides that two officers of the Company are required to certify to the 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 the 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 Notes. Such Legal Defeasance means that the Company shall be deemed to 86 89 have paid and discharged the entire Indebtedness represented by the Notes except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on Notes when such payments are due solely from the funds held by the Trustee in the trust referred to below; (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of Notes and money for security payments held in trust in respect of Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee and the Company's obligations in connection therewith; and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time elect to have the obligations of the Company released with respect to certain covenants described above under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must have irrevocably deposited with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes to redemption or maturity, provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the 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 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 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 Trustee an opinion of counsel stating that the Holders of 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 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 Trustee to have a conflicting interest with respect to the Notes; (vi) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Indenture or any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound (and in that connection, the 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 Trustee an opinion of counsel to the effect that after the 91st day following the deposit the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (viii) the Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the 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 Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or Covenant Defeasance have been complied with. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect as to all outstanding Notes when either (a) all such Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b)(i) all such 87 90 Notes not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount of money sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the 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 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 the Indenture; and (iv) the Company has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of such 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 Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. MODIFICATION OF THE INDENTURE The Indenture and the Notes may be amended or supplemented (and compliance with any provision thereof may be waived) by the Company, the Subsidiary Guarantors, the Trustee and the Holders of not less than a majority in aggregate principal amount of Notes then outstanding, except that (i) without the consent of each Holder affected, no such amendment, supplement or waiver may (1) change the principal amount of Notes the Holders of which must consent to an amendment, supplement or waiver of any provision of the Indenture, the Notes or the Guarantees, (2) reduce the rate or extend the time for payment of interest on any Notes, (3) reduce the principal amount of any Notes, (4) change the Maturity Date of any Notes or alter the redemption provisions in the Indenture or the Notes in a manner adverse to any Holder, (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on or redemption payment with respect to any Notes, or (6) make the principal of, or interest on, any Notes payable with anything or in any manner other than as provided for in the Indenture, the Notes and the Guarantees, (ii) without the consent of Holders of not less than 75% in aggregate principal amount of 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 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 Notes then outstanding, no such amendment, supplement or waiver may release any Subsidiary Guarantor from any of its obligations under its Guarantee or the Indenture other than in accordance with the terms of such Guarantee and the Indenture. In addition, the Indenture, the Notes and the Guarantees may be amended by the Company, the Subsidiary Guarantors and the 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 TRUSTEE The Indenture provides that the Holders of a majority in principal amount of the outstanding Notes may remove the 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 Notes have the right, subject to certain limitations, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee under the Indenture or of exercising any trust or power conferred on the Trustee. The Indenture provides that, in case a Default or an Event of Default has occurred and is continuing thereunder, the Trustee shall exercise such of the rights and powers vested in it by the 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 Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of 88 91 any of the Holders of the Notes, unless they shall have offered to the 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 Notes as shall have become due and payable upon demand as specified in the Indenture, the Trustee, at the request of the Holders of a majority in aggregate principal amount of Notes at the time outstanding, and upon being offered such reasonable indemnity as it may be required against the costs, expenses and liabilities incurred by it, except as a result of its negligence or bad faith, shall institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and collect in the manner provided by law the monies adjudged or decreed to be payable. The Indenture contains limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to be realized on certain property received by it in respect of any such claims, securities or otherwise. The Trustee is permitted to engage in other transactions; however, if the Trustee acquires any "conflicting interest," it must eliminate such conflict or resign. REPORTS The Indenture provides that the Company will deliver to the 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. The Indenture further provides 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 Trustee and Holders of the Notes with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA Section 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 Guarantee of such Subsidiary Guarantor, at such date and (y) the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under 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 its Guarantee), excluding debt in respect of the Guarantee of such Subsidiary Guarantor, as they become absolute and matured. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and 89 92 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 Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of the Company or any of its Subsidiaries. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise) made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than the Company or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of related sales, transfers or other dispositions (i) involving only Excluded Assets, (ii) resulting in Net Proceeds to the Company and the Subsidiaries of $500,000 or less, (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company or any Subsidiary with a Lien on such assets, which Lien is permitted under the Indenture, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law, (iv) involving only Cash Equivalents or inventory in the ordinary course of business or obsolete equipment in the ordinary course of business consistent with past practices of the Company; (v) involving only the lease or sub-lease of any real or personal property in the ordinary course of business; or (vi) the proceeds of such Asset Sale which are not applied as contemplated in "-- Certain Covenants -- Limitation on Asset Sales" and which, together with all other such Asset Sale proceeds, do not exceed $20 million. "Average Life" means, as of 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. "Capital Stock" means, with respect to any person, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii), (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 90 93 $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 Holdings or the Company such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of the Company (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of the Company's Board of Directors. "Commission" means the Securities and Exchange Commission. "Common Stock" means, with respect to any person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of, such person's common stock, whether outstanding at the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually 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 Holdings pursuant to clauses (v), (vi) and (x) of the definition of "Permitted Payments" during such period. 91 94 "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 June 14, 1995 and as in effect on the Issue Date, between the Company, Holdings and The Yucaipa Companies (as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date). "Credit Agreement" means the Credit Agreement, dated as of June 14, 1995, as amended and in effect on the Issue Date, by and among Food 4 Less as borrower, certain of its subsidiaries, Holdings as guarantor, 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 Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Discount Notes" means the 15.25% Senior Discount Notes due 2004 of 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 Notes, or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (i) redeemable or repurchasable solely at the option of such person or (ii) issued to employees of the Company or its Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication)(i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credits) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash 92 95 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 or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. "Existing Indebtedness" means the following indebtedness of the Company to the extent outstanding on the Issue Date: (a) the 10.45% Senior Notes due 2004 issued pursuant to an indenture dated as of June 14, 1995; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (c) the 11% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of June 14, 1995; (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 June 14, 1995, 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 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 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 pre-tax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, the Company. 93 96 "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of June 14, 1995. "Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and its successors. "Indebtedness" means with respect to any person, without duplication, (i) all liabilities, contingent or otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person; (iii) reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the 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 Indenture, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of the Company, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Independent Financial Advisor" means a reputable accounting, appraisal or nationally recognized investment banking 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. 94 97 "Investment" by any person in any other person means any investment by such person in such other person, whether by share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances or to permit the purchase of Qualified Capital Stock of Holdings or any of its Subsidiaries and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of original issuance of the Notes under the Indenture. "Letter of Credit Obligations" means Indebtedness of the Company or any of its Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of the definition of the term "Permitted Indebtedness" above, the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien under the Indenture. "Maturity Date" means June 15, 2004. "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, Food 4 Less, Inc., Food 4 Less, RSI and the stockholders of RSI, as such agreement was in effect on June 14, 1995. "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 June 14, 1995 under which the 13 5/8% Senior Discount Debentures due 2005 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof. 95 98 "New Discount Debentures" means the 13 5/8% Senior Discount Debentures due 2005 of 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. "Operating Coverage Ratio" means, with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by the Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Pari Passu Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in right of payment to the Notes (whether or not secured by any Lien) or the Guarantee of such Subsidiary Guarantor, as the case may be. "Payment Restriction" means, with respect to a subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person or (c) transfer any of its properties or assets to such person or any other subsidiary of such persons, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and The Yucaipa Companies, or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of the Company, or any of its subsidiaries or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its Subsidiaries (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans in an aggregate principal amount at any time outstanding not to exceed $600 million less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above subsequent to June 14, 1995, (ii) the revolving credit facility under the Credit Agreement (including the Letter of Credit 96 99 Obligations) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above, and (iii) any Indebtedness incurred under the Credit Agreement pursuant to and in compliance with (A) clause (m) of this definition and (B) the covenant described above under the caption "-- Limitation on Incurrence of Additional Indebtedness" above (other than Permitted Indebtedness that is not incurred pursuant to clause (m) or this clause (a) of this definition); (b) Indebtedness of the Company or a Subsidiary Guarantor owed to and held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred by the Company or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of the Company and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis 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 end of the twelfth fiscal quarter following 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 (less the aggregate principal amount of any Indebtedness incurred by the Company or any Subsidiary on or prior to the Issue Date in reliance on clause (d) of the definition of "Permitted Indebtedness" under the indenture governing the 1995 Senior Notes), 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 Prospectus; (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 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; (k) Indebtedness arising from guarantees of Indebtedness of the Company or any Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary in the ordinary course of business; and (m) additional Indebtedness of the Company and the Subsidiary Guarantors in an amount not to exceed $175 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale made pursuant to 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 or the Company and Investments by the Company in a Subsidiary Guarantor in the form of Indebtedness owed to the Company by such Subsidiary Guarantor and Investments by Subsidiaries which are not Subsidiary Guarantors in other 97 100 Subsidiaries which are not Subsidiary Guarantors and (vii) additional Investments in an aggregate amount not exceeding $15 million. "Permitted Liens" shall mean (i) Liens for taxes, assessments and governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business, deposits made to obtain the release of such Liens, and with respect to amounts not yet delinquent for a period of more than 60 days or being contested in good faith by an appropriate process of law, and for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (iii) Liens incurred or pledges or deposits made in the ordinary course of business to secure obligations under workers' compensation, unemployment insurance and other types of social security or similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, zoning or other restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of 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 Indenture and under which the Company or any Subsidiary is lessee; and (xvi) 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 June 14, 1995 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 Holdings the proceeds of which are utilized by 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 Second Amended and Restated Tax Sharing Agreement, dated as of June 14, 1995, by and among the Company, all direct and indirect subsidiaries, and Holdings 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 98 101 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 Holdings the proceeds of which are used by Holdings to make payments, (a) in connection with repurchases of outstanding shares of the Company's or Holdings' Common Stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by Holdings, the Company or any of its Subsidiaries to participants or former participants in employee benefit plans upon termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period), (v) from and after June 30, 1998, payments of cash dividends or loans to Holdings in an amount sufficient to enable 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 June 14, 1995, (vi) from and after June 15, 2000, payments of cash dividends to Holdings in an amount sufficient to enable 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 June 14, 1995, (vii) dividends or other payments to Holdings sufficient to enable 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 and the registration under applicable laws and regulations of its debt or equity securities, (viii) dividends by the Company to Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (a) the Company or any of the Subsidiaries is required pursuant to the Indenture to utilize such Net Cash Proceeds to repay (or offer to repay) the Notes (and has complied with all such requirements), (b) such Net Cash Proceeds are not required to be and have not been utilized to repay outstanding Indebtedness of the Company or any of the Subsidiaries and (c) Holdings is required pursuant to the documents governing any outstanding Indebtedness of Holdings to utilize such Net Cash Proceeds to repay such Indebtedness (it being understood that only the amounts not utilized as described in clauses (a) and (b) of this clause (viii) shall be permitted to be distributed to Holdings pursuant to this clause (viii)), (ix) the repurchase by the Company of up to $10.0 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 indentures governing the Old RGC Notes as in effect on June 14, 1995, and (x) for so long as the sole business activity of such partnership is to acquire, hold, sell, exchange, transfer or otherwise dispose of all or any portion of the New Discount Debentures and to manage its investment in the New Discount Debentures, any payment by the Company or any Subsidiary, or any dividend or loan to Holdings, the proceeds of which are utilized by Holdings to fund ongoing costs and expenses of RGC Partners, L.P. pursuant to the Subscription Agreement and the Registration Rights Agreement. "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of 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 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. 99 102 "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 Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act of 1933, as amended, as interpreted by the Company's chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Public Equity Offering" means an underwritten public offering of Common Stock of the Company or 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 Holdings, as the case may be, of not less than $20 million; provided, however, that in the case of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company net cash proceeds in an amount sufficient to redeem 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 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 Notes and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders of the Notes than those contained in such repaid or amended Subordinated Indebtedness. "Registration Rights Agreement" means that certain Registration Rights Agreement by and between RGC Partners, L.P., Holdings and Food 4 Less, as such Registration Rights Agreement may be amended or replaced, so long as any amounts paid by Holdings and the Company under any amended or replacement agreement do not exceed the amounts payable by Holdings and the Company under such Registration Rights Agreement as in effect on June 14, 1995. "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 100 103 capital expenditure or Investment, in each case reasonably related to the business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Restricted Debt Prepayment" means any purchase, redemption, defeasance (including, but not limited to, in substance or legal defeasance) or other acquisition or retirement for value, directly or indirectly, by the Company or a Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment of principal or sinking fund payment, as the case may be, in respect of Subordinated Indebtedness. "Restricted Payment" means any (i) Stock Payment, (ii) Investment (other than a Permitted Investment) or (iii) Restricted Debt Prepayment. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of 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 thereon, 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 between Holdings and Norwest Minnesota, National Association, as trustee, dated as of June 14, 1995 under which the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each subsidiary of 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 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. "Subscription Agreement" means that certain Subscription Agreement, between RGC Partners, L.P., Holdings, Food 4 Less and the partnership investors listed on Exhibit A thereto, as such Subscription Agreement may be amended or replaced, so long as any amounts paid by Holdings and the Company under any amended or replacement agreement do not exceed the amounts payable by Holdings and the Company under such Subscription Agreement as in effect on June 14, 1995. "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 Notes or the Guarantee of such Subsidiary Guarantor, as the case may be. 101 104 "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., and Crawford Stores, Inc., (ii) each of the Company's Subsidiaries which becomes a guarantor of the Notes in compliance with the provisions set forth under "-- Certain Covenants -- Guarantees of Certain Indebtedness," and (iii) each of the Company's Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the 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. "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership, or any successor thereto which is an affiliate of Ronald W. Burkle or his Permitted Transferees and which has been established for the sole purpose of changing the form of The Yucaipa Companies from that of a partnership to that of a limited liability company or any other form of entity which is not materially adverse to the rights of the Holders under the Indenture. DESCRIPTION OF THE NEW CREDIT FACILITY The following is a summary of the 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 entered into in connection with the New Credit Facility. A copy of the Loan Agreement is available upon request from the Company. GENERAL The New Credit Facility was entered into June 14, 1995 and provided for (i) term loans in the aggregate amount of $600 million, comprised of a $275 million tranche with a six year term (the "Tranche A Loan"), a $108.3 million tranche with a seven year term (the "Tranche B Loan"), a $108.3 million tranche with an eight year term (the "Tranche C Loan"), and a $108.4 million tranche with a nine year term (the "Tranche D Loan"); and (ii) the $325 million New Revolving Facility under which working capital loans may be made and commercial or letters of credit in the maximum aggregate amount of up to $150 million may be issued, under which approximately $88.2 million of letters of credit were outstanding as of June 26, 1996. On June 6, 1996, after giving effect to the application of the proceeds from the Offering, the outstanding principal amount of the Tranche A Loan, Tranche B Loan, Tranche C Loan and Tranche D Loan was $243.8 million, $99.6 million, $100.2 million and $100.4 million, respectively. 102 105 Proceeds of the New Term Loans and loans under the Revolving Credit Facility, together with proceeds from the other debt and equity financing transactions completed concurrently, were used to fund the cash requirements for the acquisition of RSI, refinance existing indebtedness of Ralphs and Food 4 Less, and pay various fees, expenses and other costs associated with the Merger and the related financing. The New Revolving Facility is used 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 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 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 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 bear interest at the Base Rate plus 2.75% per annum or the reserve adjusted Euro-Dollar Rate plus 4.00% per annum, in each case as selected by the Company. Applicable interest rates on Tranche A Loan and the New Revolving Facility and the fees payable under the New Revolving Facility on letters of credit, will be reduced by up to 0.50% per annum after the New Term Loans have been reduced by certain amounts and if the Company meets certain financial tests. Up to $30 million of the New Revolving Facility is available as a swingline facility and loans outstanding under the swingline facility 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 pays the issuing bank a fee of 0.25% on each standby letter of credit and each commercial letter of credit and pays 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 is 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 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 required 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 in an aggregate notional amount of not less than $300 million. The New Credit Facility may be prepaid in whole or in part without premium or penalty. AMORTIZATION; PREPAYMENTS The Tranche A Loan will mature on June 14, 2001 and will be subject to amortization, commencing on September 15, 1996 on a quarterly basis in aggregate annual amounts (after giving effect to application of proceeds of the Offering) of $9.5 million in the second year, $53.2 million in the third year, $56.8 million in the fourth year, $60.4 million in the fifth year, and $63.9 million in the sixth year. The Tranche B Loan will mature on June 14, 2002 and will be subject to amortization on a quarterly basis in aggregate annual amounts (after giving effect to application of proceeds of the Offering) of $1.0 million for the first six years and $94.3 million in the seventh year. The Tranche C Loan will mature on June 14, 2003 and will be subject to amortization on a quarterly basis in aggregate annual amounts (after giving effect to application of proceeds of the Offering) of $1.0 million for the first seven years and $93.9 million in the eighth year. The Tranche D Loan will mature on June 14, 2004 and will be subject to amortization on a quarterly basis in aggregate annual amounts (after giving effect to application of proceeds of the Offering) of $1.0 million for the first eight years and $93.0 million in the ninth year. The New Revolving Facility will mature on June 14, 2001. The Company is required to reduce loans outstanding under the New Revolving Facility to (i) $150 million for a period of not less than 30 consecutive days during the period from the fourth Fiscal Quarter in Fiscal Year 1996 to the first Fiscal Quarter in Fiscal Year 1997, (ii) to $110 million for a period of not less than 30 consecutive days during the period from the fourth Fiscal Quarter in Fiscal Year 1997 to the first Fiscal Quarter in Fiscal Year 103 106 1998 and (iii) to $75 million for a period not less than 30 consecutive days during each subsequent 12-month period. The Company is required to make certain prepayments, subject to certain exceptions, on the New Credit Facility with 75% (100% for Fiscal Years 1995, 1996 and 1997) 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, Tranche B Loans, Tranche C Loans, and 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 Holdings and all active subsidiaries of the Company (including the Subsidiary Guarantors) have guaranteed the Company's obligations under the New Credit Facility. The Company's obligations and the guarantees of its subsidiaries are 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). Holdings' guarantee is secured by a pledge of the stock of the Company. The Company's obligations also are secured by first priority liens on certain unencumbered real property fee interests of the Company and its subsidiaries and the Company and its subsidiaries will use their reasonable economic efforts to provide the lenders with a first priority lien on certain unencumbered leasehold interests of the Company and its subsidiaries. COVENANTS The obligation of the lenders under the New Credit Facility to advance funds is subject to the satisfaction of certain conditions customary in agreements of this type. In addition, the Company is 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 are more restrictive than those in favor of holders of the Notes as described herein and as set forth in the Indenture. In addition, the New Credit Facility requires 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 Notes. DESCRIPTION OF OTHER COMPANY INDEBTEDNESS The 1995 Senior Notes. The 1995 Senior Notes were issued upon consummation of the Merger in an aggregate principal amount of $520.3 million. The 1995 Senior Notes are senior unsecured obligations of the Company and are guaranteed on a senior basis by the Company's wholly-owned subsidiaries. The 1995 Senior Notes rank senior in right of payment to all subordinated indebtedness of the Company, including the 1995 11% Senior Subordinated Notes, the Old RGC Notes, the 1995 13.75% Senior Subordinated Notes and the 1991 Senior Subordinated Notes. However, the 1995 Senior Notes are effectively subordinated to all secured indebtedness of the Company and its subsidiaries, including indebtedness under the New Credit Facility. The 1995 Senior Notes bear interest at the rate of 10.45% per annum, payable on each June 15 and December 15. 104 107 The 1995 Senior Notes will mature on June 15, 2004. The terms of the Notes were designed to mirror the terms of the 1995 Senior Notes. Accordingly, the indenture governing the 1995 Senior Notes contains terms, covenants and conditions which are substantially identical in all material respects to the terms contained in the Indenture governing the Notes. For further information regarding those terms, see "Description of the Notes." A portion of the 1995 Senior Notes were issued in exchange for 1992 Senior Notes outstanding at the time of the Merger. A total of $4.7 million aggregate principal amount of 1992 Senior Notes that were not exchanged at the time of the Merger remain outstanding. The 1992 Senior Notes mature on April 15, 2000. In connection with the Merger, the indenture governing the 1992 Senior Notes was amended to eliminate substantially all of the restrictive covenants contained therein. The 1995 11% Senior Subordinated Notes. The 1995 11% Senior Subordinated Notes were issued upon consummation of the Merger in an aggregate principal amount of $524.0 million. The 1995 11% Senior Subordinated Notes are subordinated to the prior payment when due of all Senior Indebtedness (as defined in the indenture (the "1995 11% Senior Subordinated Note Indenture") governing the 1995 11% Senior Subordinated Notes) and are guaranteed on a senior subordinated basis by the Company's wholly-owned subsidiaries. The 1995 11% Senior Subordinated Notes bear interest at a rate of 11% per annum, payable on each June 15 and December 15. The 1995 11% Senior Subordinated Notes will mature on June 15, 2005. On or after June 15, 2000, the 1995 11% Senior Subordinated Notes may be redeemed in whole at any time or in part from time to time, at the option of the Company, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12 months commencing on June 15 of the years set forth below:
REDEMPTION YEAR PRICE ---------------------------------------------------------- ---------- 2000...................................................... 104.125 % 2001...................................................... 102.750 % 2002...................................................... 101.375 % 2003 and thereafter....................................... 100.000 %
In addition, on or prior to June 15, 1998 the Company may, at its option, use the net cash proceeds from one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the 1995 11% Senior Subordinated Notes originally issued, at a redemption price equal to 111% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1996 and 108.25% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. The 1995 11% Senior Subordinated 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 1995 11% Senior Subordinated 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 1995 11% Senior Subordinated 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. A portion of the 1995 11% Senior Subordinated Notes were issued in exchange for Old RGC Notes outstanding at the time of the Merger. A total of $2.1 million aggregate principal amount of Old RGC 10 1/4% Notes, and $0.1 million aggregate principal amount of Old RGC 9% Notes, that were not exchanged at the time of the Merger remain outstanding. The Old RGC 10 1/4% Notes mature on July 15, 2002 and the Old 105 108 RGC 9% Notes mature on April 1, 2003. The Old RGC Notes, like the 1995 11% Senior Subordinated Notes, are subordinated to the prior payment when due of the Senior Indebtedness of the Company. In connection with the Merger, the indentures governing the Old RGC Notes were amended to eliminate substantially all of the restrictive covenants contained therein. The 1995 13.75% Senior Subordinated Notes. The 1995 13.75% Senior Subordinated Notes were issued upon consummation of the Merger in an aggregate principal amount of $140.2 million. The 1995 13.75% Senior Subordinated Notes are subordinated to the prior payment when due of all Senior Indebtedness (as defined in the indenture (the "1995 13.75% Senior Subordinated Note Indenture") governing the 1995 13.75% Senior Subordinated Notes) and are guaranteed on a senior subordinated basis by the Company's wholly-owned subsidiaries. The 1995 13.75% Senior Subordinated Notes bear interest at a rate of 13.75% per annum, payable on each June 15 and December 15. The 1995 13.75% Senior Subordinated Notes will mature on June 15, 2005. On or after June 15, 1996, the 1995 13.75% Senior Subordinated Notes may be redeemed in whole at any time or in part from time to time, at the option of the Company, at a redemption price equal to the applicable percentage of the principal amount thereof set below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12 months commencing on June 15 of the years set forth below:
REDEMPTION YEAR PRICE ------ ---------- 1996...................................... 106.111% 1997...................................... 104.583% 1998...................................... 103.056% 1999...................................... 101.528%
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. Upon a Change of Control (as defined), each holder of the 1995 13.75% Senior Subordinated Notes has the right to require the Company to repurchase such holder's 1995 13.75% Senior Subordinated Notes at a price equal to 101% of their principal amount, plus accrued interest, if any, to the date of repurchase. The 1995 13.75% Senior Subordinated Notes are subject to certain covenants as provided in the 1995 13.75% Senior Subordinated Note Indenture. These covenants impose certain limitations on the ability of the Company to, among other things, incur indebtedness, pay dividends or make certain other restricted payments, enter into certain transactions with affiliates, merge or consolidate with any other person, or sell, lease, transfer or otherwise dispose of substantially all of the properties or assets of the Company. The 1995 13.75% Senior Subordinated Notes were issued in exchange for 1991 Senior Subordinated Notes outstanding at the time of the Merger. A total of $4.8 million aggregate principal amount of 1991 Senior Subordinated Notes that were not exchanged at the time of the Merger remain outstanding. The 1991 Senior Subordinated Notes mature on June 15, 2001. The 1991 Senior Subordinated Notes, like the 1995 13.75% Senior Subordinated Notes, are subordinated to the prior payment when due of the Senior Indebtedness of the Company. In connection with the Merger, the indenture governing the 1991 Senior Subordinated Notes was amended to eliminate substantially all of the restrictive covenants contained therein. DESCRIPTION OF HOLDINGS' INDEBTEDNESS The New Discount Debentures. The New Discount Debentures were issued upon consummation of the Merger. The New Discount Debentures will have an aggregate principal amount of $193,363,570 at maturity and will mature on June 15, 2005. The New Discount Debentures are senior unsecured obligations of Holdings and rank senior in right of payment to all subordinated indebtedness of Holdings, including the Seller Debentures. Until June 15, 2000, no interest will accrue on the New Discount Debentures, but the Accreted Value (as defined in the indenture governing the New Discount Debentures (the "New Debenture Indenture")) will accrete at a rate of 13 5/8% (representing the amortization of the original issue discount) from the date of original issuance until June 15, 2000, on a semi-annual bond equivalent basis using a 360 day year comprised of twelve 30-day months, such that the Accreted Value shall be equal to the full principal 106 109 amount of the New Discount Debentures on June 15, 2000. The initial Accreted Value per $1,000 principal amount of New Discount Debentures was $519.92 (representing the original purchase price). Beginning on June 15, 2000, cash interest on the New Discount Debentures will accrue at a rate of 13 5/8% per annum and will be payable semi-annually in arrears on each June 15 and December 15 of each year, commencing December 15, 2000, to the holders of record on the immediately preceding June 1 and December 1. On or after June 15, 2000, the New Discount Debentures may be redeemed, at the option of 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 15 in the years set forth below:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 2000................................. 106.8125% 2001................................. 105.1094% 2002................................. 103.4063% 2003................................. 101.7031% 2004 and thereafter.................. 100.0000%
Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the net proceeds of a Public Equity Offering (as defined in the New Debenture Indenture) of Holdings or the Company to redeem up to 35% of the New Discount Debentures at a redemption price equal to 110% of the Accreted Value thereof on the date of redemption. 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 15, 2000) or 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Change of Control Payment Date (if such date is on or after June 15, 2000). The New Debenture Indenture contains 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 New Debenture Indenture), or engage in certain transactions with affiliates. Under certain circumstances, 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 15, 2000 or 100% of the principal amount thereof, plus accrued interest to the date of purchase, if such date is on or after June 15, 2000, with the proceeds of certain Asset Sales (as defined in the New Debenture Indenture). The New Debenture Indenture contains certain customary events of defaults, which 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 entered into by Holdings, Holdings filed a shelf registration statement with the Commission with respect to the New Discount Debentures, and paid the expenses related thereto. Pursuant to such registration statement, the initial holder of the New Discount Debentures sold its entire interest in the New Discount Debentures. The Seller Debentures. The Seller Debentures were issued to the stockholders of RSI upon consummation of the Merger. The Seller Debentures were issued in an aggregate principal amount of $131.5 million and will mature on June 15, 2007. The Seller Debentures are general unsecured obligations of Holdings and are 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. The Seller Debentures bear interest at a rate equal to 13 5/8% per annum, payable semi-annually in arrears on each interest payment date. Holdings has 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. 107 110 On or after June 15, 2000, the Seller Debentures may be redeemed, at the option of Holdings, in whole at any time or in part from time to time, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the twelve-month period commencing on June 15 in the years set forth below:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 2000................................. 106.8125% 2001................................. 105.1094% 2002................................. 103.4063% 2003................................. 101.7031% 2004 and thereafter.................. 100.0000%
Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the net proceeds of an Initial Public Offering (as defined in the Debenture Indenture) of 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 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 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 contains 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 a registration rights agreement executed concurrently with the closing of the Merger, Holdings has filed a shelf registration statement with the Commission with respect to the Seller Debentures. Holdings is obligated to use its best efforts to cause such shelf registration statement to remain effective for up to three years, and pay the expenses related thereto. If Holdings fails to comply with its obligations to keep such shelf registration statement effective, Holdings will be obligated to pay certain liquidated damages. BOOK ENTRY; DELIVERY AND FORM Except as described in the next paragraph, the Notes (and the related guarantees) initially will be represented by a single, permanent global certificate in definitive, fully registered form (the "Global Note"). The Global Note will be deposited on the Issue Date with, or on behalf of, The Depository Trust Company, New York, New York ("DTC") and registered in the name of a nominee of DTC. Notes (i) originally purchased by or transferred to "foreign purchasers" or (ii) held by qualified institutional buyers or Accredited Investors who are not QIBs who elect to take physical delivery of their certificates instead of holding their interests through the Global Note (and which are thus ineligible to trade through DTC) (collectively referred to herein as the "Non-Global Purchasers") will be issued in registered form (the "Certificated Security"). Upon the transfer to a QIB of any Certificated Security initially issued to a Non-Global Purchaser, such Certificated Security will, unless the transferee requests otherwise or the Global Note has previously been exchanged in whole for Certificated Securities, be exchanged for an interest in the Global Note. 108 111 The Global Note. The Company expects that pursuant to procedures established by DTC (i) upon the issuance of the Global Note, DTC or its custodian will credit, on its internal system, the principal amount of Notes of the individual beneficial interests represented by such Global Note to the respective accounts of persons who have accounts with such depositary and (ii) ownership of beneficial interests in the Global Note will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Such accounts initially will be designated by or on behalf of the Initial Purchaser and ownership of beneficial interests in the Global Note will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. QIBs may hold their interests in the Global Note directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. So long as DTC, or its nominee, is the registered owner or holder of the Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture. No beneficial owner of an interest in the Global Note will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the Indenture with respect to the Notes. Payments of the principal of, premium (if any), interest and Liquidated Damages (if any) on, the Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, interest or Liquidated Damages, if any, in respect of the Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interests in the Global Note held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in same day funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell Notes to persons in states which require physical delivery of the Notes, or to pledge such securities, such holder must transfer its interest in the Global Note, in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture. DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the Global Note are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the Global Note for Certificated Securities, which it will distribute to its participants. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). 109 112 Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Securities. If DTC is at any time unwilling or unable to continue as a depositary for the Global Note and a successor depositary is not appointed by the Company within 90 days, Certificated Securities will be issued in exchange for the Global Note. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS In the opinion of Latham & Watkins, counsel to the Company, the following discussion describes the material federal income tax consequences expected to result to holders whose Private Notes are exchanged for Exchange Notes in the Exchange Offer. Such opinion is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought with respect to the Exchange Offer. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. 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. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS. The exchange of Private Notes for Exchange Notes will be treated as a "non-event" for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Private Notes. As a result, no material federal income tax consequences will result to holders exchanging Private Notes for Exchange Notes. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resales of Exchange Notes received in exchange for Private Notes where such Private Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of up to 90 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer that requests such document in the Letter of Transmittal for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers or any other persons. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the 110 113 Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the Company's performance of, or compliance with, the Registration Rights Agreement and will indemnify the holders of Private Notes (including any broker-dealers), and certain parties related to such holders, against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters with respect to the Exchange Notes offered hereby will be passed upon for the Company by Latham & Watkins, Los Angeles, California. EXPERTS The consolidated financial statements of Ralphs Grocery Company (formerly Food 4 Less Supermarkets, Inc.) as of January 28, 1996, January 29, 1995 and June 25, 1994 and for the 52 week period ended January 28, 1996, the 31 week period ended January 29, 1995 and the 52 week periods ended June 25, 1994 and June 26, 1993, included in this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as stated in their report appearing herein. The consolidated financial statements and schedule of Ralphs Supermarkets, Inc. as of January 29, 1995 and January 30, 1994, and for each of the years in the three-year period ended January 29, 1995, have been included herein and in the Registration 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. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 under the Securities Act with respect to the Exchange Notes offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus omits certain information, exhibits and undertakings contained in the Registration Statement. For further information with respect to the Company and the Exchange Notes offered hereby, reference is made to the Registration Statement, including the exhibits thereto and the financial statements, notes and schedules filed as a part thereof. The Registration Statement (and the exhibits and schedules thereto), as well as the periodic reports and other information filed by the Company with the Commission, may be inspected and copied at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Room 1400, 75 Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such materials may be obtained from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference facilities in New York, New York and Chicago, Illinois at the prescribed rates. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Company is subject to the periodic reporting and other information requirements of the Exchange Act. The Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, it will furnish to the holders of the Notes and, following consummation of the Exchange Offer and to the extent permitted by applicable law or regulations, file with the Commission (i) all quarterly and annual financial information that would be required 111 114 to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including for each a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual consolidated financial statements only, a report thereon by the Company's independent auditors and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. The Company will also furnish such other reports as it may determine or as may be required by law. The principal address of the Company is 1100 West Artesia Boulevard, Compton, California 90220 and the Company's telephone number is (310) 884-9000. 112 115 INDEX TO FINANCIAL STATEMENTS
PAGE ---- RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.): Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-2 Consolidated balance sheets as of June 25, 1994, January 29, 1995, January 28, 1996 and April 21, 1996 (unaudited).......................................................... F-3 Consolidated statements of operations for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 (unaudited) and the 12 weeks ended April 21, 1996 (unaudited)......................................................................... F-5 Consolidated statements of cash flows for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 (unaudited) and the 12 weeks ended April 21, 1996 (unaudited)......................................................................... F-6 Consolidated statements of stockholder's equity for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 12 weeks ended April 21, 1995............................................... F-7 Notes to consolidated financial statements............................................ F-8 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY): Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-29 Consolidated balance sheets at January 30, 1994 and January 29, 1995.................. F-30 Consolidated statements of operations for the years ended January 31, 1993, January 30, 1994 and January 29, 1995....................................................... F-31 Consolidated statements of cash flows for the years ended January 31, 1993, January 30, 1994 and January 29, 1995....................................................... F-32 Consolidated statements of stockholders' equity for the years ended January 31, 1993, January 30, 1994 and January 29, 1995............................................... F-33 Notes to consolidated financial statements............................................ F-34
F-1 116 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Ralphs Grocery Company: We have audited the accompanying consolidated balance sheets of Ralphs Grocery Company (a Delaware corporation) (formerly Food 4 Less Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial Statements) and subsidiaries (the Company) as of June 25, 1994, January 29, 1995 and January 28, 1996, and the related consolidated statements of operations, stockholder's equity and cash flows for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, and the 52 weeks ended January 28, 1996. 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 Ralphs Grocery Company and subsidiaries as of June 25, 1994, January 29, 1995 and January 28, 1996, and the results of their operations and their cash flows for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, and the 52 weeks ended January 28, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California April 19, 1996 F-2 117 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
JUNE 25, JANUARY 29, JANUARY 28, APRIL 21, 1994 1995 1996 1996 -------- ----------- ----------- ----------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents...................... $ 32,996 $ 19,560 $ 67,983 $ 58,542 Trade receivables, less allowances of $1,386, $1,192, $1,954 and $1,574 at June 25, 1994, January 29, 1995, January 28, 1996 and April 21, 1996, respectively...................... 25,039 23,377 60,948 65,597 Notes and other receivables.................... 1,312 3,985 6,452 4,689 Inventories.................................... 212,892 224,686 502,669 483,380 Patronage receivables from suppliers........... 2,875 5,173 4,557 1,535 Prepaid expenses and other..................... 6,323 13,051 34,855 31,990 -------- ---------- ---------- ---------- Total current assets................... 281,437 289,832 677,464 645,733 INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER COOPERATIVES: Associated Wholesale Grocers................... 6,718 6,718 7,288 7,020 Certified Grocers of California and Other...... 5,984 5,686 4,926 4,926 PROPERTY AND EQUIPMENT: Land........................................... 23,488 23,488 183,125 183,125 Buildings...................................... 12,827 24,172 196,551 196,691 Leasehold improvements......................... 97,673 110,020 251,856 252,211 Equipment and fixtures......................... 180,508 190,016 441,760 459,883 Construction in progress....................... 12,641 8,042 61,296 57,204 Leased property under capital leases........... 78,222 82,526 189,061 189,702 Leasehold interests............................ 93,464 96,556 114,475 109,992 -------- ---------- ---------- ---------- 498,823 534,820 1,438,124 1,448,808 Less: Accumulated depreciation and amortization................................ 134,089 154,382 226,451 242,198 -------- ---------- ---------- ---------- Net property and equipment..................... 364,734 380,438 1,211,673 1,206,610 OTHER ASSETS: Deferred financing costs, less accumulated amortization of $17,083, $20,496, $6,964 and $10,300 at June 25, 1994, January 29, 1995, January 28, 1996 and April 21, 1996, respectively................................ 28,536 25,469 94,100 94,336 Goodwill, less accumulated amortization of $33,945, $38,560, $60,407 and $67,609 at June 25, 1994, January 29, 1995, January 28, 1996 and April 21, 1996, respectively....... 267,884 263,112 1,173,445 1,166,243 Other, net..................................... 24,787 29,440 19,233 19,907 -------- ---------- ---------- ---------- $980,080 $ 1,000,695 $ 3,188,129 $ 3,144,775 ======== ========== ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 118 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED BALANCE SHEETS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) LIABILITIES AND STOCKHOLDER'S EQUITY
JUNE 25, JANUARY 29, JANUARY 28, APRIL 21, 1994 1995 1996 1996 -------- ----------- ----------- ----------- (UNAUDITED) CURRENT LIABILITIES: Accounts payable............................... $180,708 $ 190,455 $ 385,500 $ 372,731 Accrued payroll and related liabilities........ 42,805 42,007 94,011 93,627 Accrued interest............................... 5,474 10,730 23,870 56,022 Other accrued liabilities...................... 53,910 65,279 276,162 268,664 Income taxes payable........................... 2,000 293 596 596 Current portion of self-insurance liabilities................................. 29,492 28,616 21,785 22,004 Current portion of senior debt................. 18,314 22,263 31,735 38,979 Current portion of obligations under capital leases...................................... 3,616 4,965 22,261 23,298 -------- ---------- ---------- ---------- Total current liabilities.............. 336,319 364,608 855,920 875,921 SENIOR DEBT, net of current portion.............. 310,944 320,901 1,226,302 1,200,035 OBLIGATIONS UNDER CAPITAL LEASES................. 39,998 40,675 130,784 126,215 SENIOR SUBORDINATED DEBT......................... 145,000 145,000 671,222 671,222 DEFERRED INCOME TAXES............................ 14,740 17,534 17,988 17,988 SELF-INSURANCE LIABILITIES....................... 52,212 44,123 127,200 129,856 LEASE VALUATION RESERVE.......................... -- -- 25,182 24,273 OTHER NON-CURRENT LIABILITIES.................... 11,846 10,051 74,412 72,127 COMMITMENTS AND CONTINGENCIES.................... -- -- -- -- STOCKHOLDER'S EQUITY: Cumulative convertible preferred stock, $.01 par value, 200,000 shares authorized and 50,000 shares issued at June 25, 1994 and January 29, 1995(aggregate liquidation value of $62.2 million and $67.9 million at June 25, 1994 and January 29, 1995, respectively) and no shares authorized or issued at January 28, 1996 or April 21, 1996.......... 58,997 65,136 -- -- Common stock, $.01 par value, 5,000,000 shares authorized: 1,519,632 shares, 1,519,632 shares, 1,513,938 shares and 1,513,938 shares issued at June 25, 1994, January 29, 1995, January 28, 1996 and April 21, 1996, respectively................................ 15 15 15 15 Additional capital............................. 107,650 107,650 466,783 466,783 Notes receivable from stockholders of parent... (586) (702) (602) (602) Retained deficit............................... (94,586) (112,225) (407,077) (439,058) -------- ---------- ---------- ---------- 71,490 59,874 59,119 27,138 Treasury stock: 16,732 shares, 12,345 shares, no shares and no shares of common stock at June 25, 1994, January 29, 1995, January 28, 1996 and April 21, 1996, respectively....... (2,469) (2,071) -- -- -------- ---------- ---------- ---------- Total stockholder's equity............. 69,021 57,803 59,119 27,138 -------- ---------- ---------- ---------- $980,080 $ 1,000,695 $ 3,188,129 $ 3,144,775 ======== ========== ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. F-4 119 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 12 WEEKS 12 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, APRIL 23, APRIL 21, 1993 1994 1995 1996 1995 1996 ---------- ---------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) SALES......................................... $2,742,027 $2,585,160 $ 1,556,522 $ 4,335,109 $ 623,598 $1,230,808 COST OF SALES (including purchases from related parties of $204,028, $175,929, $104,407, $141,432, $41,770 and $25,789 for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21, 1996, respectively)... 2,257,835 2,115,842 1,294,147 3,485,993 516,430 982,171 ---------- ---------- ---------- ---------- ---------- ---------- GROSS PROFIT.................................. 484,192 469,318 262,375 849,116 107,168 248,637 SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET......................................... 434,908 388,836 222,359 785,576 91,352 217,335 AMORTIZATION OF GOODWILL...................... 7,571 7,691 4,615 21,847 1,829 7,202 RESTRUCTURING CHARGE.......................... -- -- 5,134 123,083 -- -- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING INCOME (LOSS)....................... 41,713 72,791 30,267 (81,390) 13,987 24,100 INTEREST EXPENSE: Interest expense, excluding amortization of deferred financing costs.................. 64,831 62,778 38,809 170,581 15,522 52,748 Amortization of deferred financing costs.... 4,901 5,472 3,413 8,193 1,394 3,336 ---------- ---------- ---------- ---------- ---------- ---------- 69,732 68,250 42,222 178,774 16,916 56,084 LOSS (GAIN) ON DISPOSAL OF ASSETS............. (2,083) 37 (455) (547) (417 ) (3 ) PROVISION FOR EARTHQUAKE LOSSES............... -- 4,504 -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- LOSS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY CHARGE........................ (25,936) -- (11,500) (259,617) (2,512 ) (31,981 ) PROVISION FOR INCOME TAXES.................... 1,427 2,700 -- 500 300 -- ---------- ---------- ---------- ---------- ---------- ---------- LOSS BEFORE EXTRAORDINARY CHARGE.............. (27,363) (2,700) (11,500) (260,117) (2,812 ) (31,981 ) EXTRAORDINARY CHARGE.......................... -- -- -- 23,128 -- -- ---------- ---------- ---------- ---------- ---------- ---------- NET LOSS...................................... $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (2,812 ) $ (31,981 ) ========== ========== ========== ========== ========== ========== PREFERRED STOCK ACCRETION..................... 3,882 8,767 6,139 3,960 2,376 -- LOSS APPLICABLE TO COMMON SHARES.............. $ (31,245) $ (11,467) $ (17,639) $ (287,205) $ (5,188 ) $ (31,981 ) ========== ========== ========== ========== ========== ========== LOSS PER COMMON SHARE: Loss before extraordinary charge............ $ (21.52) $ (7.63) $ (11.72) $ (174.72) $ (3.44 ) $ (21.12 ) Extraordinary charge........................ -- -- -- (15.30) -- -- ---------- ---------- ---------- ---------- ---------- ---------- Net loss.................................... $ (21.52) $ (7.63) $ (11.72) $ (190.02) $ (3.44 ) $ (21.12 ) ========== ========== ========== ========== ========== ========== Average Number of Common Shares Outstanding............................... 1,452,184 1,503,828 1,504,425 1,511,453 1,507,287 1,513,938 ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. F-5 120 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 12 WEEKS 12 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, APRIL 23, APRIL 21, 1993 1994 1995 1996 1995 1996 ----------- ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Cash received from customers................. $ 2,742,027 $ 2,585,160 $ 1,556,522 $ 4,335,109 $ 623,598 $1,230,808 Cash paid to suppliers and employees......... (2,711,779) (2,441,353) (1,507,523) (4,197,875) (595,468) (1,156,304 ) Interest paid................................ (58,807) (56,762) (33,553) (157,441) (18,031) (20,596 ) Income taxes refunded (paid)................. 2,971 (247) 1,087 256 (5) -- Interest received............................ 993 903 867 2,562 133 541 Other, net................................... 8,093 121 221 547 299 3 ----------- ----------- ----------- ----------- --------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................................... (16,502) 87,822 17,621 (16,842) 10,526 54,452 CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Proceeds from sale of property and equipment.................................. 15,685 11,953 7,199 21,373 5,301 31 Payment for purchase of property and equipment.................................. (53,467) (57,471) (49,023) (122,355) (18,238) (34,222 ) Payment of acquisition costs, net of cash acquired................................... -- (11,050) -- (303,301) -- -- Other, net................................... (18) 813 (797) (1,120) (2,694) (973 ) ----------- ----------- ----------- ----------- --------- ----------- NET CASH USED BY INVESTING ACTIVITIES......... (37,800) (55,755) (42,621) (405,403) (15,631) (35,164 ) CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Proceeds from issuance of long-term debt..... 26,557 28 -- 1,050,000 -- -- Net increase (decrease) in revolving loan.... 4,900 (4,900) 27,300 100,100 8,000 (17,400 ) Payments of long-term debt................... (14,319) (14,224) (13,394) (576,727) (4,623) (1,623 ) Proceeds from issuance of preferred stock.... 46,348 -- -- -- -- -- Proceeds from issuance of common stock, net........................................ 3,652 -- 269 -- -- -- Purchase of treasury stock, net.............. (545) (1,192) (57) -- -- -- Payments of capital lease obligation......... (2,840) (3,693) (2,278) (15,314) (925) (6,134 ) Capital contribution from parent............. -- -- -- 12,108 -- -- Dividends.................................... -- -- -- (7,647) -- -- Deferred financing costs and other, net...... (8,839) (179) (276) (91,852) 17 (3,572 ) ----------- ----------- ----------- ----------- --------- ----------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................................... 54,914 (24,160) 11,564 470,668 2,469 (28,729 ) ----------- ----------- ----------- ----------- --------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 612 7,907 (13,436) 48,423 (2,636) (9,441 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................................... 24,477 25,089 32,996 19,560 19,560 67,983 ----------- ----------- ----------- ----------- --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 25,089 $ 32,996 $ 19,560 $ 67,983 $ 16,924 $ 58,542 =========== =========== =========== =========== ========= =========== RECONCILIATION OF NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Net loss..................................... $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (2,812) $ (31,981 ) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization................ 62,541 62,555 40,036 133,522 16,083 40,018 Restructuring charge......................... -- -- 5,134 123,083 -- -- Extraordinary charge......................... -- -- -- 23,128 -- -- Loss (gain) on sale of assets................ (4,613) 65 (455) (547) (417) (3 ) Change in assets and liabilities, net of effects from acquisition of businesses: Accounts and notes receivable.............. 17,145 (3,220) (3,398) (74) 9,474 136 Inventories................................ 17,697 (17,125) (11,794) 762 15,838 19,289 Prepaid expenses and other................. (5,956) (5,717) (11,239) (18,291) 1,493 500 Accounts payable and accrued liabilities... (83,286) 55,301 18,715 3,327 (27,775) 23,618 Self-insurance liabilities................. 2,935 (3,790) (8,965) 737 (1,653) 2,875 Deferred income taxes...................... 4,004 2,506 2,794 454 -- -- Income taxes payable....................... 394 (53) (1,707) 302 295 -- ----------- ----------- ----------- ----------- --------- ----------- Total adjustments............................ 10,861 90,522 29,121 266,403 13,338 86,433 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................................... $ (16,502) $ 87,822 $ 17,621 $ (16,842) $ 10,526 $ 54,452 =========== =========== =========== =========== ========= =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Purchase of property and equipment through issuance of capital lease obligation....... $ -- $ 2,575 $ 4,304 $ 24,008 $ -- $ -- =========== =========== =========== =========== ========= =========== Reduction of goodwill and deferred income taxes...................................... $ -- $ 9,896 $ -- $ -- $ -- $ -- =========== =========== =========== =========== ========= =========== Acquisition of stores in fiscal year 1994 and RSI in fiscal year 1995 Fair value of assets acquired, including goodwill................................. $ -- $ 11,241 $ -- $ 2,098,220 $ -- $ -- Net cash paid in acquisition............... -- (11,050) -- (303,301) -- -- Capital contribution from parent........... -- -- -- (262,000) -- -- ----------- ----------- ----------- ----------- --------- ----------- Liabilities assumed........................ $ -- $ 191 $ -- $ 1,532,919 $ -- $ -- =========== =========== =========== =========== ========= =========== Accretion of preferred stock................. $ 3,882 $ 8,767 $ 6,139 $ 3,960 $ 2,376 $ -- =========== =========== =========== =========== ========= ===========
The accompanying notes are an integral part of these consolidated statements. F-6 121 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED STOCK COMMON STOCK TREASURY STOCK ------------------ ------------------ ----------------- NUMBER NUMBER NUMBER STOCK- 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 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 Stockholders' 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............. -- -- -- -- -- -- -- -- (11,500) (11,500) Issuance of Treasury Stock.............. -- -- -- -- 5,504 460 (191) -- -- 269 Purchase of Treasury Stock.............. -- -- -- -- (1,117) (62) 5 -- -- (57) Payments of Stockholders' Notes.............. -- -- -- -- -- -- 70 -- -- 70 Accretion of Preferred Stock.... -- 6,139 -- -- -- -- -- -- (6,139) -- ------- -------- --------- --- ------- ------- ----- --------- --------- --------- BALANCES AT JANUARY 29, 1995................. 50,000 65,136 1,519,632 15 (12,345) (2,071) (702) 107,650 (112,225) 57,803 Net Loss............. -- -- -- -- -- -- -- -- (283,245) (283,245) Payments of Stockholders' Notes.............. -- -- -- -- -- -- 100 -- -- 100 Accretion of Preferred Stock.... -- 3,960 -- -- -- -- -- -- (3,960) -- Cancellation of Preferred Stock.... (50,000) (69,096) -- -- -- -- -- 69,096 -- -- Cancellation of F4LSI Common Stock held as Treasury Stock.............. -- -- (5,694) -- 5,694 955 -- (955) -- -- Cancellation of F4L Holdings Common Stock held as Treasury Stock..... -- -- -- -- 6,651 1,116 -- (1,116) -- -- Dividend paid to F4L Holdings, Inc...... -- -- -- -- -- -- -- -- (7,647) (7,647) Capital Contribution by F4L Holdings, Inc................ -- -- -- -- -- -- -- 282,108 -- 282,108 Issuance of Stock Options............ -- -- -- -- -- -- -- 10,000 -- 10,000 ------- -------- --------- --- ------- ------- ----- --------- --------- --------- BALANCES AT JANUARY 28, 1996................. -- $ -- 1,513,938 $ 15 -- $ -- $ (602) $466,783 $(407,077) $ 59,119 ======= ======== ========= === ======= ======= ===== ========= ========= ========= Net loss (unaudited)........ -- -- -- -- -- -- -- -- (31,981) (31,981) ------- -------- --------- --- ------- ------- ----- --------- --------- --------- BALANCES AT APRIL 21, 1996 (UNAUDITED)..... -- $ -- 1,513,938 $ 15 -- $ -- $ (602) $466,783 $(439,058) $ 27,138 ======= ======== ========= === ======= ======= ===== ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. F-7 122 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND ACQUISITIONS Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less Supermarkets, Inc. ("Food 4 Less"), 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. The Company operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest. The Company has four first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc. ("Falley's"), Food 4 Less of Southern California, Inc. ("F4L-SoCal"), formerly known as Breco Holding Company, Inc. ("BHC") and Crawford Stores, Inc. 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. Ralphs Merger On June 14, 1995, Food 4 Less, Food 4 Less Holdings, Inc., a California corporation ("Old Holdings"), and Food 4 Less, Inc. ("FFL") (which owned a majority of the stock of Old Holdings) completed a definitive agreement and plan of merger (the "Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and the stockholders of RSI. Pursuant to the terms of the Merger Agreement, as amended, the Company was merged with and into RSI (the "RSI Merger"). Immediately following the RSI Merger, pre-Merger Ralphs Grocery Company ("RGC"), which was a wholly-owned subsidiary of RSI, merged with and into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI changed its name to Ralphs Grocery Company (the "Company"). Prior to the Merger, FFL merged with and into Old Holdings, which was the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Old Holdings changed its jurisdiction of incorporation by merging into a newly-formed, wholly-owned subsidiary ("Holdings"), incorporated in Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL Merger and the Reincorporation Merger, the Company became a wholly-owned subsidiary of Holdings. The purchase price for the outstanding capital stock of RSI was $538.1 million; the Company paid $288.1 million in cash, Holdings paid $100.0 million in cash, and Holdings issued $131.5 million of its Seller Debentures and $18.5 million of its New Discount Debentures as consideration for the purchase. The Company also paid fees associated with the acquisition of $47.8 million (including a prepayment premium on outstanding mortgage debt of RGC of $19.7 million), which was offset by RGC's cash on hand at the Merger date of $32.6 million. The proceeds from the New Credit Facility, the 1995 Senior Notes and the 1995 11% Senior Subordinated Notes (all as defined below) provided the sources of financing required to pay the Company's portion of the purchase price and to repay outstanding bank debt of Food 4 Less and RGC of $176.5 million and $228.9 million, respectively, and to repay existing mortgage debt of $174.0 million of RGC. In addition, the Company exchanged certain of its newly issued senior notes and senior subordinated notes for outstanding indebtedness of RGC and Food 4 Less. Proceeds from the New Credit Facility also were used to pay certain exchange and consent solicitation fees associated with the above transactions, and to pay accrued interest on all exchanged debt securities in the amount of $27.8 million, to pay $17.8 million to the holders of the RGC Equity Appreciation Rights and to loan $5.0 million to an affiliate for the benefit of such holders, to pay approximately $93.3 million of fees and expenses of the Merger and the related financing and to pay $3.5 million to purchase shares of common stock of Old Holdings from certain dissenting shareholders. In addition, Holdings issued $22.5 million of its New Discount Debentures in consideration for certain Merger-related services. In connection with the closure of two former RGC warehouse facilities and nine former RGC stores (including three stores which were part of an antitrust settlement agreement with the State of California), the Company recorded a reserve of $24.9 million in the purchase price allocation. This reserve includes lease F-8 123 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) termination costs, write-off of the property and equipment at these locations and closure costs. These closures are expected to be completed by June 1996. Also, a reserve of $12.0 million was recorded for administrative cost reductions mainly associated with duplicative personnel. The following unaudited pro forma information for the 52 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996 presents the results of the Company's operations, adjusted to reflect interest expense and depreciation and amortization, as though the Merger had been completed on January 31, 1994. The unaudited pro forma information for the 12 weeks ended April 23, 1995 is presented as though the Merger was completed on January 30, 1995 (dollars in thousands, except per share amounts):
FOR THE ------------------------------------------ 52 WEEKS 52 WEEKS 12 WEEKS ENDED ENDED ENDED JANUARY 29, JANUARY 28, APRIL 23, 1995 1996 1995 ----------- ----------- ---------- Sales.......................................... $ 5,301,411 $ 5,360,800 $1,261,101 Restructuring charge........................... (128,217) -- (75,187) Loss before extraordinary charge............... (228,624) (93,244) (119,642) Net loss....................................... (251,752) (93,244) (142,770) Loss per share: Loss before extraordinary charge............. (151.01) (61.59) (79.03) Net loss..................................... (166.29) (61.59) (94.30)
Incremental costs of $74.8 million associated with the integration of RGC into the Company, including advertising the conversion of Food 4 Less stores to the Ralphs format, combining the Food 4 Less and RGC warehousing and distribution functions and markdowns recorded at converted stores and stores closed, were recorded in the actual statement of operations for fiscal year 1995 and are recorded in the pro forma 52 weeks ended January 29, 1995 only. The unaudited pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had the purchases actually been made on January 31, 1994, or of the results which may occur in the future. The accompanying consolidated financial statements include the preliminary allocation of the RGC purchase price. Certain appraisals and other analyses needed to determine the fair market value of RGC's net assets as of the Merger date are not yet completed. The final purchase price allocation will be completed by June 1996. 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 $11.2 million. 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 $270.5 million in a transaction accounted for as a purchase. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The results of operations of pre-Merger Ralphs Grocery Company and all previous acquisitions have been excluded from the consolidated financial statements for periods prior to their respective acquisition dates. All intercompany transactions have been eliminated in consolidation. F-9 124 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fiscal Years Food 4 Less, together with its subsidiaries, changed its fiscal year end from the 52 or 53-week period which ends on the last Saturday in June to the 52 or 53-week period which ends on the Sunday closest to January 31, resulting in a 31-week transition period ended January 29, 1995. As a result of the fiscal year end change, the 52-week period ended June 26, 1993 is referred to as fiscal year 1993, the 52-week period ended June 25, 1994 is referred to as fiscal year 1994, the 31-week period ended January 29, 1995 is referred to as the 1995 transition period and the 52-week period ended January 28, 1996 is referred to as fiscal year 1995. In addition, information presented below concerning subsequent fiscal years starts with fiscal year 1996, which will cover the 53 weeks ended February 2, 1997 and will proceed sequentially forward. 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. 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 $13.8 million, $16.5 million, $18.7 million and $20.0 million (unaudited) at June 25, 1994, January 29, 1995, January 28, 1996 and April 21, 1996, respectively, and gross profit and operating income would have been greater by $4.4 million, $0.7 million, $2.7 million, $2.2 million, $1.0 million (unaudited) and $1.3 million (unaudited) for fiscal year 1993, fiscal year 1994, the 1995 transition period, fiscal year 1995, the first quarter of fiscal year 1995 and the first quarter of fiscal year 1996, respectively. Pre-opening Costs The costs associated with opening new stores are deferred and amortized over one year following the opening of each new store. Closed Store Reserves When a store is closed, the Company provides a reserve for the net book value of its property and equipment, net of salvage value, and the net present value of the remaining lease obligation, net of sublease income. For fiscal year 1993, fiscal year 1994, the 1995 transition period and fiscal year 1995 (which includes activity due to the Merger), utilization of this reserve was $2.4 million, $1.1 million, $0.6 million and $23.0 million, respectively. Investments in Supplier Cooperatives The investment in Certified is accounted for on the cost method. There are certain restrictions on the sale of this investment. F-10 125 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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)
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. Goodwill The excess of the purchase price over the fair value of the net assets of businesses acquired is amortized on a straight-line basis over 40 years beginning at the date of acquisition. Current and undiscounted future operating cash flows are compared to current and undiscounted future goodwill amortization to determine if an impairment of goodwill has occurred and is continuing. As of January 28, 1996, no impairment existed. 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. The implementation of SFAS 109 did not have a material effect on the accompanying consolidated financial statements. Notes Receivable from Stockholders of Parent Notes receivable from stockholders of parent represent loans to employees of the Company for purchases of Holdings' common stock. The notes are due over various periods, bear interest at the prime rate, and are secured by each stockholder's shares of Holdings' common stock. Self-Insurance The Company is self-insured for a portion of its workers' compensation, general liability and automobile accident claims. The Company establishes reserves based on an independent actuary's valuation of open claims reported and an estimate of claims incurred but not yet filed. 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. F-11 126 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Provision for Earthquake Losses On January 17, 1994, Southern California was struck by a major earthquake which resulted in the temporary closure of 31 of the Company's stores. The closures were caused primarily by loss of electricity, water, or 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 loss, net of insurance recoveries, was approximately $4.5 million. Extraordinary Items For the 52 weeks ended January 28, 1996, the Company recorded an extraordinary charge relating to the refinancing of Food 4 Less' Old Credit Facility, 10.45% Senior Notes due 2000 (the "1992 Senior Notes"), 13.75% Senior Subordinated Notes due 2001 (the "1991 Senior Subordinated Notes"), the repayment of Holdings' 15.25% Senior Discount Notes due 2004 in connection with the Merger and the write-off of their related debt issuance costs. 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. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent Accounting Pronouncements The Financial Accounting Standards Board has issued Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121) and Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). The Company will be required to adopt SFAS 121 and SFAS 123 in fiscal year 1996. The Company does not expect that the adoption of SFAS 121 or SFAS 123 will have a material effect on its financial position or its results of operations in fiscal year 1996. Reclassifications Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the fiscal year 1995 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, Holdings, in exchange for gross proceeds of $50.0 million. The Preferred Stock had a stated dividend rate of $152.50 per F-12 127 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) share, per annum. 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 Notes") and 121,118 Common Stock Purchase Warrants (the "Warrants") for gross proceeds of $50.0 million. In connection with the Merger, the Preferred Stock was cancelled. The accreted amount of the Preferred Stock at the date of the Merger was contributed to the Company's capital and is reflected in the accompanying 1995 Consolidated Statement of Stockholder's Equity as a component of additional paid-in capital. Also, at the time of the Merger, Holdings repaid its borrowings under the Holdings Notes. (4) SENIOR DEBT AND SENIOR SUBORDINATED DEBT The Company's senior debt is summarized as follows:
AS OF -------------------------------------------- JUNE 25, JANUARY 29, JANUARY 28, 1994 1995 1996 ------------ ------------ -------------- New Term Loans..................................... $ -- $ -- $ 590,426,000 Old Term Loan...................................... 137,064,000 125,732,000 -- 10.45% Senior Notes, principal due 2004 with interest payable semi-annually in arrears........ -- -- 520,326,000 10.45% Senior Notes, principal due 2000 with interest payable semi-annually in arrears........ 175,000,000 175,000,000 4,674,000 New Revolving Facility............................. -- -- 127,400,000 Old Revolving Loan................................. -- 27,300,000 -- 10.0% secured promissory note, collateralized by the stock of Bell, due June 1996, interest payable quarterly................................ 8,000,000 8,000,000 8,000,000 Other senior debt.................................. 9,194,000 7,132,000 7,211,000 ------------ ------------ -------------- 329,258,000 343,164,000 1,258,037,000 Less -- current portion............................ 18,314,000 22,263,000 31,735,000 ------------ ------------ -------------- $310,944,000 $320,901,000 $1,226,302,000 ============ ============ ==============
Senior Debt As part of the Merger financing, the Company entered into a new bank credit agreement (the "New Credit Facility") comprised of a $600.0 million term loan facility (the "New Term Loans") and a revolving credit facility of $325.0 million (the "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 $150.0 million may be issued. At January 28, 1996, $590.4 million was outstanding under the New Term Loans, $127.4 million was outstanding under the New Revolving Facility, and $92.7 million of standby letters of credit had been issued on behalf of the Company. A commitment fee of one-half of one percent per annum is charged on the average daily unused portion of the New Revolving Facility; such commitment fees are due quarterly in arrears. Interest on borrowings under the New Term Loans is due quarterly in arrears and is at the bank's Base Rate (as defined) plus a margin ranging from 1.50 percent to 2.75 percent or the Adjusted Eurodollar Rate (as defined) plus a margin ranging from 2.75 percent to 4.00 percent. At January 28, 1996, the weighted average interest rate on the New Term Loans was 9.19 percent. Interest on borrowings under the New Revolving Facility is at the bank's Base Rate (as defined) plus a margin of 1.50 percent or the Adjusted Eurodollar Rate F-13 128 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (as defined) plus a margin of 2.75 percent; at January 28, 1996, the interest rate on the New Revolving Facility was 9.05 percent. On October 11, 1995, the Company entered into an interest rate collar agreement with the New Credit Facility Administrative Agent which effectively set interest rate limits on $300.0 million of the Company's New Term Loans. This interest rate collar, which was effective as of October 19, 1995, limits the interest rate fluctuation of the Adjusted Eurodollar Rate (as defined) to a range between 4.5 percent and 8.0 percent for two years. This agreement satisfies the interest rate protection requirements under the New Credit Facility. Quarterly principal installments on the New Term Loans continue to December 2003, with amounts payable in each year as follows: $19.3 million in fiscal 1996, $46.0 million in fiscal 1997, $58.5 million in fiscal 1998, $62.0 million in fiscal 1999, $65.6 million in fiscal 2000, and $339.0 million thereafter. The principal installments can be accelerated if the Company receives proceeds on the sale of certain of its assets in the future. To the extent that borrowings under the New Revolving Facility are not paid earlier, they are due in December 2003. The common stock of the Company and certain of its direct and indirect subsidiaries has been pledged as security under the New Credit Facility. The Company issued $350.0 million of 10.45% Senior Notes due 2004 (the "1995 Senior Notes") and exchanged $170.3 million principal amount of 1995 Senior Notes for an equal amount of the 10.45% F4L Senior Notes due 2000 (the "1992 Senior Notes") (together with the 1995 Senior Notes, the "Senior Notes"), leaving an outstanding balance of $4.7 million of the 1992 Senior Notes. The 1992 Senior Notes are due in two equal sinking fund payments on April 15, 1999 and 2000. The Senior Notes are senior unsecured obligations of the Company and rank "pari passu" in right of payment with other senior unsecured indebtedness of the Company. However, the Senior Notes are effectively subordinated to all secured indebtedness of the Company and its subsidiaries, including indebtedness under the New Credit Facility. Interest on the 1995 Senior Notes is payable semiannually in arrears on each June 15 and December 15. Interest on the 1992 Senior Notes is payable semiannually in arrears on each April 15 and October 15. The 1995 Senior Notes may be redeemed, at the option of the Company, in whole at any time or in part from time to time, beginning in fiscal 2000, at a redemption price of 105.225 percent. The redemption price declines ratably to 100 percent in fiscal 2003. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more public equity offerings to redeem up to an aggregate of 35 percent of the principal amount of the 1995 Senior Notes originally issued, at a redemption price equal to 110.450 percent, 108.957 percent, and 107.464 percent of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in each case plus accrued and unpaid interest, if any, to the redemption date. The 1992 Senior Notes may be redeemed beginning in fiscal year 1996 at 104.48 percent, declining ratably to 100 percent in fiscal year 1999. Scheduled maturities of principal of senior debt at January 28, 1996 are as follows:
FISCAL YEAR ------------------------------------- 1996................................. $ 31,735,000 1997................................. 46,246,000 1998................................. 58,739,000 1999................................. 62,280,000 2000................................. 65,805,000 Later years.......................... 993,232,000 -------------- $1,258,037,000 ==============
F-14 129 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Senior Subordinated Debt Concurrent with the Merger, the Company issued $100.0 million of 11% Senior Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes") and (i) exchanged $142.2 million principal amount of the RGC 9% Senior Subordinated Notes due 2003 (the "Old RGC 9% Notes") and $281.8 million principal amount of the RGC 10.25% Senior Subordinated Notes due 2002 (the "Old RGC 10.25% Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") for an equal amount of 1995 11% Senior Subordinated Notes, (ii) purchased $7.5 million principal amount of Old RGC 9% Notes and $15.2 million principal amount of Old RGC 10.25% Notes in conjunction with the offers, and (iii) subsequently purchased $0.1 million principal amount of Old RGC 9% Notes and $1.0 million principal amount of Old RGC 10.25% Notes subject to the change of control provision, leaving an outstanding balance of $0.1 million on the Old RGC 9% Notes and an outstanding balance of $2.1 million on the Old RGC 10.25% Notes. The 1995 11% Senior Subordinated Notes are senior subordinated unsecured obligations of the Company and are subordinated in right of payment to all senior indebtedness, including the Company's obligations under the New Credit Facility and the Senior Notes. Interest on the 1995 11% Senior Subordinated Notes is payable semiannually in arrears on each June 15 and December 15. The 1995 11% Senior Subordinated Notes may be redeemed at the option of the Company, in whole at any time or in part from time to time, beginning in fiscal year 2000, at an initial redemption price of 105.5 percent. The redemption price declines ratably to 100 percent in fiscal year 2003. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more public equity offerings to redeem up to an aggregate of 35 percent of the principal amount of the 1995 11% Senior Subordinated Notes originally issued, at a redemption price equal to 111 percent, 109.429 percent, and 107.857 percent of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in each case plus accrued and unpaid interest, if any, to the redemption date. The Company exchanged $140.2 million 13.75% Senior Subordinated Notes due 2005 (the "1995 13.75% Senior Subordinated Notes") for an equal amount of 13.75% Senior Subordinated Notes due 2001 (the "1991 Senior Subordinated Notes," and together with the 1995 13.75% Senior Subordinated Notes, the "13.75% Senior Subordinated Notes") of the Company, leaving an outstanding balance of $4.8 million of the 1991 Senior Subordinated Notes. The 13.75% Senior Subordinated Notes are senior subordinated unsecured obligations of the Company and are subordinated in right of payment to all senior indebtedness, including the Company's obligations under the New Credit Facility and the Senior Notes. Interest on the 13.75% Senior Subordinated Notes is payable semiannually in arrears on each June 15 and December 15 commencing on December 15, 1995. The 1995 13.75% Senior Subordinated Notes may be redeemed beginning in fiscal year 1996 at a redemption price of 106.111 percent. The redemption price declines ratably to 100 percent in fiscal year 2000. Financial Covenants The New Credit Facility, among other things, requires the Company to maintain minimum levels of net worth (as defined), to maintain minimum levels of earnings, to maintain a hedge agreement to provide interest rate protection, and to comply with certain ratios related to fixed charges and indebtedness. During fiscal 1995, certain financial covenants and other terms of the New Credit Facility were amended to, among other things, provide for the acquisition of Smith's Food and Drug Centers, Inc. ("Smith's") Riverside distribution and creamery facility, the acquisition of certain operating assets and inventory at that facility, the acquisition of nine of the Smith's Southern California stores and the closure of up to nine stores in conjunction with these acquisitions. In addition, the New Credit Facility and the indentures governing the Company's debt securities limit, among other things, additional borrowings, dividends on, and redemption of, capital stock and the F-15 130 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) acquisition and the disposition of assets. At January 28, 1996, the Company was in compliance with the financial covenants of its debt agreements. At January 28, 1996, dividends and certain other payments are restricted based on terms in the debt agreements. (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:
FOR THE ----------------------------------------------------------- 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, 1993 1994 1995 1996 ----------- ----------- ----------- ----------- Minimum rents......... $44,504,000 $49,788,000 $33,458,000 $97,752,000 Rents based on sales............... 5,917,000 3,806,000 1,999,000 3,439,000
Following is a summary of future minimum lease payments under operating leases at January 28, 1996:
FISCAL YEAR ----------- 1996................................. $ 123,705,000 1997................................. 116,285,000 1998................................. 105,502,000 1999................................. 102,714,000 2000................................. 98,506,000 Later years.......................... 772,372,000 --------------- $1,319,084,000 ===============
The Company has entered into lease agreements for new supermarket sites and one warehouse facility which were not in operation at January 28, 1996. Future minimum lease payments under such operating leases generally begin when such facilities open and at January 28, 1996 are: 1996 -- $19.8 million; 1997 -- $35.2 million; 1998 -- $35.2 million; 1999 -- $35.3 million; 2000 -- $35.3 million; later years -- $561.0 million. F-16 131 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Certain leases qualify as capital leases under the criteria established in Statement of Financial Accounting Standards No. 13, "Accounting for Leases", and are classified on the consolidated balance sheets as leased property under capital leases. Future minimum lease payments for the property under capital leases at January 28, 1996 are as follows:
FISCAL YEAR ----------- 1996................................................... $ 37,373,000 1997................................................... 34,820,000 1998................................................... 28,818,000 1999................................................... 22,644,000 2000................................................... 17,353,000 Later years............................................ 123,686,000 ------------ Total minimum lease payments................. 264,694,000 Less: amounts representing interest.................... 111,649,000 ------------ Present value of minimum lease payments................ 153,045,000 Less: current portion.................................. 22,261,000 ------------ $130,784,000 ============
Accumulated depreciation related to assets financed under capital leases was $24.0 million, $27.6 million and $42.7 million at June 25, 1994, January 29, 1995 and January 28, 1996, 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. (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:
FISCAL YEAR ----------- 1996..................................... $ -- 1997..................................... 1,060,000 1998..................................... 1,520,000 1999..................................... 1,504,000 2000..................................... 1,478,000 Later years.............................. 1,726,000 ---------- $7,288,000 ==========
F-17 132 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) INCOME TAXES The provision (benefit) for income taxes consists of the following:
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, 1993 1994 1995 1996 ---------- ----------- ----------- ----------- Current: Federal............................................... $ -- $ 3,251,000 $(2,894,000) $ -- State and other....................................... 82,000 712,000 100,000 46,000 ---------- ----------- ----------- --------- 82,000 3,963,000 (2,794,000) 46,000 ---------- ----------- ----------- --------- Deferred: Federal............................................... 1,345,000 (70,000) 2,794,000 -- State and other....................................... -- (1,193,000) -- 454,000 ---------- ----------- ----------- --------- 1,345,000 (1,263,000) 2,794,000 454,000 ---------- ----------- ----------- --------- $1,427,000 $ 2,700,000 $ -- $ 500,000 ========== =========== =========== =========
A reconciliation of the provision (benefit) for income taxes to amounts computed at the federal statutory rates of 34 percent for fiscal 1993 and 35 percent for fiscal 1994, the 1995 transition period and fiscal 1995 is as follows:
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, 1993 1994 1995 1996 ----------- ---------- ----------- ------------ Federal income taxes at statutory rate on loss before provision for income taxes and extraordinary charges.......................... $(8,818,000) $ -- $(4,025,000) $(98,959,000) State and other taxes, net of federal tax benefit........................................ 82,000 (1,000) 65,000 (16,794,000) Alternative minimum tax.......................... -- -- -- -- Effect of permanent differences resulting primarily from amortization of goodwill and debt costs..................................... 2,850,000 2,820,000 1,701,000 (1,665,000) Tax credits and other............................ -- -- -- 3,769,000 Accounting limitation (recognition) of deferred tax benefit.................................... 7,313,000 (119,000) 2,259,000 114,149,000 ---------- ---------- ---------- ------------ $1,427,000 $2,700,000 $ -- $ 500,000 ========== ========== ========== ============
F-18 133 RALPHS GROCERY COMPANY (FORMERLY 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 31 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, 1993 1994 1995 1996 ---------- ----------- ----------- ------------ Depreciation.......................................... $7,756,000 $ 2,536,000 $(1,513,000) $ (461,000) Difference between book and tax basis of assets sold................................................ 3,198,000 (4,223,000) 2,505,000 -- Deferred revenues and allowances...................... 40,000 (2,349,000) 707,000 -- Inventory............................................. -- -- -- (8,479,000) Pre-opening costs..................................... (512,000) 174,000 784,000 -- Accounts receivable reserves.......................... (270,000) 249,000 80,000 -- Unicap................................................ (5,000) (536,000) (755,000) -- Capital lease obligation.............................. (1,385,000) 2,792,000 527,000 (502,000) Self-insurance reserves............................... (4,082,000) (535,000) 5,523,000 2,104,000 Inventory shrink reserve.............................. 777,000 (869,000) (569,000) -- LIFO.................................................. (554,000) (1,010,000) (1,303,000) -- Closed store reserve.................................. 1,092,000 440,000 176,000 -- Accrued expense....................................... -- (582,000) 350,000 (26,304,000) Accrued payroll and related liabilities............... 193,000 1,721,000 (3,879,000) (6,206,000) Acquisition costs..................................... 2,626,000 1,397,000 (5,444,000) -- Tax intangibles....................................... -- -- -- 6,234,000 Sales tax reserves.................................... (715,000) (418,000) 433,000 -- State taxes........................................... -- -- -- (20,639,000) Deferred rent subsidy................................. (483,000) (624,000) (29,000) -- Net operating losses.................................. -- -- -- (61,219,000) Net operating loss usage.............................. -- 5,782,000 (6,963,000) -- Tax credits........................................... -- -- -- 3,601,000 Tax credits benefited................................. (1,392,000) (4,477,000) 1,711,000 -- Accounting limitation (recognition) of deferred tax benefit............................................. (4,591,000) (1,085,000) 10,494,000 114,149,000 Other, net............................................ (348,000) 354,000 (41,000) (1,824,000) ----------- ----------- ----------- ------------ $1,345,000 $(1,263,000) $ 2,794,000 $ 454,000 =========== =========== =========== ============
F-19 134 RALPHS GROCERY COMPANY (FORMERLY 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 25, JANUARY 29, JANUARY 28, 1994 1995 1996 ------------ ------------ ------------- Deferred tax assets: Accrued payroll and related liabilities....... $ 2,448,000 $ 6,248,000 $ 27,579,000 Other accrued liabilities..................... 13,953,000 12,080,000 71,954,000 Obligations under capital leases.............. -- -- 37,584,000 Property and equipment........................ 2,997,000 -- -- Self-insurance liabilities.................... 27,744,000 25,204,000 49,773,000 Loss carryforwards............................ 20,675,000 27,638,000 154,202,000 Tax credit carryforwards...................... 5,869,000 4,157,000 913,000 State taxes................................... -- -- 30,210,000 Other......................................... 580,000 570,000 18,026,000 ------------ ------------ ------------- Gross deferred tax assets.................. 74,266,000 75,897,000 390,241,000 Valuation allowance........................... (31,149,000) (41,643,000) (285,506,000) ------------ ------------ ------------- Net deferred tax assets.................... $ 43,117,000 $ 34,254,000 $ 104,735,000 ------------ ------------ ------------- Deferred tax liabilities: Inventories................................... $(16,738,000) $(11,690,000) $ (9,762,000) Property and equipment........................ (30,516,000) (28,527,000) (106,116,000) Obligations under capital leases.............. (8,733,000) (9,261,000) -- Tax intangibles............................... -- -- (6,234,000) Other......................................... (1,870,000) (2,310,000) (611,000) ------------ ------------ ------------- Gross deferred tax liability............... (57,857,000) (51,788,000) (122,723,000) ------------ ------------ ------------- Net deferred tax liability................. $(14,740,000) $(17,534,000) $ (17,988,000) ============ ============ =============
The Company recorded a valuation allowance to reserve a portion of its gross deferred tax assets at January 28, 1996 due primarily to financial and tax losses in recent years. Under SFAS 109, this valuation allowance will be adjusted in future periods as appropriate. However, the timing and extent of such future adjustments to the allowance cannot be determined at this time. At January 28, 1996, approximately $139.0 million of the valuation allowance for deferred tax assets will reduce goodwill when the allowance is no longer required. At January 28, 1996, the Company has net operating loss carryforwards for federal income tax purposes of $440.6 million, which expire from 2007 through 2011. The Company has federal Alternative Minimum Tax ("AMT") credit carryforwards of approximately $0.9 million which are available to reduce future regular taxes in excess of AMT. Currently, there is no expiration date for these credits. A portion of the loss carryforwards described above are subject to the provisions of the Tax Reform Act of 1986, specifically Internal Revenue Code Section 382. The law limits the use of net operating loss carryforwards when changes of ownership of more than 50 percent occur during a three-year testing period. Due to the merger, the ownership of Food 4 Less and RSI changed in excess of 50 percent. As a result, the Company's utilization of approximately $78.0 million of Food 4 Less' and $187.0 million of RSI's federal net operating losses will be subject to an annual usage limitation. The Company's annual limitations under Section 382 for Food 4 Less' and RSI's net operating losses are approximately $15.6 million and $15.0 million, respectively. Furthermore, all of the Company's pre-Merger RSI net operating losses and a portion of the Company's Ralphs post-Merger losses will reduce goodwill when utilized in future federal income tax returns. F-20 135 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Holdings files a consolidated federal income tax return, under which the federal income tax liability of Holdings and its subsidiaries is determined on a consolidated basis. Holdings is a party to 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 Holdings and has taxable income, the Company will pay to Holdings 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 Holdings and its other subsidiaries, Holdings will credit to the Company the amount of such reduction in the consolidated tax liability. These credits are passed between Holdings 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 Holdings and the Company of such state and local taxes. The Company currently has an Internal Revenue Service examination in process covering the years 1990 through 1993. Management believes that any required adjustment to the Company's tax liabilities will not have a material adverse impact on its financial position or results of operations. (8) RELATED PARTY TRANSACTIONS The Company has a five-year consulting agreement with an affiliated company effective June 14, 1995 for management, financing, acquisition and other services. The agreement is automatically renewed on June 14 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 $4 million plus advisory fees for certain acquisition transactions, if the affiliated company is retained by the Company. Management services expenses were $2.0 million during fiscal year 1993, $2.3 million during fiscal year 1994, $1.2 million during the 1995 transition period and $3.6 million during fiscal year 1995. Advisory fees were $1.8 million during fiscal year 1993, $0.2 million during fiscal year 1994 and $21.5 million during fiscal year 1995. There were no such advisory fees for the 1995 transition period. Advisory fees for financing transactions are capitalized and amortized over the term of the related financing. (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 certain Certified stock. Such gains are only payable if Certified is purchased or dissolved, or if the Company sells such Certified Stock within the period noted above. In connection with the bankruptcy reorganization of Federated Department Stores, Inc. ("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. In the event Federated is required to pay certain tax liabilities, RSI and RGC agreed to reimburse Federated up to an additional $10 million, subject to certain adjustments. Pursuant to the terms of the Merger, the $5 million payment and the potential $10 million payment will be paid in cash. 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 $1,505,000. F-21 136 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company has entered into lease agreements with the developers of several new sites in which the Company has agreed to provide construction financing. At January 28, 1996, the Company had capitalized construction costs of $20.4 million on total commitments of $24.0 million. 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 fiscal year 1993, fiscal year 1994, the 1995 transition period and fiscal year 1995, the self-insurance loss provisions were $38.0 million, $19.9 million, $6.3 million and $32.6 million, respectively. During fiscal year 1993 and fiscal year 1994, the Company discounted its self-insurance liability using a 7.0 percent discount rate. In the 1995 transition period, the Company changed the discount rate to 7.5 percent. In fiscal 1995, the Company changed the discount rate to 7.0 percent. Management believes that this rate approximates the time value of money over the anticipated payout period (approximately 10 years) for essentially risk-free investments. The Company's historical self-insurance liability at the end of the three most recent fiscal years and the 1995 transition period is as follows:
AS OF -------------------------------------------------------- JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, 1993 1994 1995 1996 ------------ ----------- ------------ ------------ Self-insurance liability......... $100,773,000 $90,898,000 $ 84,286,000 $161,391,000 Less: Discount................... (15,279,000) (9,194,000) (11,547,000) (12,406,000) ------------ ----------- ------------ ------------ Net self-insurance liability..... $ 85,494,000 $81,704,000 $ 72,739,000 $148,985,000 ============ =========== ============ ============
The Company expects that cash payments for claims will aggregate approximately $21.8 million, $35.4 million, $31.6 million, $21.5 million and $13.1 million for the fiscal year 1996, the fiscal year 1997, the fiscal year 1998, the fiscal year 1999 and the fiscal year 2000, respectively. Environmental Matters In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that RGC conduct a subsurface characterization of its Glendale warehouse property located in the Atwater District of Los Angeles. 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 RGC's grocery warehouse 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 RGC's grocery warehouse. Since that time, the Regional Board has requested further investigation by RGC. RGC conducted the requested investigations and F-22 137 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 RGC's grocery warehouse. RGC 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 RGC's property. On or about October 12, 1995, the EPA mailed a Special Notice Letter to 44 parties, including Ralphs as owner and operator of the Glendale property, naming them as potentially responsible parties ("PRPs"). Ralphs and other PRPs have agreed to enter into negotiations over a consent decree with the EPA to implement a remedial design and reimburse oversight costs. The PRPs have also agreed to an Alternative Dispute Resolution Process to allocate the costs among themselves. 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. RGC removed underground storage tanks and remediated soil contamination at the grocery warehouse 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 grocery warehouse property, management does not believe that the costs of remediating such contamination will be material to the Company. Apart from the grocery warehouse property, RGC had environmental assessments performed on most 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. At the time 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 previously 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. The Company 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. (10) EMPLOYEE BENEFIT PLANS As a result of the Merger, the Company adopted certain employee benefit plans previously sponsored by RGC. These employee benefit plans include the Ralphs Grocery Company Retirement Plan (the "Pension Plan"), the Ralphs Grocery Company Supplemental Executive Retirement Plan (the "SERP"), and the Ralphs Grocery Company Retirement Supplement Plan (the "Retirement Supplement Plan"). Pension Plan The Pension Plan covers substantially all employees not already covered by collective bargaining agreements with at least one year of credited service (defined at 1,000 hours). Employees who were employed by Food 4 Less and who are otherwise eligible to participate in the Pension Plan became eligible to participate in fiscal year 1995. The Company's policy is to fund pension costs at or above the minimum annual requirement. F-23 138 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SERP The SERP covers certain key officers of the Company. 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 the Company's obligations under the SERP. Retirement Supplement Plan The Retirement Supplement Plan is a non-qualified retirement plan designed to provide eligible participants with benefits based on earnings over the indexed amount of $150,000. The following actuarially determined components were included in the net expense for the above plans for fiscal year 1995 (dollars in thousands): Service cost............................... $ 2,841 Interest cost on projected benefit obligation............................... 2,543 Actual return on assets.................... (3,223) Net amortization and deferral.............. 1,365 ------- Net pension expense...................... $ 3,526 =======
The funded status of the Pension Plan (based on December 1995 asset values) is as follows:
AS OF JANUARY 28, 1996 ---------------------- (DOLLARS IN THOUSANDS) Assets Exceed Accumulated Benefits: Actuarial present value of benefit obligations: Vested benefit obligation....................... $ 42,446 Accumulated benefit obligation.................. 43,256 Projected benefit obligation.................... 63,913 Plan assets at fair value....................... 44,552 -------- Projected benefit obligation in excess of Plan.... (19,361) Assets Unrecognized net loss...................... 4,136 Unrecognized prior service cost................... 1,100 -------- Accrued pension cost............................ $(14,125) ========
F-24 139 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The funded status of the SERP and Retirement Supplement Plan (based on December 1995 asset values) is as follows:
AS OF JANUARY 28, 1996 (DOLLARS IN THOUSANDS) ---------------------- Assets Exceed Accumulated Benefits: Actuarial present value of benefit obligations: Vested benefit obligation....................... $ (4,863) Accumulated benefit obligation.................. (4,908) Projected benefit obligation.................... (11,778) Plan assets at fair value....................... -- -------- Projected benefit obligation in excess of Plan.... (11,778) Assets Unrecognized net loss...................... 544 Unrecognized prior service cost................... 1,846 -------- Accrued pension cost............................ $ (9,388) ========
The discount rate used for fiscal year 1995 was 7.5 percent. A long-term rate of return on assets of 9.0 percent was also used in the actuarial valuation. 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. Employee Stock Ownership Plans The Company implemented Statement of Position No. 93-6 (the "SOP"), "Employer Accounting for Employee Stock Ownership Plans," effective June 26, 1994. The implementation of the SOP did not have a material effect on the accompanying 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, a portion of which is invested in Holdings stock (the "Falley's ESOP"). As is required pursuant to IRS and ERISA requirements, any participant who receives stock from the Falley's ESOP has the right to put that stock to Falley's or an affiliate of Falley's. However, as part of the original stock sale agreement among the then stockholders of Falley's, FFL and the Falley's ESOP, which has been amended from time to time, a partnership which owns stock of Holdings entered into an agreement with Falley's and Holdings to assume the obligation to purchase any Holdings shares as to which terminated plan participants exercise a put option under the terms of Falley's ESOP. As a result, neither Falley's nor the Company is 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 Holdings shares put under the provisions of the plan. However, the partnership's obligation to purchase such Holdings shares is unconditional, and any repurchase of shares by the Company is at the Company's sole election. During fiscal year 1995, the Company did not purchase any of the Holdings shares. As of November 3, 1995, the fair value of the shares allocated which are subject to repurchase obligation by the partnership referred to above was approximately $14.6 million. In addition, 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. F-25 140 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 fiscal year 1995 and the 1995 transition period, the Company recorded a charge against operations of approximately $0.8 million and $0.3 million, respectively, for benefits under the Union ESOPs. There were no shares issued to the Union ESOPs or to the Company's profit sharing plan at January 28, 1996. Defined Contribution Plan The Company sponsors the Ralphs Grocery Company Savings Plan Plus -- Primary, the Ralphs Grocery Savings Plan Plus -- Basic and the Food 4 Less Supermarkets, Inc. Profit Sharing and Retirement Plan (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 provides for both pre-tax and after-tax contributions by participating employees. With certain limitations, participants may elect to contribute on a pre-tax basis to the 401(k) Plan. The Company has committed to match a minimum of 20 percent of an employee's contribution to the 401(k) Plan that does not exceed 5 percent of the employee's compensation. Expenses under the 401(k) Plan for fiscal years 1993, 1994 and 1995 were $0.3 million, $0.7 million and $0.7 million, respectively. Multi-Employer Benefit Plans The Company contributes to multi-employer benefit plans administered by various trustees. Contributions to these plans are based upon negotiated wage contracts. These plans may be deemed to be defined benefit plans. Information related to accumulated plan benefits and plan net assets as they may be allocated to the Company at January 28, 1996 is not available. The Company contributed $69.4 million, $57.2 million, $21.6 million and $102.1 million to these plans for fiscal year 1993, fiscal year 1994, the 1995 transition period and fiscal year 1995, respectively. Management is not aware of any plans to terminate such plans. The United Food and Commercial Workers health and welfare plans were over-funded and those employers who contributed to the plans received a pro rata share of the excess reserves in the plans through reduction of current contributions. The Company's share of the excess reserve was $24.2 million, of which $8.1 million, $14.3 million and $1.8 million was recognized in fiscal year 1994, the 1995 transition period, and fiscal year 1995, respectively. Offsetting the reduction in employer contributions was a $5.5 million union contract ratification bonus and contractual wage increases in the 1995 transition period. Post-Retirement Medical Benefit Plan The Company adopted a postretirement medical benefit plan ("Postretirement Medical Plan"), previously sponsored by RGC, which covers 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 provides outpatient, inpatient and various other covered services. Such benefits are funded from the Company's general assets. The calendar 1995 year deductible is $1,000 per individual, indexed to the Medical Consumer Price Index. The net periodic cost of the Postretirement Medical Plan include the following components for fiscal year 1995 (dollars in thousands): Service cost................................................. $ 468 Interest cost................................................ 561 Return on plan assets........................................ -- Net amortization and deferral................................ (116) ----- Net postretirement benefit cost.................... $ 913 =====
F-26 141 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The funded status of the postretirement benefit plan is as follows (dollars in thousands): Accumulated postretirement benefit obligation: Retirees.................................................. $ 2,208 Fully eligible plan participants.......................... 1,483 Other active plan participants............................ 10,862 Plan assets at fair value................................. -- -------- Accumulated postretirement obligations in excess of plan assets................................... (14,553) Unrecognized loss......................................... 562 Unrecognized prior service cost........................... (3,246) -------- Accrued postretirement benefit obligation................. $(17,237) ========
Service cost was calculated using a medical cost trend of 10.5 percent and a decreasing medical cost trend rate of 14 percent and 8 percent for 1993 and 1994, respectively. A medical cost trend rate of 13 percent was used for fiscal year 1995, and a decreasing rate of 12 percent and 6 percent for future years. The discount rate was 7.5 percent for the Company expense for the fiscal year. 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 1995 service and interest cost to 26 percent. The accumulated postretirement benefit obligation at January 28, 1996 would also increase by 30 percent. (11) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents The carrying amount approximates fair value as a result of the short maturity of these instruments. Short-Term Notes and Other Receivables The carrying amount approximates fair value as a result of the short maturity of these instruments. 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 non-current notes 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. Long-Term Debt The fair value of the Senior Notes, the 1995 11% Senior Subordinated Notes and the 13.75% Senior Subordinated Notes is based on quoted market prices. The New Term Loans and the New Revolving Facility are estimated to be recorded at the fair value of the debt. 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-27 142 RALPHS GROCERY COMPANY (FORMERLY 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:
AS OF JANUARY 28, 1996 ------------------------------- CARRYING FAIR AMOUNT VALUE ------------- ------------- Cash and cash equivalents...................... $ 67,983,000 $ 67,983,000 Short-term notes and other receivables......... 6,452,000 6,452,000 Investments in and notes receivable from supplier cooperatives (not practicable)...... 12,214,000 -- Long-term debt for which it is: - Practicable to estimate fair values........ 1,902,341,000 1,878,648,000 - Not practicable............................ 26,918,000 --
(12) RESTRUCTURING CHARGE During fiscal 1995, the Company recorded a $75.2 million charge associated with the closure of 58 former Food 4 Less stores and one former Food 4 Less warehouse facility. Twenty-four of these stores were required to be closed pursuant to a settlement agreement with the State of California in connection with the Merger. Three RGC stores were also required to be sold. Thirty-four of the closed stores were under-performing former Food 4 Less stores. The $75.2 million restructuring charge consisted of write-downs of property and equipment ($52.2 million) less estimated proceeds ($16.0 million); reserve for closed stores and warehouse facility ($16.1 million); write-off of the Alpha Beta trademark ($8.3 million); write-off of other assets ($8.0 million); lease termination expenses ($4.0 million); and miscellaneous expenses ($2.6 million). During fiscal year 1995, the Company utilized $34.7 million of the reserve for restructuring costs ($50.0 million of costs partially offset by $15.3 million of proceeds from the divestiture of stores). The charges consisted of write-downs of property and equipment ($33.2 million); write-off of the Alpha Beta trademark ($8.3 million); and expenditures associated with the closed stores and the warehouse facility, write-off of other assets, lease termination expenditures and miscellaneous expenditures ($8.5 million). Future lease payments of approximately $19.1 million will be offset against the remaining reserve. During the first quarter of fiscal year 1996, the Company utilized $5.5 million of the reserve for restructuring costs. The charges consisted of write-downs of property and equipment of $4.8 million (unaudited) and expenditures associated with the closed stores and the warehouse facility of $0.7 million (unaudited). Management believes that the remaining reserve is adequate to complete the planned restructuring. On December 29, 1995, the Company consummated an agreement with Smith's to sublease its one million square foot distribution center and creamery facility in Riverside, California for approximately 23 years, with renewal options through 2043, and to acquire certain operating assets and inventory at that facility. In addition, the Company also acquired nine of Smith's Southern California stores which became available when Smith's withdrew from the California market. As a result of the acquisition of the Riverside distribution center and creamery, the Company closed its La Habra distribution center in the first quarter of fiscal year 1996. Also, the Company closed nine of its stores which were near the acquired former Smith's stores. During the fourth quarter of fiscal year 1995, the Company recorded a $47.9 million restructuring charge to recognize the cost of closing these facilities, consisting of write-downs of property and equipment ($16.1 million), closure costs ($2.2 million), and lease termination expenses ($29.6 million). During the first quarter of fiscal year 1996, the Company utilized $9.9 million of this restructuring reserve, consisting of write-downs of property and equipment of $6.8 million (unaudited), closure costs of $2.1 million (unaudited), and lease termination expenditures of $1.0 million (unaudited). F-28 143 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-29 144 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 ---------- ---------- Stockholder's 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-30 145 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-31 146 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 an 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-32 147 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-33 148 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-34 149 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-35 150 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 straightline 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-36 151 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-37 152 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......................................... $ 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-38 153 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 curent 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-39 154 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-40 155 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-41 156 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 30, JANUARY 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 that it believes there is no merit to these cases, Ralphs had reached an agreement in principle to settle them. F-42 157 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) However, no settlement agreement has been signed. The Company does not believe that the resolution of these cases will have a material adverse effect on its future financial condition. Any settlement would be subject to court approval. On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates") commenced an action in San Diego Superior Court alleging that Ralphs breached an alleged utility rate consulting agreement. In December 1992, a jury returned a verdict of approximately $4.9 million in favor of Koteen Associates and in March 1993, attorney's fees and certain other costs were awarded to the plaintiff. Ralphs has appealed the judgment and fully reserved in Fiscal 1992 against an adverse ruling by the appellate courts. In April 1994, Ralphs was served with a complaint filed by over 240 former employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery Plaintiffs"). The action was commenced in the United States District Court for the Central District of California, and, among other claims, the Bakery Plaintiffs alleged that Ralphs breached its collective bargaining agreement and violated the Workers Adjustment Retraining Notification Act (the "WARN Act") when it downsized and subsequently closed the bakery. In their complaint, the Bakery Plaintiffs are seeking damages for lost wages and benefits as well as punitive damages. The Bakery Plaintiffs also named Ralphs and two of its management employees in fraud, conspiracy and emotional distress causes of action. In addition, the Bakery Plaintiffs sued their union local for breach of its duty of fair representation and other alleged misconduct, including fraud and conspiracy. The defendants have answered the complaint and discovery is ongoing. Trial is set for February, 1996, and Ralphs is vigorously defending this suit. Management believes, based on its assessment of the facts, that the resolution of this case will not have a material effect on the Company's financial position or results of operations. In addition, Ralphs is a defendant in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on Ralphs' financial position or results of operations. Environmental Matters In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a subsurface characterization of Ralphs' Atwater property. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where Ralphs' Atwater property is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, because of regional groundwater contamination. On June 18, 1991, the EPA made its own request for information concerning the Atwater property. Since that time, the Regional Board has requested further investigation by Ralphs. Ralphs has conducted the requested investigations and has reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Atwater property. Ralphs is not a party to the Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on Ralphs' property. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. Ralphs has removed underground storage tanks and remediated soil contamination at the Atwater property. In some instances the removals and the contamination were associated with grocery business operations, in others they were associated with prior property users. Although the possibility of other F-43 158 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) contamination from prior operations or adjacent properties exists at the Atwater property, management does not believe that the costs of remediating such contamination will be material to the Company. Apart from the Atwater property, the Company has recently had environmental assessments performed on a significant portion of its facilities, including warehouse and distribution facilities. The Company believes that any responsive actions required at the examined properties as a result of such assessments will not have a material adverse effect on its financial condition or results of operations. Ralphs has incurred approximately $4.5 million in non-recurring capital expenditures for conversion of refrigerants during 1994. Other than these expenditures, Ralphs has not incurred material capital expenditures for environmental controls during the previous three years, nor does management anticipate incurring such expenditures during the current fiscal year or the succeeding fiscal year. Ralphs is subject to a variety of environmental laws, rules, regulations and investigative or enforcement activities, as are other companies in the same or similar business. The Company believes it is in substantial compliance with such laws, rules and regulations. These laws, rules, regulations and agency activities change from time to time, and such changes may affect the ongoing business and operations of the Company. (9) REDEEMABLE PREFERRED STOCK Ralphs' non-voting preferred stock consisted of 10,000,000 shares of authorized $.01 par value preferred stock. At February 3, 1991 and February 2, 1992, 170,000 shares of Class A Preferred Stock and 130,000 shares of Class B Preferred Stock were issued and outstanding. All of the outstanding shares of preferred stock were redeemed by Ralphs during February 1992 at their initial issuance price of $3.0 million. (10) EQUITY APPRECIATION RIGHTS PLANS Effective August 26, 1988, Ralphs adopted an Equity Appreciation Plan ("1988 Plan"), whereby certain officers received equity rights representing, in aggregate, the right to receive 15% of the increase in the appraised value (as defined in the 1988 Plan) of the Ralphs' equity over an initial value of $120.0 million. The 1988 Plan was amended in January 1992 by agreement among Ralphs and the Equity Rights holders ("Amended Plan"). Ralphs accrued for the increase in equity appreciation rights over the contractually defined vesting period (fully accrued in fiscal 1991), based upon the maximum allowable contractual amount which approximated ending appraised value. Under the Amended Plan, all outstanding Equity Rights vested in full are no longer subject to forfeiture by the holders, except in the event a holder's employment is terminated for cause within the meaning of the Amended Plan. The appraised value of Ralphs' equity is to be determined as of May 1 each year by an investment banking company engaged for this purpose utilizing the methodology specified in the Amended Plan (which is unchanged from that specified in the 1988 Plan); however, under the Amended Plan the appraised value of Ralphs' equity for purposes of the plan may not be less than $400.0 million nor exceed $517.0 million. The amount of equity rights redeemable at any given time is defined in each holders' separate agreement. On exercise of an equity right, the holder will be entitled to receive a pro rata percentage of any such increase in appraised value. In addition, the Amended Plan provides for the possible additional further payment to the holder of each exercised Equity Right of an amount equal to the "Deferred Value" of such Equity Right as defined in the Amended Plan. Ralphs did not incur any expense under the Equity Appreciation Rights Plan in fiscal 1992, fiscal 1993 and fiscal 1994. F-44 159 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 JANUARY JANUARY 31, 30, 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-45 160 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 JANUARY JANUARY 31, 30, 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-46 161 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-47 162 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........................................ -- -- ------- ------- Accured 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-48 163 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-49 164 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 deferment.................... -- -- (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-50 165 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-51 166 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....................................................... -- -- Exercisable................................................... -- -- 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 FAIR AMOUNT FAIR VALUE AMOUNT 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 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 F-52 167 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 ("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 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 RGC 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 "Notes") plus a cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC Notes tendered for exchange or (ii) to purchase (the "Cash Offers," and together with the Exchange Offers, the "Offers") Old RGC Notes for $1,010 in cash per $1,000 principal amount of Old RGC Notes accepted for purchase, in each case, plus accrued and unpaid interest to the date of exchange of 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 F-53 168 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) for exchange for 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 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 Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures"). Holdings will use $100 million of the cash received from a new equity investment (the "1995 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. Holdings will then contribute the $250 million of purchased shares of Holding Company stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company stock will be acquired for $275 million in cash. Standard & Poor's has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline pursuant to the Indentures. The consummation of the Merger and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline, would constitute a Change of Control Triggering Event under the Indentures. Although RGC does not anticipate that there will be a significant amount of Old RGC Notes outstanding following consummation of the Exchange Offers, upon such a Change of Control Triggering Event, the New Company would be obligated to make the Change of Control Offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Due to the increased size, dual format strategy and integration related costs, after giving effect to or in connection with the Merger, RGC believes that its future operating results will not be directly comparable to the historical operating results of RGC. Upon consummation of the Merger, the operations and activities of RGC will be significantly impacted due to conversions of some existing stores to Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. This consolidation is expected to result in a restructuring charge for the New Company. The restructuring charge may be material in relation to the stockholders' equity and financial position of RGC and the New Company. Following the consummation of the Merger, the New Company will be highly leveraged. F-54 169 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 4 Risk Factors.......................... 18 The Exchange Offer.................... 23 The Merger and the Financing.......... 32 Use of Proceeds....................... 33 Capitalization........................ 34 Unaudited Pro Forma Combined Statement of Operations....................... 35 Selected Historical Financial Data of the Company......................... 37 Selected Historical Financial Data of Ralphs.............................. 40 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 42 Business.............................. 56 Management............................ 65 Executive Compensation................ 68 Principal Stockholders................ 72 Certain Relationships and Related Transactions........................ 73 Description of Capital Stock.......... 75 Description of the Notes.............. 77 Description of the New Credit Facility............................ 102 Description of Other Company Indebtedness........................ 104 Description of Holdings' Indebtedness........................ 106 Book Entry; Delivery and Form......... 108 Certain Federal Income Tax Considerations...................... 110 Plan of Distribution.................. 110 Legal Matters......................... 111 Experts............................... 111 Available Information................. 111 Index to Financial Statements......... F-1 ------------------------ UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. - -------------------------------------------- - --------------------------------------------
- ------------------------------------------------------ - ------------------------------------------------------ -------------------- PROSPECTUS -------------------- $100,000,000 RALPHS GROCERY COMPANY 10.45% SENIOR NOTES DUE 2004 , 1996 - ------------------------------------------------------ - ------------------------------------------------------ 170 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Ralphs Grocery Company and its subsidiaries Cala Co. 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 Foods, Inc., Crawford Stores, Inc., 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 Grocery Company Schedule II -- Valuation and Qualifying Accounts (ii) Ralphs Supermarkets, Inc. Schedule II -- Valuation and Qualifying Accounts SCHEDULES OMITTED Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto. II-1 171 ITEM 22. UNDERTAKINGS. (a) The undersigned registrants hereby undertake that insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), 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 of indemnification against such liabilities (other than the payment by the registrant of expenses incurred or the registrant in the successful defense of any action, suit paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into this prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (d) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement; (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus 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; (2) That, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-2 172 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 27, 1996. RALPHS GROCERY COMPANY By: /s/ JAN CHARLES GRAY ----------------------------------- Jan Charles Gray Senior Vice President, General Counsel and Secretary POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Ronald W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ GEORGE G. GOLLEHER Chief Executive Officer and June 27, 1996 - --------------------------------------------- Director (Principal George G. Golleher Executive Officer) /s/ GREG MAYS Executive Vice President -- June 27, 1996 - --------------------------------------------- Finance/Administrative and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) /s/ BYRON E. ALLUMBAUGH Director and Chairman of the June 27, 1996 - --------------------------------------------- Board Byron E. Allumbaugh Director June , 1996 - --------------------------------------------- Robert Beyer /s/ JOE S. BURKLE Director June 27, 1996 - --------------------------------------------- Joe S. Burkle /s/ RONALD W. BURKLE Director June 27, 1996 - --------------------------------------------- Ronald W. Burkle /s/ PETER COPSES Director June 27, 1996 - --------------------------------------------- peter Copses
II-3 173
SIGNATURE TITLE DATE --------- ----- ---- /s/ PATRICK L. GRAHAM Director June 27, 1996 - --------------------------------------------- Patrick L. Graham /s/ JOHN KISSICK Director June 27, 1996 - --------------------------------------------- John Kissick /s/ ALFRED A. MARASCA Director June 27, 1996 - --------------------------------------------- Alfred A. Marasca /s/ MARK A. RESNIK Director June 27, 1996 - --------------------------------------------- Mark A. Resnik
II-4 174 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 27, 1996. 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/ JAN CHARLES GRAY ------------------------------------ Jan Charles Gray Senior Vice President, General Counsel and Secretary POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Ronald W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ GEORGE G. GOLLEHER Chief Executive Officer and June 27, 1996 - --------------------------------------------- Director (Principal George G. Golleher Executive Officer) of each Registrant /s/ GREG MAYS Executive Vice President -- June 27, 1996 - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) of each Registrant /s/ RONALD W. BURKLE Director and Chairman of the June 27, 1996 - --------------------------------------------- Board of each Registrant Ronald W. Burkle
II-5 175 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 27, 1996. CRAWFORD STORES, INC. By: /s/ JAN CHARLES GRAY ----------------------------------- Jan Charles Gray Senior Vice President, General Counsel and Secretary POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Ronald W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ BYRON E. ALLUMBAUGH Chief Executive Officer and June 27, 1996 - --------------------------------------------- Director (Principal Byron E. Allumbaugh Executive Officer) /s/ ALFRED A. MARASCA President, Chief Operating June 27, 1996 - --------------------------------------------- Officer and Director Alfred A. Marasca (Principal Financial and Accounting Officer) /s/ JAN CHARLES GRAY Director June 27, 1996 - --------------------------------------------- Jan Charles Gray
II-6 176 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 27, 1996. ALPHA BETA COMPANY By: /s/ JAN CHARLES GRAY ----------------------------------- Jan Charles Gray Senior Vice President, General Counsel and Secretary POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Ronald W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD W. BURKLE Chairman of the Board, Chief June 27, 1996 - --------------------------------------------- Executive Officer and Ronald W. Burkle Director (Principal Executive Officer) /s/ GREG MAYS Executive Vice President -- June 27, 1996 - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) /s/ GEORGE G. GOLLEHER Director June 27, 1996 - --------------------------------------------- George G. Golleher
II-7 177 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 27, 1996. FALLEY'S, INC. By: /s/ JAN CHARLES GRAY ----------------------------------- Jan Charles Gray Senior Vice President, General Counsel and Secretary POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Ronald W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOE S. BURKLE Chief Executive Officer June 27, 1996 - --------------------------------------------- (Principal Executive Joe S. Burkle Officer) /s/ GREG MAYS Executive Vice President -- June 27, 1996 - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) /s/ RONALD W. BURKLE Director and Chairman of the June 27, 1996 - --------------------------------------------- Board Ronald W. Burkle /s/ GEORGE G. GOLLEHER Director June 27, 1996 - --------------------------------------------- George G. Golleher
II-8 178 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Ralphs Grocery Company: We have audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Ralphs Grocery Company (formerly Food 4 Less Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial Statements) and subsidiaries as of June 25, 1994, January 29, 1995 and January 28, 1996, and the related consolidated statements of operations, stockholder's equity and cash flows for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996, and have issued our report thereon dated April 19, 1996. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule on page S-2 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 April 19, 1996 S-1 179 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS 52 WEEKS ENDED JANUARY 28, 1996, 31 WEEKS ENDED JANUARY 29, 1995, 52 WEEKS ENDED JUNE 25, 1994, AND 52 WEEKS ENDED JUNE 26, 1993 (DOLLARS IN THOUSANDS)
PROVISIONS CHARGED BALANCE AT CHARGED TO BALANCE BEGINNING TO INTEREST OTHER AT END OF PERIOD EXPENSE EXPENSE(A) PAYMENTS CHANGES(B) OF PERIOD ---------- ---------- ---------- -------- ---------- --------- Self-insurance liabilities 52 weeks ended January 28, 1996... $ 72,739 $ 32,603 $ 10,287 $42,153 $ 75,509 $ 148,985 ======= ======= ======= ======= ======= ======== 31 weeks ended January 29, 1995... $ 81,704 $ 6,304 $ 3,453 $18,722 $ -- $ 72,739 ======= ======= ======= ======= ======= ======== 52 weeks ended June 25, 1994...... $ 85,494 $ 19,880 $ 5,836 $29,506 $ -- $ 81,704 ======= ======= ======= ======= ======= ======== 52 weeks ended June 26, 1993...... $ 82,559 $ 38,040 $ 5,865 $40,970 $ -- $ 85,494 ======= ======= ======= ======= ======= ========
- --------------- (a) Amortization of discount on self-insurance reserves charged to interest expense. (b) Reflects self-insurance reserve of Ralphs Grocery Company which was acquired on June 14, 1995. S-2 180 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Ralphs Grocery Company: The audits referred to in our report dated March 9, 1995, included the financial statement schedule as of January 29, 1995, and for each of the years in the three-year period ended January 29, 1995, included in the registration statement. This financial statement schedule is the responsibility of the Company's 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 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 "Selected Historical Financial Data of Ralphs", "Summary of Historical Financial Data of Ralphs" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Los Angeles, California June 26, 1996 S-3 181 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-4 182 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 3.1 Restated Certificate of Incorporation, as amended, of Ralphs Grocery Company (incorporated herein by reference to Exhibit 3.1 of Ralph's Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................................................... 3.2 Restated Bylaws of Ralphs Grocery Company (formerly known as Ralphs Supermarkets, Inc.)..................................................... 4.1.1 Credit Agreement dated as of June 14, 1995 by and among Food 4 Less Holdings, Inc., Food 4 Less Supermarkets, Inc., the Lenders, Co-Agents, and Co-Arrangers named therein and Bankers Trust Company (incorporated herein by reference to Exhibit 4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)...... 4.1.2 First Amendment to Credit Agreement dated as of August 18, 1995 among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the financial institutions listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.1.2 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)................ 4.1.3 Second Amendment to Credit Agreement dated as of December 11, 1995 among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the financial institutions listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.1.3 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)................ 4.1.4 Third Amendment, Consent and Waiver to Credit Agreement dated as of March 8, 1996 among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the financial institutions listed on the signature pages thereto (incorporated herein by reference to Exhibit 4.1.4 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)............................................................... 4.2.1 Indenture for the 10.45% Senior Notes due 2004, dated as of June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)........................................ 4.2.2 First Supplemental Indenture for the 10.45% Senior Notes due 2004, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein, Crawford Stores, Inc. and Norwest Bank Minnesota, National Association, trustee (incorporated herein by reference to Exhibit 4.4.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)............................... 4.3.1 Indenture for the 13.75% Senior Subordinated Notes due 2005, dated as of June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified herein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.5.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)........................................ 4.3.2 First Supplemental Indenture for the 13.75% Senior Subordinated Notes due 2005, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein, Crawford Stores, Inc. and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.5.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)................
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SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 4.4.1 Indenture for the 11% Senior Subordinated Notes due 2005, dated as of June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.6.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)........................................ 4.4.2 First Supplemental Indenture for the 11% Senior Subordinated Notes due 2005, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein, Crawford Stores, Inc. and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.6.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................... 4.5.1 Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as of July 29, 1992, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.3 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 19, 1992).......................... 4.5.2 First Supplemental Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as of May 30, 1995, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.1 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended April 23, 1995)................................................................... 4.5.3 Second Supplemental Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as of June 14, 1995, by and between Ralphs Grocery Company (as successor) and United States Trust Company of New York, as Trustee (incorporated herein by reference to Exhibit 4.7.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).................................................... 4.6.1 Indenture for the 9% Senior Subordinated Notes due 2003, dated as of March 30, 1993, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.1 of Ralphs Grocery Company's Registration Statement on Form S-4, No. 33-61812)................................................. 4.6.2 First Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of June 23, 1993, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2 of Ralphs Grocery Company's Registration Statement on Form S-4, No. 33-61812)....................... 4.6.3 Second Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of May 30, 1995, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2 of Ralphs Grocery Company's Quarterly Report on Form 10-Q, for the quarter ended April 23, 1995).............. 4.6.4 Third Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of June 14, 1995, by and between Ralphs Grocery Company (as successor) and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.8.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................................................... 4.7.1 Senior Note Indenture, dated as of April 15, 1992, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form S-1, No. 33-46750)...............................................................
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SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 4.7.2 First Supplemental Indenture, dated as of July 24, 1992, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.1.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 27, 1992).................................................... 4.7.3 Second Supplemental Indenture for the 10.45% Senior Notes due 2000, dated as of June 14, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.9.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)............................... 4.7.4 Third Supplemental Indenture for the 10.45% Senior Notes due 2000, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.9.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter year ended July 16, 1995).................................................... 4.8.1 Senior Subordinated Note Indenture dated as of June 15, 1991 by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 29, 1991).................................................... 4.8.2 First Supplemental Indenture dated as of April 8, 1992 by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 27, 1992)..... 4.8.3 Second Supplemental Indenture, dated as of May 18, 1992 by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.2 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 27, 1992).................................................... 4.8.4 Third Supplemental Indenture, dated as of July 24, 1992 by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.3 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 27, 1992).................................................... 4.8.5 Fourth Supplemental Indenture for the 13.75% Senior Subordinated Notes due 2001, dated as of May 30, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.10.5 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)................ 4.8.6 Fifth Supplemental Indenture for the 13.75% Senior Subordinated Notes due 2001, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein and United States Trust Company of New York as trustee (incorporated herein by reference to Exhibit 4.10.6 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)........................................ 4.9 Indenture for the 10.45% Senior Notes due 2004, dated as of June 6, 1996, by and among Ralphs Grocery Company, the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee.................................................................
E-3 185
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 5.1 Opinion of Latham & Watkins regarding the validity of the Exchange Notes and the guarantees of the Subsidiary Guarantors, including consent...... 5.2 Opinion of Irwin Clutter Severson & Hinkel regarding the guarantee of Falley's Inc............................................................ 8 Opinion of Latham & Watkins regarding certain federal income tax matters, including consent.............................................. 10.1 Second Amended and Restated Tax Sharing Agreement dated as of June 14, 1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the subsidiaries of Ralphs Grocery Company (incorporated herein by reference to Exhibit 10.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)................ 10.2 Stockholders Agreement of Food 4 Less Holdings, Inc. dated as of June 14, 1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the investors listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.2 of Food for Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)...... 10.3 Consulting Agreement dated as of June 14, 1995 by and among The Yucaipa Companies, Food 4 Less Holdings, Inc. and Ralphs Grocery Company (incorporated herein by reference to Exhibit 10.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................................................... 10.4 Employment Agreement dated as of June 14, 1995 between Food Less Holdings, Inc., Ralphs Grocery Company and George G. Golleher (incorporated herein by reference to Exhibit 10.11 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................................................... 10.5 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Byron E. Allumbaugh (incorporated herein by reference to Exhibit 10.8 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).................................... 10.6 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Alfred A. Marasca (incorporated herein by reference to Exhibit 10.9 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).................................... 10.7 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Greg Mays (incorporated herein by reference to Exhibit 10.10 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)............................................ 10.8 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Harley DeLano (incorporated herein by reference to Exhibit 10.8 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)..................................... 10.9 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Jan Charles Gray (incorporated herein by reference to Exhibit 10.12 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).................................... 10.10 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Tony Schnug (incorporated herein by reference to Exhibit 10.10 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996).....................................
E-4 186
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 10.11 Management Stockholders Agreement dated as of June 14, 1995 between Food 4 Less Holdings, Inc. and the management employees listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.12 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)........................................ 10.12 Consulting Agreement dated as of June 27, 1988 by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.38 to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form S-1, No. 33-31152)...................................................... 10.13 Letter Agreement dated as of December 10, 1990 amending Consulting Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.17.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 29, 1991)................................................................... 10.14 Distribution Center Transfer Agreement, dated as of November 1, 1995, by and between Smith's Food & Drug Centers, Inc., a Delaware corporation, and Ralphs Grocery Company, relating to the Riverside, California property (incorporated herein by reference to Exhibit 10.1 to Ralphs Grocery's Company's Quarterly Report on Form 10-Q for the quarter ended October 8, 1995)........................................................ 10.15.1 Ralphs Grocery Company Retirement Supplement Plan, effective as of January 1, 1994 (incorporated herein by reference to Exhibit 10.15.1 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)................................................. 10.15.2 Amendment to the Retirement Supplement Plan, effective as of January 1, 1995 (incorporated herein by reference to Exhibit 10.15.2 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)....................................................... 10.15.3 Second Amendment to the Retirement Supplement Plan, effective as of June 14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery Company Retirement Supplement Plan (incorporated herein by reference to Exhibit 10.15.3 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)............................. 10.16.1 Ralphs Grocery Company Supplemental Executive Retirement Plan, amended and restated as of April 9,1994 (incorporated herein by reference to Exhibit 10.16.1 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)............................. 10.16.2 Amendment to the Amended and Restated Supplemental Executive Retirement Plan, effective as of January 1, 1995 (incorporated herein by reference to Exhibit 10.16.2 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)........................ 10.16.3 Second Amendment to the Supplemental Executive Retirement Plan, dated as of June 14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery Company Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.16.3 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)................................................................... 10.16.4 Third Amendment to the Ralphs Grocery Company Supplemental Executive Plan, effective as of July 1, 1995 (incorporated herein by reference to Exhibit 10.16.4 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)............................. 10.17 Purchase Agreement, dated as of June 3, 1996, by and among Ralphs Grocery Company, the Subsidiary Guarantors and BT Securities Corporation............................................................. 10.18 Registration Rights Agreement, dated as of June 6, 1996, by and among Ralphs Grocery Company, the Subsidiary Guarantors and BT Securities..... 12 Computation of Ratio of Earnings to Fixed Charges.......................
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SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 21 Subsidiaries (incorporated herein by reference to Exhibit 21 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)....................................................... 23.1 Consent of Arthur Andersen LLP, independent public accountants.......... 23.2 Consent of KPMG Peat Marwick LLP, independent certified 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 Irwin, Clutter & Severson (included in the opinion filed as Exhibit 5.2 to the Registration Statement).............................. 24.1 Power of Attorney of Directors and Officers of Ralphs Grocery Company (included in the signature pages in Part II of the Registration Statement).............................................................. 24.2 Power of Attorney of Directors and Officers of Crawford Stores, Inc. (included in the signature pages in Part II of the Registration Statement).............................................................. 24.3 Power of Attorney of Directors and Officers of Alpha Beta Company (included in the signature pages in Part II of the Registration Statement).............................................................. 24.4 Power of Attorney of Directors and Officers of Falley's, Inc. (included in the signature pages in Part II of the Registration Statement)........ 25 Statement of Eligibility and Qualification on Form T-1 of Norwest Bank Minnesota, National Association, as Trustee, under the Indenture*....... 99.1 Letter of Transmittal with respect to the Exchange Offer*............... 99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer*....... 99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9*....................................................
- --------------- * To be filed by amendment. E-6 EX-3.2 2 RESTATED BYLAWS OF RALPHS 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF RALPHS SUPERMARKETS, INC. (a Delaware corporation) (adopted April 28, 1992) ARTICLE I OFFICES SECTION 1.1 Registered Office. The registered office of the Corporation in the State of Delaware shall be 1209 Orange Street, City of Wilmington, County of New Castle and The Corporation Trust Company shall be the resident agent of this Corporation in charge thereof. SECTION 1.2 Other Offices. The Corporation may also have offices at other places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II STOCKHOLDERS SECTION 2.1 Annual Meetings. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such place (within or without the State of Delaware), on such date and at such time as the Board of Directors shall each year fix and designate in the notice of such meeting, which date shall be within thirteen (13) months of the last annual meeting of stockholders. At the annual meeting no business may be transacted and no corporate action may be taken other than that stated in the notice of meeting. 2 SECTION 2.2 Notice of Meetings. Except as otherwise expressly required by law, notice of the date, time and place of each meeting of the stockholders shall be given not less than 10 nor more than 60 calendar days before the date of the meeting to each stockholder entitled to vote at such meeting by personal delivery or by mailing such notice, postage prepaid, directed to each stockholder at the address thereof as it appears on the records of the Corporation. Every such notice shall state the place, date and hour of the meeting and the purpose or purposes for which the meeting is called. Except as provided in the immediately succeeding sentence or as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 calendar days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder entitled to vote at such adjourned meeting in the manner set forth in the first and second sentences of this Section 2.2 of this Article II. A written waiver of notice, signed by a stockholder entitled to such notice, whether signed before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder in person or by proxy at a stockholders' meeting shall constitute a waiver of notice to such stockholder of such meeting, except when such stockholder attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. SECTION 2.3 List of Stockholders. It shall be the duty of the Secretary (or such other officer that the Secretary shall appoint) to prepare and make, at least 10 calendar days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 calendar days prior to the meeting either at a place specified in the notice of the meeting within the city where the meeting is to be held, or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.4 Quorum. At each meeting of the stockholders, except as otherwise expressly required by law or -2- 3 the Certificate of Incorporation, a stockholders holding a majority of the shares of stock of the Corporation issued, outstanding and entitled to be voted at the meeting, shall be present in person or by proxy to constitute a quorum for the transaction of business. SECTION 2.5 Adjournment. In the absence of a quorum at any meeting of stockholders or any adjournment or adjournments thereof, such meeting may adjourn from time to time, without notice other than by announcement at such meeting, by a majority vote of the stockholders present or represented by proxy and entitled to vote at such meeting until a quorum shall attend. Any meeting at which a quorum is present may also be adjourned in like manner and for such time or upon such call as may be determined by a majority vote of the stockholders present or represented by proxy and entitled to vote. At any adjourned meeting at which a quorum shall be present, any business may be transacted and any corporate action may be taken which might have been transacted at the meeting as originally called. SECTION 2.6 Conduct of Meeting. At each meeting of the stockholders, one of the following shall act as chairman of such meeting and preside thereat, in the following order or precedence: (a) the Chairman of the Board of Directors; (b) if there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors shall be absent from such meeting, the President; (c) if the Chairman of the Board of Directors and the President shall be absent from such meeting, the Secretary; or (d) if the Chairman of the Board of Directors, the President and the Secretary shall be absent from such meeting, any other officer of the Corporation designated by the Board of Directors or the Executive Committee to act as chairman of such meeting and to preside thereat. SECTION 2.7 Voting. Each holder of voting stock of the Corporation shall, at each meeting of the stockholders, be entitled to one vote in person or by proxy for each share of stock of the Corporation held by him and registered in his name on the books of the Corporation on the date fixed pursuant to the provisions of Section 4 of Article VIII of these Bylaws as the record date for the determination of stockholders who shall be entitled to receive notice of and to vote at such meeting. -3- 4 Shares of the voting stock of the Corporation belonging to the Corporation shall neither be entitled to vote nor be counted for quorum purposes. Any vote of stock of the Corporation may be given at any meeting of the stockholders by the stockholders entitled to vote thereon either in person or by proxy appointed by an instrument in writing delivered to the Secretary of the Corporation or the secretary of the meeting. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At all meetings of the stockholders at which a quorum is present, all matters, except as otherwise provided by law or in these Bylaws, shall be decided by the vote of majority or the votes cast by stockholders present in person or by proxy and entitled to vote thereat. Except as otherwise expressly required by law, the vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if applicable, and shall state the number of shares voted. SECTION 2.8 Action by Written Consent. Except as otherwise provided by law or by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of issued and outstanding stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the Corporation entitled to vote thereon were present and voted. ARTICLE III BOARD OF DIRECTORS SECTION 3.1 General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. SECTION 3.2 Number of Term of Office. The Board of Directors shall consist of 11 directors and the number of directors constituting the Board of Directors may be increased or decreased from time to time by resolution adopted by a majority of the entire Board of Directors. Directors need not be stockholders of the Corporation or citizens or residence of the United States of America. The directors shall be divided -4- 5 into these classes, designated Class A, Class B, and Class C, respectively, with the term of office of the initial Class A directors to expire at the 1992 annual meeting of stockholders, the term of office of the initial Class B directors to expire at the 1993 annual meeting of stockholders, and the term of office of the initial Class C directors to expire at the 1994 annual meeting of stockholders. At each annual meeting of stockholders following the initial classification and election directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Each director shall hold office until the annual meeting of the stockholders at which his term expires and his successor is duly elected and qualified, or until his earlier death, resignation or removal in the manner provide herein. Directors shall be allocated as evenly as possible among the three classes of directors and, to the extent an equal allocation is not possible, a director shall first be added to Class C and then to Class A. SECTION 3.3 Election. The directors shall be elected by the stockholders at the annual meeting of stockholders or any special meeting called for that purpose. SECTION 3.4 Resignation, Removal and Vacancies. Any director may resign at any time by giving written notice of his resignation to the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, then it shall take effect when accepted by the Board of Directors. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective. A director, or the entire Board of Directors, may be removed at any time by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote generally at an election of directors, but such removal may be only for cause. Subject to the superseding provisions set forth in Section 12.2 hereof, any vacancy occurring on the Board for any reason may be filled by a majority of the directors then in office, though than a quorum, or by a sole remaining director. In the case of any increase in the number of directors on the Board of Directors, the additional directors may be elected by the directors then in office before such increase. The director elected to fill any such vacancy shall hold office for the unexpired term in respect of which such vacancy occurred and until his successor is elected and qualifies or until his earlier resignation or removal. -5- 6 SECTION 3.5 Meeting. (a) Annual Meetings. As soon as practicable after each annual meeting of stockholders, the Board of Directors shall hold an annual meeting for the transaction of any business, provided a quorum of directors is present. (b) Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time determine. (c) Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board of Directors, the President or a majority of the directors at the time in office. Any and all business may be transacted at a special meeting that may be transacted at a regular meeting of the Board of Directors. (d) Place of Meeting. The Board of Directors may hold its meetings at such place or places within or without the State of Delaware as the Board of Directors may from time to time by resolution determine or as shall be designated in the respective notices or waivers of notice thereof. (e) Notice of Meetings. Notices of regular meetings of the Board of Directors or of any adjourned meetings need not be given and notices of annual meetings shall not be required if the annual meeting is held immediately after the annual meeting of stockholders. Notices of special meetings of the Board, or of any meeting of any committee of the Board that has not been fixed in advance as to time and place by such committee, shall be mailed by the Secretary to each director or member of such committee, addressed to him at his residence or usual place of business, at least five calendar days before the day on which such meeting is to be held, or shall be sent to him by telegraph, telecopy, cable or other form of recorded communication to be delivered personally or by telephone not later than two calendar days before the day on which such meeting is to be held. Such notice shall include the time and place of such meeting. Notice of any such meeting need not be given to any director or member of any committee, however, if waived by him in writing or by telegraph, cable or other form of recorded communication, whether before or after such meeting shall be held, or if he shall be present at such meeting. (f) Quorum and Manner of Acting. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, a majority of the total number of directors shall be present in person at any meeting of the Board of Directors in -6- 7 order to constitute a quorum for the transaction of business at such meeting. In each case the vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or any act of the Board of Directors, except or otherwise expressly required by law or these Bylaws. In the absence of a quorum for any such meeting, a majority of the directors present at such meeting may adjourn such meeting from time to time until a quorum shall be present. (g) Action by Communication Equipment. The directors, or the members of any committee of the Board of Directors, may participate in a meeting of the Board of Directors, or of such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. (h) Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and such writing is filed with the minutes of the proceedings of the Board of Directors or such committee. (i) Organization. At each meeting of the Board of Directors, one of the following shall act as chairman of the meeting and preside thereat, in the following order of precedence: (a) the Chairman of the Board of Directors; (b) the President; (c) the Secretary; or (d) any director chosen by a majority of the directors present thereat. The Secretary or, if he shall be presiding over the meeting in accordance with the provisions of this Section 3.5 or in case of his absence, any person designated by the Secretary shall act as secretary of such meeting and keep the minutes thereof. SECTION 3.6 Compensation. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board of Directors may receive compensation for their services and expenses incurred in performing the functions of director and member of any committee of the Board of Directors. Nothing herein contained shall be construed so as to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. -7- 8 ARTICLE IV COMMITTEES SECTION 4.1 Executive Committee. (a) Designation and Membership. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate an Executive Committee consisting of such number of directors, not less than two, as the Board of Directors shall appoint. Vacancies occurring on the Executive Committee for any reason may be filled by the Board of Directors at any time. Any member of the Executive Committee shall be subject to removal, with or without cause, at any time by the Board of Directors or by a majority in voting interest of the stockholders for cause. Any person ceasing to be a member of the Board of Directors shall ipso facto cease to be a member of the Executive Committee. (b) Functions and Powers. The Executive Committee, subject to any limitations prescribed by the Board of Directors and except as otherwise set forth in these By-laws or in the General Corporation Law of the State of Delaware, shall possess and may exercise, during the intervals between meetings of the Board of Directors, all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it. The Executive Committee shall not have the power and authority to declare dividends, to authorize the issuance of stock of the Corporation or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware unless such power and authority shall be expressly delegated to it by a resolution passed by a majority of the entire Board of Directors. At each meeting of the Board of Directors, the Executive Committee shall make a report of all action taken by it since its last report to the Board of Directors. (c) Meetings, Quorum and Manner of Acting. The Executive Committee shall meet annually immediately after the annual meeting of the Board of Directors if necessary to elect officers not elected by the Board of Directors and shall meet at such other times and as often as may be deemed necessary and expedient and at such places as shall be determined by the Executive Committee. A majority of the Executive Committee shall constitute a quorum, and the vote of a majority of those members of the Executive Committee present at any meeting thereof at which a quorum is present shall be necessary for the passage of any resolution or act of the Executive Committee. The Board of Directors may designate a chairman for the -8- 9 Executive Committee, who shall preside at meetings thereof, and a vice chairman, who shall preside at such meetings in the absence of the chairman. SECTION 4.2 Audit Committee. (a) Membership. The Corporation shall have an Audit Committee, consisting of at least three (3) directors. Vacancies occurring on the Audit Committee for any reason may be filled by the Board of Directors at any time. Any member of the Audit Committee shall be subject to removal, with or without cause, at any time by the Board of Directors or by a majority in voting interest of the stockholders for cause. Any person ceasing to be a member of the Board of Directors shall ipso facto cease to be a member of the Audit Committee. (b) Functions and Powers. The Audit Committee shall oversee the audit process and provide assistance to the Board of Directors in fulfilling its responsibilities relating to the corporate accounting and reporting practices. The Audit Committee shall: recommend the firm to be employed as the Corporation's independent auditor, and review and approve the discharge of any such firm; review, in consultation with the independent auditor, the results of each external audit of the Corporation, the report of the audit, any related management letter, and management's responses to recommendations made by the independent auditor in connection with the audit; review, in consultation with the independent auditor and management (i) the Corporation's annual financial statements (ii) any certification, report, opinion or review rendered by the independent auditor in connection with those financial statements and (iii) any disputes between management and the independent auditor that arose in connection with the preparation of those financial statements; review, before or after publication, the Corporation's financial statements; consider, in consultation with the independent auditor, the scope and plan of forthcoming external audits; consider, in consultation with the independent auditor, the adequacy of the Corporation's internal accounting controls; consider, when presented by the independent auditor or otherwise, material questions of choice with respect to the choice of appropriate accounting principles and practices to be used in the preparation of the Corporation's financial statements; have the power to inquire into any financial matters in addition to those set forth above, preview the Corporation's compliance with the rules and regulations of the Securities and Exchange Commission; and perform such other functions as may be assigned to it by law, the Corporation's certificate of incorporation or by the Board of Directors. -9- 10 The Chairman and/or the President and/or the Secretary of the Corporation shall provide or arrange to provide such information, date and services as the Audit Committee may request. The Audit Committee shall conduct interviews or discussions as it deems appropriate with personnel of the Corporation, and/or others whose views would be considered helpful to the Audit Committee. (c) Meetings Quorum and Manner of Acting. The Audit Committee shall hold a minimum of two regular meetings per year, once prior to the commencement of the fiscal year-end audit to discuss and approve the scope of the audit, and once following the completion of the audit to review the results of the audit and at such other times and as often as may be deemed necessary and expedient and at such places as shall be determined by the Audit Committee. A majority of the Audit Committee shall constitute a quorum, and the vote of a majority of those members of the Audit Committee present at any meeting thereof at which a quorum is present shall be necessary for the passage of any resolution or act of the Audit Committee. SECTION 4.3 Other Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate other committees of the Board of Directors, each such committee to consist of two or more directors and to have such duties and functions as shall be provided in such resolution. The Board of Directors shall have the power to change the members of any such committee at any time, to fill vacancies and to discharge any such committee, either with or without cause, at any time. ARTICLE V OFFICERS SECTION 5.1 Election, Appointment and Term of Office. The officers of the Corporation shall be a Chairman of the Board of Directors, who shall also be the Chief Executive Officer, a President, such number of Vice Chairmen of the Board of Directors and Vice Presidents (including any Executive, Senior, First and/or Group Vice Presidents) as the Board of Directors may determine from time to time, a General Counsel, a Secretary, a Chief Financial Officer, a Treasurer, Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine from time to time. Any two or more offices may be held by the same person. Officers need not be stockholders of the Corporation or citizens or residents of the United States of America. The Chairman of the Board of Directors, any Vice Chairman of the -10- 11 Board of Directors and the President shall be elected by the Board of Directors at its annual meeting, and all other officers may be elected by the Board of Directors or Executive Committee, and each such officer shall hold office until the next annual meeting of the Board of Directors or the Executive Committee, as the case may be, and until his successor it elected or until his earlier death or until his earlier resignation or removal in the manner hereinafter provided. Each such officer shall have such authority and shall perform such duties as may be provided herein or as the Board of Directors or Executive Committee may prescribe. If additional officers are elected or appointed during the year, each of them shall hold office until the next annual meeting of the Board of Directors or Executive Committee at which officers are regularly elected or appointed and until his successor is elected or appointed or until his earlier death or until his earlier resignation or removal in the manner hereinafter provided. SECTION 5.2 Resignation, Removal and Vacancies. Any officer may resign at any time by giving written notice to the President or the Secretary of the Corporation, and such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, then it shall take effect when accepted by action of the Board or Executive Committee. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective. All officers and agents elected or appointed by the Board of Directors or Executive Committee shall be subject to removal at any time by the Board of Directors or the Executive Committee, as the case may be, with or without cause. A vacancy in any office may be filled for the unexpired portion of the term in the same manner as provided for election or appointment to such office. SECTION 5.3 Duties and Functions. (a) Chairman of the Board. The Chairman of the Board of Directors, who shall be a member thereof, shall preside at all meetings of the Board of Directors and of the stockholders at which he shall be present and shall perform such other duties and exercise such powers as may from time to time be prescribed by the Board of Directors or the Executive Committee. Unless the Board of Directors shall appoint another officer to be the Chief Executive Officer of the Corporation, the Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation, shall have the authority to sign, in the name and on behalf of the -11- 12 Corporation, agreements, documents and instruments in connection with the business of the Corporation and agreements, documents and instruments to which the seal of the Corporation is affixed, shall perform such duties and exercise such powers as are incident to the office of chief executive and shall perform such other duties and exercise such powers as may from time to time be prescribed by the Board of Directors or the Executive Committee. (b) Vice Chairman of the Board. Each Vice Chairman of the Board of Directors shall be a member thereof, shall have the authority to sign, in the name and on behalf of the Corporation, agreements, documents and instruments in connection with the business of the Corporation and agreements, documents and instruments to which the seal of the Corporation is affixed and shall have such powers and duties as may from time to time be prescribed by the Board of Directors or the Executive Committee. (c) President. The President shall be a member of the Board of Directors and shall perform such duties and exercise such powers as are incident to the office of president, shall have the authority to sign, in the name and on behalf of the Corporation, agreements, documents and instruments in connection with the business of the corporation and agreements, documents and instruments to which the seal of the Corporation is affixed and shall perform such other duties and exercise such other powers as may from time to time be prescribed by the Board of Directors or the Executive Committee. (d) General Counsel. The General Counsel shall have supervision of all legal matters of the Corporation. The General Counsel shall have responsibility for the presentation and review of all contracts, agreements, real estate documentation, all financing matters having to do with the Corporation and all other agreements and documents entered into by the Corporation. In addition, he shall be responsible for all litigation matters of the Corporation, government agency compliance programs and all interaction with all government agencies. In this regard, he shall have responsibility for all securities filings and reporting and interface on securities and other matters with the accounting firm employed by the Corporation on legal related matters. Further, the General Counsel shall review all marketing programs and activities, including, but not limited to advertising, labeling, trademarks and copyrights to insure legal compliance. The General Counsel shall, in addition, have responsibility for such matters concerning the Corporation as may be designated by the Board of Directors, Executive Committee or Chairman. -12- 13 (e) Secretary. The Secretary shall keep the records of all meetings of the stockholders and of the Board of Directors and committees of the Board of Directors. The Secretary shall have the primary authority to sign, and/or to empower, as the Secretary may deem necessary or advisable, any other officer of the Corporation to sign in the name and on behalf of the Corporation, any and all agreements, documents and other instruments in connection with the business of the Corporation. He shall affix the seal of the Corporation to all instruments requiring the corporate seal when the same shall have been signed on behalf of the Corporation by a duly authorized officer. The Secretary shall also be the custodian of all contracts, deeds, documents and all other indicia of title to properties owned by the Corporation and of its other corporate records and in general shall perform all duties and have all process incident to the office of Secretary. To such extent as the Board of Directors or Executive Committee shall deem proper, the duties of Secretary may be performed by one or more assistants, to be appointed by the Board of Directors or Executive Committee. (f) Chief Financial Officer or Treasurer. The Chief Financial Officer or Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation and shall deposit all such funds to the credit of the Corporation in such banks, trust companies or other depositories as shall be delected in accordance with the provisions of these Bylaws; he shall disburse the funds of the Corporation as may be ordered by the Board of Directors or the Executive committee, making proper vouchers for such disbursements, and shall render to the Chairman, the Board of Directors or the Executive Committee, whenever the Chairman, the Board of Directors or the Executive Committee may require; and, in general, he shall perform all the duties incident to the office of Chief Financial Officer or Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors, the Executive Committee or the Chairman. (g) Vice Presidents. Each Executive Vice President, Senior Vice President, Group Vice President and Vice President shall perform such duties and exercise such powers as are incident to the office to which they are appointed. Each Vice President shall have the authority to sign, when such authority has been delegated in writing by the Chairman of the Board of Directors or the Secretary, in the name and on behalf of the Corporation, agreements, documents and instruments in connection with the business of the Corporation and agreements, documents and instruments to which the seal of the Corporation is affixed, shall perform such duties and exercise such powers as are incident to the office of Executive Vice President, -13- 14 Senior Vice President, Group Vice President and Vice President and shall have such powers and duties as shall be prescribed by the Board of Directors or the Executive Committee. ARTICLE VI CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, PROXIES, ETC. SECTION 6.1 Execution of Documents. The Chairman of the Board of Directors, the President, the Secretary or any other corporate policy as approved by the Board of Directors, shall have power to execute and deliver deeds, leases, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation, and such power may be delegated (including power to redelegate) by written instrument to other officers, employees or agents of the Corporation. SECTION 6.2 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise in accordance with corporate policy as approved by the Board of Directors. SECTION 6.3 Proxies in Respect of Stock or Other Securities of Other Corporations. The Chairman or the Secretary or any other officer of the Corporation designated by the Board of Directors shall have the authority (a) to appoint from time to time an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation, (b) to vote or consent in respect of such stock or securities and (c) to execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as he may deem necessary or proper in order that the Corporation may exercise such powers and rights. The Chairman or the Secretary or any such designated officer may instruct any person or persons appointed as aforesaid as to the manner of exercising such powers and rights. ARTICLE VII BOOKS AND RECORDS The books and records of the Corporation may be kept at such places within or without the State of Delaware as the Board of Directors may from time to time determine. -14- 15 ARTICLE VIII SHARES AND THEIR TRANSFER; FIXING RECORD DATE SECTION 8.1 Certificate for Stock. Certificates of capital stock of the Corporation shall be in such form as shall be approved by the Board of Directors. Every owner of stock of the Corporation shall be entitled to have a certificate certifying the number of shares owned by him in the Corporation and designating the class of stock to which such shares belong, which shall otherwise be in such form as the Board of Directors shall prescribe. Each such certificate shall be signed by, or in the name of the Corporation by, the Chairman of the Board of Directors or the President or any Vice President and the Secretary or Treasurer of the Corporation or any other authorized officer. In case any officer who has signed or whose facsimile signature has been placed upon certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer at the date of issue. SECTION 8.2 Record. A record shall be kept of the name of the person, firm or corporation owning the stock represented by each certificate for stock of the Corporation issued, the number of shares represented by each such certificate and the date thereof, and, in the case of cancellation, the date of cancellation. Except as otherwise expressly required by law, the person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. The shares of stock of the Corporation shall be transferable on the books of the Corporation by the holders thereof in person, or by their duly authorized attorneys or legal representatives, on surrender and cancellation of certificates for a like number of shares, accompanied by an assignment or power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. A record shall be made of each transfer. The Board of Directors may make other and further rules and regulations concerning the transfer and registration of certificates of stock and may appoint a transfer agent or registrar or both and may require all certificates of stock to bear the signature of either or both. SECTION 8.3 Lost, Stolen, Destroyed or Mutilated Certificates. The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the certificate therefor. The -15- 16 Corporation may issue a new certificate for stock in the place of any certificate theretofore issued by it and alleged to have been lost, stolen, destroyed or mutilated, and the Board of Directors or the Chairman, the President, the Secretary or any other authorized officer may, in its or his discretion, require the owner of the lost, stolen, mutilated or destroyed certificate or his legal representatives to give the Corporation a bond in such sum, limited or unlimited, in such form and with such surety or sureties as the Board of Directors shall in its discretion determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, mutilation or destruction of any such certificate or the issuance of any such new certificate. SECTION 8.4 Fixing Date for Determination of Stockholders of Record. (a) In order that the Corporation may determine the stockholders entitled to notice of or vote of any meeting of stockholders of any adjournment thereof, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than 60 nor less than 10 calendar days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; providing, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which date shall not be more than 10 calendar days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is otherwise required, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an -16- 17 officer or agent of the Corporation having custody of the book in which proceedings or meetings of stockholders are recorded. Delivery made to the registered office of the Corporation shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 calendar days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. ARTICLE IX SEAL The corporate seal shall be in such form as approved from time to time by the Board of Directors. The Corporate seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise. ARTICLE X FISCAL YEAR The fiscal year of the Corporation shall end on the date that is the Sunday nearest to January 31 in each year, or on such other date as the Board of Directors of Directors shall determine. ARTICLE XI INDEMNIFICATION SECTION 11.1 Right to Indemnification. The Corporation shall to the fullest extent permitted by applicable -17- 18 law as then in effect indemnify any person (the "Indemnitee") who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, any action, suit or proceeding by or in the right of the Corporation to procure a judgment in its favor) (a "Proceeding") by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding. Such indemnification shall be a contract right and shall include the right to receive payment in advance of any expenses incurred by the Indemnitee in connection with such Proceeding, consistent with the provisions of applicable law as then in effect. SECTION 11.2 Insurance, Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any person entitled to indemnification under this Article XI against any expenses, judgments, fines and amounts paid in settlement as specified in this Article XI, to the fullest extent permitted by applicable law as then in effect. The Corporation may enter into contracts with any person entitled to indemnification under this Article XI and may create a trust fund, grant a security interest or use other means (including, without limitation, letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article XI. SECTION 11.3 Indemnification; Not Exclusive Right. The right of indemnification provided in this Article XI shall not be exclusive of any other rights to which those seeking indemnification may otherwise be entitled, and the provisions of this Article XI shall inure to the benefit of the heirs and legal representatives of any person entitled to indemnity under this Article XI and shall be applicable to Proceedings commenced or continuing after the adoption of this Article XI, whether arising from acts or omission occurring before or after such adoption. SECTION 11.4 Advancement of Expenses. In furtherance, but not in limitation of the foregoing provisions, all reasonable expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding shall be advanced to the -18- 19 Indemnitee by the Corporation within 20 calendar days after the receipt by the Corporation of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Article XI. SECTION 11.5 Settlement of Claims. The Corporation shall not be liable to indemnify any person otherwise entitled to indemnification under this Article XI: (a) for any amounts paid in settlement of any action or claim effected without the Corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the Corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. SECTION 11.6 No Duplication of Payments. The Corporation shall not be liable under this Article XI to make any payment in connection with any claim made against any person entitled to indemnification hereunder to the extent such person has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder. SECTION 11.7 Effects of Amendments. Neither the amendment or repeal of, nor the adoption of a provision inconsistent with, any provision of this Article XI (including, without limitation, this Section 11.7 shall adversely affect the rights of any director or officer under this Article XI with respect to any Proceeding commenced or threatened prior to such amendment, repeal or adoption of an inconsistent provision. SECTION 11.8 Severability. If any provision or provisions of this Article XI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article XI (including, without limitation, all portions of any paragraph of this Article XI containing any such provision held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Article XI (including, without limitation, all portions of any paragraph of this Article XI containing any such provision held to be invalid, illegal or unenforceable) shall be construed so -19- 20 as to give effect to the intent manifested by the provision held invalid, illegal or enforceable. ARTICLE XII SUPERSEDING PROVISIONS SECTION 12.1 Effective Date and Duration. Notwithstanding any provision to the contrary contained in these Bylaws, commencing on the effective date (the "Effective Date") of the Third Amended Joint Plan of Reorganization for Federated Stores, Inc., et al, as modified and as confirmed by the United States Bankruptcy Court, Southern District of Ohio, Western Division on January 10, 1992, the provisions of this Article XII shall supersede and replace any conflicting provision contained in these Bylaws until the earliest to occur of: (i) the date on which (a) no one of the Holders other than The Edward J. DeBartolo Corporation ("EJDC") holds voting securities of the Corporation which are entitled to 4% or more of the votes of all such voting securities entitled to vote in the election of the directors of the Corporation, and (b) the aggregate number of shares of the Corporation's Common Stock owned by the Holders other than EJDC represents less than 15% of the total number of votes of all voting securities entitled to vote in the election of the directors of the Corporation; and (ii) the seventh anniversary of the Effective Date. SECTION 12.2 Board of Directors. Notwithstanding the provisions of Section 3.2 of Article III hereof, at all times during which these superseding provisions are in effect: (a) At least two members of the Board of Directors of the Corporation (the "Unaffiliated Directors") shall be unaffiliated with EJDC or any of its affiliates, the Corporation (other than such members' affiliation with the Corporation as directors), or any of the Corporation's subsidiaries; and (b) The number of members constituting the Board of Directors may be increased only by resolution approved by 100% of the Board of Directors. SECTION 12.3 Audit Committee. At all times during which this Article XII is in effect, at least a majority of the members of the Audit Committee shall be Unaffiliated Directors, except as may otherwise be required by the applicable rules or -20- 21 regulations of any securities exchange or quotation system upon which the capital stock of the Corporation is traded or authorized for trading. SECTION 12.4 Amendments. At all times during which this Article XII is in effect, these Amended and Restated Bylaws may not be amended, altered, changed or repealed except by the approval of the holders of at least 75% of the issued and outstanding voting stock of the Corporation. SECTION 12.5 Definitions. For purposes of this Article XII, all capitalized terms, unless otherwise defined herein, shall have the meanings ascribed to them in that certain Registration Rights and Corporate Governance Agreement (a copy of which is attached hereto as Exhibit A) dated as of February 3, 1992 by and among the Corporation, Ralphs, Allied Stores Corporation, a Delaware corporation, Bank of Montreal, Banque Paribas, EJDC, Camdev Properties Inc., an Ontario corporation, and Federated Stores, Inc., a Delaware corporation. -21- EX-4.9 3 INDENTURE FOR THE 10.45% SENIOR NOTES DUE 2004 1 Exhibit 4.9 RALPHS GROCERY COMPANY AND SUBSIDIARY GUARANTORS AND NORWEST BANK MINNESOTA, National Association, TRUSTEE _________________ INDENTURE Dated as of June 6, 1996 ________________ $100,000,000 10.45% Senior Notes due 2004 2 CROSS-REFERENCE TABLE
TIA Indenture Section Section_ 310(a)(1)........................................... 7.10 (a)(2).......................................... 7.10 (a)(3).......................................... N.A. (a)(4).......................................... N.A. (a)(5).......................................... 7.10; 7.11 (b)............................................. 7.08; 7.10; 11.02 (c)............................................. N.A. 311(a).............................................. 7.11 (b)............................................. 7.11 (c)............................................. N.A. 312(a).............................................. 2.05 (b)............................................. 11.03 (c)............................................. 11.03 313(a).............................................. 7.06 (b)(1).......................................... N.A. (b)(2).......................................... 7.06 (c)............................................. 7.06; 11.02 (d)............................................. 7.06 314(a).............................................. 4.07; 4.09; 11.02 (b)............................................. N.A. (c)(1).......................................... 7.02; 11.04 (c)(2).......................................... 7.02; 11.04 (c)(3).......................................... N.A. (d)............................................. N.A. (e)............................................. 11.05 (f)............................................. N.A. 315(a).............................................. 7.01(b) (b)............................................. 7.05; 11.02 (c)............................................. 7.01(a) (d)............................................. 7.01(c) (e)............................................. 6.11 316(a)(last sentence)............................... 2.09 (a)(1)(A)....................................... 6.05 (a)(1)(B)....................................... 6.04 (a)(2).......................................... N.A. (b)............................................. 6.07 317(a)(1)........................................... 6.08 (a)(2).......................................... 6.09 (b)............................................. 2.04 318(a).............................................. 11.01 (c)............................................. 11.01 - ----------------------
N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. -i- 3 TABLE OF CONTENTS ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE
Page Section 1.01 Definitions..................................... 1 Section 1.02 Incorporation by Reference of TIA............... 31 Section 1.03 Rules of Construction........................... 32 ARTICLE TWO THE SECURITIES Section 2.01 Form and Dating................................. 32 Section 2.02 Execution and Authentication.................... 33 Section 2.03 Registrar and Paying Agent...................... 34 Section 2.04 Paying Agent To Hold Assets in Trust........................................ 35 Section 2.05 Securityholder Lists............................ 36 Section 2.06 Transfer and Exchange........................... 36 Section 2.07 Replacement Securities.......................... 37 Section 2.08 Outstanding Securities.......................... 37 Section 2.09 Treasury Securities............................. 38 Section 2.10 Temporary Securities............................ 38 Section 2.11 Cancellation.................................... 38 Section 2.12 Defaulted Interest.............................. 39 Section 2.13 CUSIP Number.................................... 39 Section 2.14 Book-Entry Provisions for Global Note......................................... 39 Section 2.15 Special Transfer Provisions..................... 41 ARTICLE THREE REDEMPTION Section 3.01 Notices to Trustee.............................. 43 Section 3.02 Selection of Securities To Be Redeemed..................................... 43 Section 3.03 Notice of Redemption............................ 44 Section 3.04 Effect of Notice of Redemption.................. 45 Section 3.05 Deposit of Redemption Price..................... 45
-ii- 4 Section 3.06 Securities Redeemed in Part..................... 46 ARTICLE FOUR COVENANTS Section 4.01 Payment of Securities........................... 46 Section 4.02 Maintenance of Office or Agency................. 46 Section 4.03 Limitation on Restricted Payments............... 47 Section 4.04 Corporate Existence............................. 48 Section 4.05 Payment of Taxes and Other Claims............... 49 Section 4.06 Maintenance of Properties and Insurance.................................... 49 Section 4.07 Compliance Certificate; Notice of Default...................................... 50 Section 4.08 Compliance with Laws............................ 51 Section 4.09 SEC Reports..................................... 51 Section 4.10 Waiver of Stay, Extension or Usury Laws......................................... 52 Section 4.11 Limitation on Transactions with Affiliates................................... 52 Section 4.12 Limitation on Incurrences of Additional Indebtedness...................... 54 Section 4.13 Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries................................. 55 Section 4.14 Limitation on Liens............................. 56 Section 4.15 Limitation on Change of Control................. 57 Section 4.16 Limitation on Asset Sales....................... 59 Section 4.17 Guarantees of Certain Indebtedness.............. 63 Section 4.18 Limitation on Preferred Stock of Subsidiaries................................. 63 ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01 Limitation on Mergers and Certain Other Transactions........................... 63 Section 5.02 Successor Corporation Substituted............... 65
-iii- 5 ARTICLE SIX DEFAULT AND REMEDIES Section 6.01 Events of Default............................... 65 Section 6.02 Acceleration.................................... 67 Section 6.03 Other Remedies.................................. 69 Section 6.04 Waiver of Past Defaults......................... 69 Section 6.05 Control by Majority............................. 69 Section 6.06 Limitation on Suits............................. 70 Section 6.07 Rights of Holders To Receive Payment...................................... 70 Section 6.08 Collection Suit by Trustee...................... 70 Section 6.09 Trustee May File Proofs of Claim................ 71 Section 6.10 Priorities...................................... 71 Section 6.11 Right and Remedies Cumulative................... 72 Section 6.12 Delay or Omission Not Waiver.................... 72 Section 6.13 Undertaking for Costs........................... 72 ARTICLE SEVEN TRUSTEE Section 7.01 Duties of Trustee............................... 73 Section 7.02 Rights of Trustee............................... 74 Section 7.03 Individual Rights of Trustee.................... 75 Section 7.04 Trustee's Disclaimer............................ 75 Section 7.05 Notice of Default............................... 75 Section 7.06 Reports by Trustee to Holders................... 76 Section 7.07 Compensation and Indemnity...................... 76 Section 7.08 Replacement of Trustee.......................... 77 Section 7.09 Successor Trustee by Merger, Etc................ 78 Section 7.10 Eligibility; Disqualification................... 78 Section 7.11 Preferential Collection of Claims Against Company.............................. 79 ARTICLE EIGHT SATISFACTION AND DISCHARGE OF INDENTURE Section 8.01 Termination of the Company's Obligations.................................. 79 Section 8.02 Legal Defeasance and Covenant Defeasance................................... 81 Section 8.03 Application of Trust Money...................... 85 Section 8.04 Repayment to Company or Subsidiary Guarantors................................... 85
-iv- 6 Section 8.05 Reinstatement................................... 86 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.01 Without Consent of Holders...................... 87 Section 9.02 With Consent of Holders......................... 87 Section 9.03 Compliance with TIA............................. 89 Section 9.04 Revocation and Effect of Consents............... 89 Section 9.05 Notation on or Exchange of Securities................................... 90 Section 9.06 Trustee To Sign Amendments, Etc................. 90 ARTICLE TEN GUARANTEE Section 10.01 Unconditional Guarantee......................... 91 Section 10.02 Severability.................................... 92 Section 10.03 Release of a Subsidiary Guarantor............... 92 Section 10.04 Limitation of Subsidiary Guarantor's Liability........................ 93 Section 10.05 Subsidiary Guarantors May Consolidate, etc., on Certain Terms........................................ 93 Section 10.06 Contribution.................................... 94 Section 10.07 Waiver of Subrogation........................... 95 Section 10.08 Execution of Guarantee.......................... 96 Section 10.09 Waiver of Stay, Extension or Usury Laws......................................... 96 ARTICLE ELEVEN MISCELLANEOUS Section 11.01 TIA Controls.................................... 97 Section 11.02 Notices......................................... 97 Section 11.03 Communications by Holders with Other Holders................................ 98 Section 11.04 Certificate and Opinion as to Conditions Precedent......................... 98 Section 11.05 Statements Required in Certificate or Opinion................................... 99 Section 11.06 Rules by Trustee, Paying Agent, Registrar.................................... 99
-v- 7 Section 11.07 Legal Holidays.................................. 99 Section 11.08 Governing Law................................... 100 Section 11.09 No Adverse Interpretation of Other Agreements................................... 100 Section 11.10 No Recourse Against Others...................... 100 Section 11.11 Successors...................................... 100 Section 11.12 Duplicate Originals............................. 100 Section 11.13 Severability.................................... 101 Section 11.14 No Violation.................................... 101 Signatures....................................................... S-1 Exhibit A - Form of Note with Guarantee Exhibit B - Form of Legend for Global Notes Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers to Non- QIB Accredited Investors Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S
Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -vi- 8 INDENTURE dated as of June 6, 1996, among RALPHS GROCERY COMPANY, a Delaware corporation (the "Company"), the SUBSIDIARY GUARANTORS, and NORWEST BANK MINNESOTA, National Association, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 10.45% Senior Notes due 2004: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. 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" shall have the meaning provided in Section 10.06. "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. Notwithstanding the foregoing, 9 the term "Affiliate," with respect to the Company and its Subsidiaries, shall not include BT Securities Corporation or any of its Affiliates. "Affiliate Transaction" shall have the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or co- Registrar. "Agent Members" has the meaning provided in Section 2.14. "Apollo Advisors, L.P." means Apollo Advisors, L.P., a Delaware limited partnership. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise) made by such person or any of its subsidiaries to any person other than such person or one of its wholly owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than the Company or a directly or indirectly wholly owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of related sales, transfers or other dispositions (i) involving only Excluded Assets, (ii) resulting in Net Proceeds to the Company and the Subsidiaries of $500,000 or less, (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company or any Subsidiary with a Lien on such assets, which Lien is permitted under this Indenture, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law, (iv) involving only Cash Equivalents or inventory in the ordinary course of business or obsolete equipment in the ordinary course of business consistent with past practices of 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 Section 4.16 and which together with all other such Asset Sale Proceeds do not exceed $20 million. 10 "Average Life" means, as of the date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payments of such debt security multiplied by the amount of 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 the Board of Directors. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means, with respect to any person, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and 11 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 Holdings or the Company such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of the Company (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of the Company's Board of Directors. "Change of Control Date" shall have the meaning provided in Section 4.15. "Change of Control Offer" shall have the meaning provided in Section 4.15. "Change of Control Payment Date" shall have the meaning provided in Section 4.15. "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 12 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. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "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 13 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 Section 4.03, "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 Holdings pursuant to clauses (v), (vi) and (x) 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 June 14, 1995 and as in effect on the Issue Date, between the Company, Holdings and The Yucaipa Companies (as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date). "Credit Agent" means, at any time, the then-acting Administrative Agent as defined in and under the Credit Agreement, which initially shall be Bankers Trust Company. The Company shall promptly notify the Trustee of any change in the Credit Agent. "Credit Agreement" means the Credit Agreement, dated as of June 14, 1995, as amended and in effect on the Issue Date, by and among Food 4 Less, as borrower, certain of its subsidiaries, Holdings, as guarantor, 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 14 shall promptly notify the Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Depository" means the Depository Trust Company, its nominees and successors. "Discount Notes" means the 15.25% Senior Discount Notes due 2004 of Holdings issued pursuant to the Discount Note Indenture, as the same may be modified or amended from time to time and future refinancings thereof to the extent such refinancings are permitted under this Indenture. "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 or amended from time to time and future refinancings thereof to the extent such refinancings are permitted under this Indenture. "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 an event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder 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 Securities 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 15 duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credits) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period (excluding any such items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period) in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring reserve or charge referred to in clause (v) above (and was not otherwise deducted in the computation of Consolidated Net Income of such person for such period). "Event of Default" shall have the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Exchange Offer" has the meaning assigned to such term in the Note Registration Rights Agreement, dated as of June 6, 1996, by and among the Company and BT Securities Corp. as Initial Purchaser (the "Note Registration Rights Agreement"). "Excluded Assets" means assets of the Company or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. "Existing Indebtedness" means the following indebtedness of the Company to the extent outstanding on the Issue Date; (a) the 10.45% Senior Notes due 2004 issued pursuant to an indenture dated as of June 1, 1995; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (c) the 11% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of June 16 1, 1995; (d) the 9% Senior Subordinated Notes due 2003 issued pursuant to an indenture dated as of March 30, 1993; (e) the 10<% 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 June 1, 1995, 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 Securities but excluding amortization of debt issuance costs) and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period but excluding the amortization of debt issuance costs), (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 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 17 clause (ii) above, dividend requirements shall be increased to an amount representing the pre-tax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, the Company. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "Forward Period" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.01. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of June 14, 1995. "Global Note" has the meaning provided in Section 2.01. "Guarantee" means the guarantee of each Subsidiary Guarantor set forth in Article Ten and any additional guarantee of the Securities executed by any Subsidiary of the Company. "Holder" or "Securityholder" means the person in whose name a Security is registered on the Registrar's books. "Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and its successors. "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 18 (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person; (iii) reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes of this Indenture, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of the 19 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. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or nationally recognized investment banking or consulting firm that is, in the reasonable judgment of the Board of Directors of 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. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances, or to permit the purchase of Qualified Capital Stock of Holdings or any of its Subsidiaries and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. 20 "Issue Date" means the date of original issuance of the Securities under this Indenture. "Legal Holiday" shall have the meaning provided in Section 11.07. "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," the aggregate principal amount of Indebtedness outstanding at any time with respect thereto shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien under this Indenture. "Maturity Date" means June 15, 2004. "Merger" means (i) the merger of Food 4 Less into RSI (with RSI 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 RSI (with RSI 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, Food 4 Less, Inc., Food 4 Less, RSI and the stockholders of RSI, as such agreement was in effect on June 14, 1995. "Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in the form of cash or Cash Equivalents. 21 "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 June 1, 1995 under which the 13 5/8% Senior Discount Debentures due 2005 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof to the extent such refinancings are permitted under this Indenture. "New Discount Debentures" means the 13 5/8% Senior Discount Debentures due 2005 of Holdings issued pursuant to the New Discount Debenture Indenture, as the same may be modified and amended from time to time and future refinancings thereof to the extent such refinancings are permitted under this Indenture. "New F4L Senior Subordinated Notes" means the 13.75% senior subordinated notes due 2005 issued pursuant to the Senior Subordinated Note Indenture dated as of June 1, 1995 that are issued in exchange for Old F4L Senior Subordinated Notes. "1995 Senior Note Indenture" means the indenture dated as of June 1, 1995 under which $520,326,000 of 10.45% Senior Notes due 2004 were issued, as the same may be modified and amended from time to time and refinancings thereof to the extent such refinancings are permitted under this Indenture. "Non-U.S. Person" means a Person who is not a U.S. person, as defined in Regulation S. 22 "Note Registration Rights Agreement" has the meaning provided in the definition of "Exchange Offer." "Officer" means, with respect to any person, the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Controller, or the Secretary of such person. "Officers' Certificate" means, with respect to any person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such person and otherwise complying with the requirements of Sections 11.04 and 11.05. "Offshore Physical Notes" has the meaning provided in Section 2.01. "Old F4L Senior Subordinated Notes" means the 13.75% senior subordinated notes due 2001 issued pursuant to an indenture dated as of June 15, 1991. "Old RGC Indentures" means the indentures between Ralphs Grocery Company, as issuer, and United States Trust Company of New York, as trustee, pursuant to which the Old RGC Notes were issued. "Old RGC Notes" means the 9% Senior Subordinated Notes due 2003 of Ralphs Grocery Company and the 10 <% Senior Subordinated Notes due 2002 of Ralphs Grocery Company. "Operating Coverage Ratio" means, with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the 23 acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by this Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 11.04 and 11.05. Unless otherwise required by the Trustee, the legal counsel may be an employee of or counsel to the Company or the Trustee. "Pari Passu Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in right of payment to the Securities or the Guarantee of such Subsidiary Guarantor, as the case may be (in each case, whether or not secured by any Lien). "Paying Agent" shall have the meaning provided in Section 2.03, except that, for the purposes of Articles Three and Eight and Sections 4.15 and 4.16, the Paying Agent shall not be the Company or an Affiliate of the Company. "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 24 (c) transfer any of its properties or assets to such person or any other subsidiary of such person, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The Yucaipa Companies or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of 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 (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans in an aggregate principal amount at any time outstanding not to exceed $600 million less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the requirements of Section 4.16 subsequent to June 14, 1995, (ii) the revolving credit facility under the Credit Agreement (including the Letter of Credit Obligations) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the requirements of Section 4.16, and (iii) any Indebtedness incurred under the Credit Agreement pursuant to and in accordance with (A) clause (m) of this definition and (B) Section 4.12 (other than Permitted Indebtedness that is not incurred pursuant to clause (m) or this clause (a) of this definition); (b) Indebtedness of the Company or a Subsidiary Guarantor owed to and held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred by the Company or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of the Company and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the end of 25 the fourth fiscal quarter following 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 end of the twelfth fiscal quarter following 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 (less the aggregate principal amount of any Indebtedness incurred by the Company or any Subsidiary on or prior to the Issue Date in reliance on clause (d) of the definition of "Permitted Indebtedness" under the 1995 Senior Note Indenture), 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 the Offering Memorandum of the Company relating to the Securities dated June 3, 1996; (e) Indebtedness of the Company or any Subsidiary incurred under Foreign Exchange Agreements and Interest Swap Obligations entered into with respect to Indebtedness otherwise permitted to be outstanding pursuant to Section 4.12 or this definition of Permitted Indebtedness in a notional amount not exceeding the aggregate principal amount of such Indebtedness; (f) guarantees incurred in the ordinary course of business by the Company or a Subsidiary of Indebtedness of any other person in the 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 this Indenture; (h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (j) Existing Indebtedness and other Indebtedness outstanding on the Issue Date; (k) Indebtedness arising from guarantees of Indebtedness of the Company or any Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion 26 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 $175 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale made pursuant to Section 4.16 or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with Section 4.11, (vi) Investments by Subsidiary Guarantors in other Subsidiary Guarantors or the Company and Investments by the Company in a Subsidiary Guarantor in the form of Indebtedness owed to the Company by such Subsidiary Guarantor 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 thereof; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen, or other like Liens arising in the ordinary course of business, deposits made to obtain the release of such Liens, and with respect to amounts not yet delinquent for a period of more than 60 days or being contested in good faith by appropriate process of law, and for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (iii) Liens incurred or pledges or deposits made in the ordinary course of business to secure obligations under workers' compensation, unemployment insurance and other types of social security or similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, zoning or other restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any of its Subsidiaries 27 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 this Indenture and under which the Company or any Subsidiary is lessee; and (xvi) additional Liens securing Indebtedness in an aggregate principal amount 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 June 14, 1995 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 Holdings the proceeds of which are utilized 28 by 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 Second Amended and Restated Tax Sharing Agreement, dated as of June 14, 1995, by and among the Company, all direct and indirect Subsidiaries and Holdings, 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 Holdings the proceeds of which are used by Holdings to make payments, (a) in connection with repurchases of outstanding shares of the Company's or Holdings' Common Stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by Holdings, the Company or any of its Subsidiaries to participants or former participants in employee benefit plans upon termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period), (v) from and after June 30, 1998, payments of cash dividends or loans to Holdings in an amount sufficient to enable 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 June 14, 1995, (vi) from and after June 15, 2000, payments of cash dividends to Holdings in an amount sufficient to enable 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 June 14, 1995, (vii) dividends or other payments to Holdings sufficient to enable 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 and the registration under applicable laws and regulations of its debt or equity securities, (viii) dividends by the Company to Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (a) the Company or any of the Subsidiaries is 29 required pursuant to this Indenture to utilize such Net Cash Proceeds to repay (or offer to repay) the Securities (and has complied with all such requirements), (b) such Net Cash Proceeds are not required to be and have not been utilized to repay outstanding Indebtedness of the Company or any of the Subsidiaries and (c) Holdings is required pursuant to the documents governing any outstanding Indebtedness of Holdings to utilize such Net Cash Proceeds to repay such Indebtedness (it being understood that only the amounts not utilized as described in clauses (a) and (b) of this clause (viii) shall be permitted to be distributed to Holdings pursuant to this clause (viii)), (ix) the repurchase by the Company of up to $10 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 June 14, 1995, and (x) for so long as the sole business activity of such partnership is to acquire, hold, sell, exchange, transfer or otherwise dispose of all or any portion of the New Discount Debentures and to manage its investment in the New Discount Debentures, any payment by the Company or any Subsidiary, or any dividend or loan to Holdings, the proceeds of which are utilized by Holdings to fund ongoing costs and expenses of RGC Partners, L.P. pursuant to the Subscription Agreement and the Registration Rights Agreement. "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of 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. "person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Physical Notes" has the meaning provided in Section 2.01. 30 "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such person, over shares of Capital Stock of any other class of such person. "principal" of any Indebtedness (including the Securities) means the principal of such Indebtedness plus the premium, if any, on such Indebtedness. "Private Placement Legend" means the legend initially set forth on the Securities in the form set forth in Exhibit A. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act of 1933, as amended, as interpreted by 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 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 Holdings, as the case may be, of not less than $20,000,000; provided, however, that in the case of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company net cash proceeds in an amount sufficient to redeem the Securities called for redemption in accordance with the terms thereof. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act. 31 "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. "Ralphs Grocery Company" means Ralphs Grocery Company, Inc., a Delaware corporation, and its successors. "Record Date" means the Record Dates specified in the Securities; provided that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and Paragraph 5 of the Securities annexed hereto as Exhibit A. "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture and Paragraph 5 of the Securities annexed hereto as Exhibit A. "Reference Date" shall have the meaning provided in Section 4.03. "Reference Period" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.01. "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 this Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment 32 not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Registrar" shall have the meaning provided in Section 2.03. "Registration Rights Agreement" means that certain Registration Rights Agreement by and between RGC Partners, L.P., Holdings and Food 4 Less, as such Registration Rights Agreement may be amended or replaced, so long as any amounts paid by Holdings and the Company under any amended or replacement agreement do not exceed the amounts payable by Holdings and the Company under such Registration Rights Agreement as in effect on June 14, 1995. "Regulation S" means Regulation S under the Securities Act. "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. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Indebtedness; provided that in no event shall United States Trust Company of 33 New York, in its capacities as Trustee, Registrar, co-Registrar or Paying Agent, serve as Representative. "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. "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Security constitutes a Restricted Security. "Rule 144A" means Rule 144A under the Securities Act. "RSI" means Ralphs Supermarkets Inc., a Delaware corporation. "Securities" means the Company's 10.45% Senior Notes due 2004, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture (including the Exchange Notes and the Private Exchange Notes (in each case, as defined in the Note Registration Rights Agreement)). "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 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 thereon, in each case, as such Seller Debentures may be modified or amended from time to time and future refinancings thereof to the extent such refinancings are permitted under this Indenture. "Seller Debenture Indenture" means the indenture between Holdings and Norwest Bank, Minnesota, National Association, as trustee, dated as of June 1, 1995 under which the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 34 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof to the extent such refinancings are permitted under this Indenture. "Senior Subordinated Note Indentures" means, together, (i) the indenture dated as of June 1, 1995 between the Company, the Subsidiary Guarantors and United States Trust Company of New York, as trustee, pursuant to which the Company issued $524,055,000 of 11% Senior Subordinated Notes due 2005, and (ii) the indenture dated as of June 1, 1995 between the Company, the Subsidiary Guarantors and United States Trust Company of New York, as trustee, pursuant to which the Company issued $140,184,000 of 13.75% Senior Subordinated Notes due 2005. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each subsidiary of the Company that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the 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 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 35 Payment" shall not include any such payment with respect to its Capital Stock or warrants, rights or options to purchase or acquire shares of any class of its Capital Stock that are owned solely by the Company or a wholly owned Subsidiary. "Subordinated Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which is subordinated in right of payment to the Securities or the Guarantee of such Subsidiary Guarantor, as the case may be. "Subscription Agreement" means that certain Subscription Agreement, between RGC Partners, L.P., Holdings, Food 4 Less and the partnership investors listed on Exhibit A thereto, as such Subscription Agreement may be amended or replaced, so long as any amounts paid by Holdings and the Company under any amended or replacement agreement do not exceed the amounts payable by Holdings and the Company under such Subscription Agreement as in effect on June 14, 1995. "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., and Crawford Stores, Inc., (ii) each of the Company's Subsidiaries which becomes a guarantor of the Securities in compliance with the provisions set forth in Section 4.17, and (iii) each of the Company's Subsidiaries executing a supplemental indenture in 36 which such Subsidiary agrees to be bound by the terms of this 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). "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership, or any successor thereto which is an affiliate of Ronald W. Burkle or his Permitted Transferees and which has been established for the sole purpose of changing the form of The Yucaipa Companies from that of a partnership to that of a limited liability company or any other form of entity which is not materially adverse to the rights of the Holders under this Indenture. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code {{ 77aaa-77bbbb), as amended, as in effect on the date this Indenture is qualified under the TIA, except as otherwise provided in Section 9.03. "Transaction Date" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.01. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "U.S. Government Obligations" shall have the meaning provided in Section 8.02. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "U.S. Physical Notes" has the meaning provided in Section 2.01. "Yearly Period" means each fiscal year of the Company. 37 SECTION 1.02. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder or a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company, any Subsidiary Guarantor, or any other obligor on the Securities or the Guarantees. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. 38 ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating. The Securities, the notation thereon relating to the Guarantee and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities and the Guarantee shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Securities in registered form, substantially in the form set forth in Exhibit A (the "Global Note"), deposited with the Trustee, as custodian for the Depository, and shall bear the legend set forth in Exhibit B, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Securities offered and sold in offshore transactions in reliance on Regulation S shall be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in Exhibit A (the "Offshore Physical Notes"). Securities offered and sold in reliance on any other exemption from registration under the Securities Act other than as described in the preceding paragraph shall be issued, and Securities offered and sold in reliance on Rule 144A may be issued, in the form of permanent certificated Securities in registered form, in substantially the form set forth in Exhibit A (the "U.S. Physical Notes"). The Offshore Physical Notes and the U.S. Physical Notes are sometimes collectively herein referred to as the "Physical Notes." 39 SECTION 2.02. Execution and Authentication. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Securities for the Company by manual or facsimile signature. Each Subsidiary Guarantor shall execute the Guarantee in the manner set forth in Section 10.08. If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue in the aggregate principal amount of up to $100,000,000 upon a written order of the Company in the form of an Officers' Certificate. The Trustee may authenticate Securities of a separate series for issuance in connection with an Exchange Offer upon written order in the form of an Officers Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated, the names of the Persons in which such Securities shall be registered and the date on which the Securities are to be authenticated, and shall further specify the amount of such Securities to be issued as the Global Note, Offshore Physical Notes or U.S. Physical Notes. The aggregate principal amount of Securities outstanding at any time may not exceed $100,000,000, except as provided in Section 2.07. Upon the written order of the Company in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of the Company. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. 40 The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Secu- rities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company may act as its own Registrar or Paying Agent except that for the purposes of Articles Three and Eight and Sections 4.15 and 4.16, neither the Company nor any Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company, upon notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional paying agent. The Company initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. SECTION 2.04. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any 41 Default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate such assets and hold them as a separate trust fund. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06. Transfer and Exchange. Subject to the provisions of Sections 2.15 and 2.16, when Securities are presented to the Registrar or a co- Registrar with a request to register the transfer of such Securities or to exchange such Securities for an equal principal amount of Securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Securities surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.02, 2.07, 2.10, 3.06, 4.15, 4.16 or 42 9.05). The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Security (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Security being redeemed in part. Any Holder of the Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Security shall be required to be reflected in a book entry. SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. The Company may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company, the Subsidiary Guarantors or any of their respective Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding 43 upon surrender of such Security and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date the Paying Agent (other than the Company or a Subsidiary) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company, the Subsidiary Guarantors or any of their respective Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows or has reason to know are so owned shall be disregarded. SECTION 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. SECTION 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than the Company or a Subsidiary), and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If the Company or any Subsidiary Guarantor shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by 44 such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall, unless the Trustee fixes another record date pursuant to Section 6.10, pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13. CUSIP Number. The Company in issuing the Securities may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. SECTION 2.14. Book-Entry Provisions for Global Note._____________ (a) The Global Note initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit B. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other 45 authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Security. (b) Transfers of the Global Note shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Note may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.15. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Note if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for the Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue Physical Notes. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of the entire Global Note to beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Note an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note constituting a Restricted Security delivered in exchange for an interest in the Global Note pursuant to paragraph (b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.15, bear the legend regarding transfer restrictions applicable to the Physical Notes set forth in Exhibit A. (f) The Holder of the Global Note may grant proxies and otherwise authorize any person, including Agent Members and 46 persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 2.15. Special Transfer Provisions. (a) Transfers to Non-QIB Institutional Accredited Investors and Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Security constituting a Restricted Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is after June 6, 1999 and the transferor certifies that the Restricted Security was not acquired from the Company or Affiliate of the Company less than three years prior to the date of the proposed transfer or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto or (2) in the case of a transfer to a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depository's and the Registrar's procedures, whereupon (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Notes) a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and (b) the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): 47 (i) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Securities to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the Global Note, upon receipt by the Registrar of instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note in an amount equal to the principal amount of the Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred. (c) Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar shall deliver only Securities that bear the Private Placement Legend unless (i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.15 exist or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (d) General. By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a 48 Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.14 or this Section 2.15 for a period of three years. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to Paragraph 5 of the Securities, it shall notify the Trustee, with a copy to the Credit Agent, of the Redemption Date and the principal amount of Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders at least 30 days (unless a shorter notice shall be satisfactory to the Trustee) but not more than 60 days before the Redemption Date. In order to effect a redemption pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata by lot or by any other method that the Trustee considers fair and appropriate and, if such Securities are listed on any securities exchange, by a method that complies with the requirements of such exchange; provided, however, that any redemption pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering shall be made on a pro rata basis unless such method is otherwise legally prohibited. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption 49 and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or integral multiples thereof) of the principal amount of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed at such Holder's registered address, with a copy to the Trustee and the Credit Agent. In order to effect a redemption pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) that, unless the Company defaults in making the redemption payment interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities 50 in aggregate principal amount equal to the unredeemed portion thereof will be issued; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price. Securities that are redeemed by the Company or that are purchased by the Company pursuant to a Net Proceeds Offer as described in Section 4.16 or pursuant to a Change of Control Offer as described in Section 4.15 or that are otherwise acquired by the Company will be surrendered to the Trustee for cancellation. SECTION 3.05. Deposit of Redemption Price. On or before the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date (other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of the Company, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven hereof. If the Company complies with the preceding paragraph then, unless the Company defaults in the payment of such Redemption Price, interest on the Securities to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. 51 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities. An installment of principal of or interest on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or a Subsidiary) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment. The Company shall pay interest on overdue principal at the rate borne by the Securities and it shall pay interest on overdue installments of interest at the same rate, to the extent lawful. SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.03 hereof. The Company shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. SECTION 4.03. Limitation on Restricted Payments. The Company shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) the Company could not incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12 or (c) the aggregate amount expended for all Restricted Payments, including such proposed Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment, as determined in good faith by the Board of Directors of the Company), subsequent to June 14, 1995, 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 52 earned subsequent to June 14, 1995 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 June 14, 1995 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 June 14, 1995, plus (iv) $25 million. Notwithstanding the foregoing, if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of the Company or the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of the Company with an Average Life equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid and (4) Permitted Payments; provided, however, that the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (iii), (iv), (vii), and (viii) 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 clauses (i), (ii), (v), (vi), (ix) and (x) 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 53 Restricted Payments pursuant to subclause (c) in the immediately preceding paragraph. Prior to making any Restricted Payment under the first paragraph of this Section 4.03, the Company shall deliver to the Trustee an Officers' Certificate setting forth the computation by which the amount available for Restricted Payments pursuant to such paragraph was determined. The Trustee shall have no duty or responsibility to determine the accuracy or correctness of this computation and shall be fully protected in relying on such Officers' Certificate. SECTION 4.04. Corporate Existence. Except as otherwise permitted by Article Five, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each such Significant Subsidiary and the rights (charter and statutory) and franchises of the Company and each such Significant Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Significant Subsidiaries, any such existence, right or franchise, if the Board of Directors of the Company or such Significant Subsidiary, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any such Significant Subsidiary. SECTION 4.05. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim if either (a) the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and an adequate reserve has been established therefor to the extent required by GAAP or (b) the failure to make such payment or effect such discharge (together with all other such failures) would not have a material adverse effect on the financial condition or results 54 or operations of the Company and its Subsidiaries taken as a whole. SECTION 4.06. Maintenance of Properties and Insurance. (a) The Company shall cause all properties used or useful to the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times unless the failure to so maintain such properties (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole; provided, however, that nothing in this Section 4.06 shall prevent the Company or any Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is either (i) in the ordinary course of business, (ii) in the good faith judgment of the Board of Directors of the Company or the Subsidiary concerned, or of the senior officers of the Company or such Subsidiary, as the case may be, desirable in the conduct of the business of the Company or such Subsidiary, as the case may be, or (iii) is otherwise permitted by this Indenture. (b) The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company are adequate and appropriate for the conduct of the business of the Company and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of the Company or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of the Company, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. 55 SECTION 4.07. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee within 120 days after the end of the Company's fiscal year an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no event of default in respect of any payment obligation under the Credit Agreement, Default or Event of Default occurred during such year or, if such signers do know of such an event of default, Default or Event of Default, the certificate shall describe the event of default, Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the Company shall deliver to the Trustee within 120 days after the end of each fiscal year a written statement by the Company's independent certified public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof. (c) The Company shall deliver to the Trustee, forthwith upon becoming aware, and in any event within 5 days after the occurrence, of (i) any Default or Event of Default in the performance of any covenant, agreement or condition contained in this Indenture; (ii) any event of default in respect of any payment obligation under the Credit Agreement or any event of default under any other bond, debenture, note, or other evidence of Indebtedness of the Company or any of its Subsidiaries, or under any mortgage, indenture or other instrument if such event of default related to Indebtedness at any time in an aggregate principal amount exceeding $20 million, an Officers' Certificate specifying with particularity such event. 56 SECTION 4.08. Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. SECTION 4.09. SEC Reports. The Company will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual report and of the information documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act. 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 Trustee and Holders of Securities with such annual reports and such information, documents and other reports specified in Section 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA Section 314(a). The Company shall provide to any Holder any information reasonably requested by such Holder concerning the Company (including financial statements) necessary in order to permit such Holder to sell or transfer securities in compliance with Rule 144A under the Securities Act. SECTION 4.10. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly 57 waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.11. Limitation on Transactions with Affiliates. (a) Neither 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 Section 4.11(b) and (y) Affiliate Transactions in the ordinary course of business that are fair to the Company or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such transaction or series of transactions complies with clause (y) above (other than the requirements set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business), (B) with respect to Affiliate Transactions involving aggregate payments in excess of $5 million and less than $15 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (other than the requirements 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 58 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 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. (b) The provisions of Section 4.11(a) shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of Section 4.03, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among the Company and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture, (v) any agreement as in effect as of June 14, 1995 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 Securityholders 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 stockholder agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or Holdings) is a party as of June 14, 1995 and any similar agreements which it (or 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 June 14, 1995 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 Securityholders in any material respect, (vii) transactions permitted by, and complying with, the provisions of Section 5.01 and (viii) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which are fair to the Company, in the reasonable determination of the Board of 59 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. SECTION 4.12. Limitation on Incurrences of Additional Indebtedness. 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 Securities or Event of Default under this Indenture shall have occurred and be continuing at the time of 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. Notwithstanding the foregoing the Company and the Subsidiaries may incur Indebtedness represented by the Securities and the Guarantees. In addition, 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 Securities or the 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. SECTION 4.13. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries._____ 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 in effect on the Issue Date, as any such Payment Restriction 60 may apply to any present or future Subsidiary, (ii) this Indenture 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 Section 4.12), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.12 and 4.14 that limit the right of the debtor to dispose of the assets securing such Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole than those provided for in such Indebtedness being refinanced, refunded, extended or renewed and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 4.12; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect on the Issue Date. SECTION 4.14. Limitation on Liens. 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 Securities are equally and ratably secured by the Liens covering such assets, except for (i) existing and future Liens securing Indebtedness and other obligations of 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 this Indenture, (ii) Permitted Liens, (iii) Liens securing Acquired Indebtedness, provided that such Liens (x) are not incurred in connection with, or in contemplation of, the acquisition of the property or assets 61 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, (iv) Liens to secure Capitalized Lease Obligations and certain other Indebtedness that is otherwise permitted under this Indenture, provided that (A) any such Lien is created solely for the purpose of securing such other Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection therewith) of the purchase (whether through stock or asset purchase, merger or otherwise) or construction or improvement of the property subject thereto (whether real or personal, including fixtures and other equipment), (B) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs and (C) such Lien does not extend to or cover any other property other than such item of property and any improvements on such item, (v) Liens existing on the Issue Date (after giving effect to the Merger), (vi) Liens in favor of the Trustee under this Indenture and any substantially equivalent Lien granted to any trustee or similar institution under any indenture for Indebtedness permitted to be incurred under this Indenture, and (vii) any replacement, extension or renewal, in whole or in part, of any Lien described in this or the foregoing clauses including in connection with any refinancing of the Indebtedness, in whole or in part, secured by any such Lien; provided that to the extent any such clause limits the amount secured or the assets subject to such Liens, no replacement, extension or renewal shall increase the amount or the assets subject to such Liens, except to the extent that the Liens associated with such additional assets are otherwise permitted hereunder. SECTION 4.15. Limitation on Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to the offer described in paragraph (b), below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The Company shall purchase all Securities tendered into a Change of Control Offer before it shall redeem or otherwise purchase any Subordinated Indebtedness which the Company is required to redeem or purchase in connection with a Change of Control. (b) Within 30 days following the date upon which the Change of Control occurred (the "Change of Control Date"), the 62 Company must send, by first class mail, a notice to each Holder of Securities, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. The Company shall give notice of an event giving rise to a Change of Control on the same date and in the same manner to all Holders of Securities. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Securities tendered will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); provided, however, that the Change of Control Payment Date for the Securities shall be one Business Day prior to the Change of Control Payment Date with respect to the Change of Control Payment Date under the Senior Subordinated Note Indentures with respect to such Change of Control; (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless the Company defaults in making payment therefor, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; 63 (7) that Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portions of the Securities surrendered; provided that each Security purchased and each Security issued shall be in an original principal amount of $1,000 or integral multiples thereof; (8) that each Change of Control Offer is required to remain open for at least 20 Business Days or such longer period as may be required by law and until 12:00 Midnight New York City time on the applicable Change of Control Payment Date; and (9) the circumstances and relevant facts regarding such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price (and the Trustee shall promptly authenticate and mail to such Holders new Securities equal in principal amount to any unpurchased portion of the Securities surrendered provided that each such new Security shall be in the principal amount of $1,000 or integral multiples thereof). The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities pursuant to a Change of Control Offer. To the extent the provisions of any securities laws or regulations conflict with the provisions under this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.15 by virtue thereof. 64 SECTION 4.16. Limitation on Asset Sales. 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 a business reasonably related thereto; (ii) in the case of a sale of a store or stores, deem such Net Cash Proceeds to have been applied to the extent of any capital expenditures made to acquire or construct a replacement store in the general vicinity of the store sold within 365 days preceding the date of the Asset Sale; (iii) apply or cause to be applied such Net Cash Proceeds to the permanent repayment of Pari Passu 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; (iv) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent related letters of credit have not been drawn upon or returned undrawn; or (v) after such time as the accumulated Net Cash Proceeds equal or exceed $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of Securities tendered to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued interest thereon 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 date that is six months prior 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. 65 Notice of a Net Proceeds Offer pursuant to this Section 4.16 will be mailed to record Holders of Securities as shown on the register of Holders not less than 325 days nor more than 365 days after the relevant Asset Sale, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.16 and that all Securities tendered will be accepted for payment, provided, however, that if the aggregate principal amount of Securities tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Securities to be purchased on a pro rata basis (based on amounts tendered) (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or multiples thereof shall be purchased); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Proceeds Purchase Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless the Company defaults in making payment therefor, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a 66 statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities were purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Security purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof; and (8) that the Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. On or before the Proceeds Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price (and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered provided that each such new Security shall be in the principal amount of $1,000 or integral multiples thereof). The Company will publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date. For purposes of this Section 4.16, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer shall be returned by the Trustee to the Company. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase of Securities pursuant to a Net Proceeds Offer. To the extent the provisions of any securities laws or regulations conflict with the provisions under this Section 4.16, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.16 by virtue thereof. 67 SECTION 4.17. Guarantees of Certain Indebtedness. The Company will not permit any of its Subsidiaries to (a) incur, guarantee or secure through the granting of Liens the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof or (b) pledge any intercompany notes representing obligations of any of its Subsidiaries, to secure the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof, in each case unless such Subsidiary, the Company and the Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Guarantee. SECTION 4.18. Limitation on Preferred Stock of Subsidiaries. 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. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Limitations on Mergers and Certain Other Transactions. (a) The Company shall not in a single transaction or through a series of related transactions, (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case: (1) either 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 68 supplement, all the obligations of the Company under the Securities and this Indenture; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) the Surviving Person could incur at least $1 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12; (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 Securities and this Indenture shall apply, without alteration or amendment as such Guarantee applies on the date it was granted under this Indenture to the obligations of the Company under this Indenture and the Securities to the obligations of the Company or such Person as the case may be, under this Indenture and the Securities, after consummation of such transaction. (b) Notwithstanding the foregoing, the consummation of the Merger on the Issue Date need only comply with clauses (1) and (3) of the foregoing paragraph. (c) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more direct or indirect Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. 69 SECTION 5.02 Successor Corporation Substituted. 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 Section 5.01, 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 this Indenture with the same effect as if such Surviving Person had been named as the Company herein; provided, however, that solely for purposes of computing amounts described in subclause (c) of the first paragraph of Section 4.03, 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. When a successor corporation assumes all of the obligations of the Company hereunder and under the Securities and agrees to be bound hereby and thereby, the predecessor shall be released from such obligations. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" occurs if: (i) the Company defaults in the payment of interest on any Securities when the same becomes due and payable and the Default continues for a period of 30 days; (ii) the Company defaults in the payment of the principal of, or premium, if any, on the Securities when due whether at maturity, upon acceleration, redemption, required repurchase or otherwise; (iii) the Company fails to comply with any of its agreements contained in the Securities or this Indenture (other than a default specified in clause (i) or (ii) above), if such failure continues for the period and after the notice specified below; (iv) there shall be a default under any Indebtedness of the Company or any of its Subsidiaries, whether such 70 Indebtedness now exists or shall hereafter 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 final maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, aggregates $20 million or more at any one time outstanding; (v) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $20 million, either individually or in the aggregate, shall be entered against the Company or any Subsidiary of the Company or any of their respective properties and shall not be discharged and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree shall not be in effect; (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 a Bankruptcy Order for relief against it in an involuntary case or proceeding or the commencement of any case or proceeding against it; (c) consents to the appointment of a custodian of it or for 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 shall have exercised any right under 71 applicable law or applicable security documents to take ownership of any such assets in lieu of foreclosure; or (ix) any of the Guarantees shall be declared or adjudged invalid in a final judgment or order issued by any court or governmental authority. A Default under clause (iii) above (other than in the case of any Default under Section 4.03, 4.15, 4.16 or 5.01, which Defaults shall be Events of Default with the notice specified in this paragraph but without the passage of time specified in this paragraph) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the outstanding Securities notify the Company and the Trustee of the Default, and the Company does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in principal amount of the Securities then outstanding. When a Default is cured, it ceases. SECTION 6.02. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 6.01(vi) or (vii) with respect to the Company or a Subsidiary Guarantor) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities may, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the then outstanding Securities shall, declare due and payable all unpaid principal and interest accrued and unpaid on the then outstanding Securities by written notice to the Company (and, if any Indebtedness is outstanding under the Credit Agreement or the Credit Agreement is otherwise in effect, to the Credit Agent) and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become due and payable upon the first to occur of an acceleration under the Credit Agreement, or five business days after receipt by the Company and the Credit Agent of such Acceleration Notice. If an Event of Default specified in Section 6.01(vi) or (vii) occurs with respect to the Company or a Subsidiary Guarantor that is a Significant Subsidiary, all unpaid principal of and accrued interest on all then outstanding Securities shall be immediately due and payable without any declaration or other act on the part of the Trustee 72 or any of the Holders. Upon payment of such principal amount, interest, and premium, if any, all of the Company's obligations under the Securities and this Indenture, other than obligations under Section 7.07, shall terminate. After a declaration of acceleration, the Holders of a majority in principal amount of the Securities then outstanding, by notice to the Trustee, may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the non-payment of the principal of the Securities which has become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iv) the Company has paid or deposited with the Trustee a sum sufficient to pay all sums paid or advanced by the Trustee under this Indenture and the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. (b) In the event of a declaration of acceleration under this Indenture because an Event of Default set forth in Section 6.01(iv) has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or 73 any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.07 and 9.02, the Holders of a majority in principal amount of the outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (i) and (ii) of Section 6.01. When a Default or Event of Default is waived, it is cured and ceases. SECTION 6.05. Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.03. Subject to Section 7.01, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Securityholder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.06. Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holder or Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; 74 (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holder or Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (i) or (ii) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relating to the Company or any other obligor upon the Securities, any of their respective creditors or any of their respective property and shall be 75 entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07; Second: to Holders for interest accrued on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for interest; Third: to Holders for principal amounts due and unpaid on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal; and Fourth: to the Company or the Subsidiary Guarantors, as their respective interests may appear. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. SECTION 6.11. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or 76 hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.12. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Six or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 6.13. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.13 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Securities. ARTICLE SEVEN TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. SECTION 7.01. Duties of Trustee. (a) If a Default or an Event of Default of which the Trustee is aware has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its 77 exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need undertake to perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee shall have no liability except for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. 78 (f) The Trustee shall not be liable for interest on any assets received by it. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 7.02. Rights of Trustee. Subject to Section 7.01: (a) The Trustee may rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require in addition to written direction from the Company an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 11.04 and 11.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. 79 SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder of Securities notice of the Default or Event of Default within 90 days after such Default or Event of Default occurs or if such Default or Event of Default is known to the Trustee during such 90-day period, promptly after such Default or Event of Default becomes known to the Trustee; 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 Security, 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 Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA { 313(a) occurred within the previous twelve months, but not otherwise, mail to each Securityholder a brief report dated as of such May 15 that complies with TIA { 313(a). The Trustee also shall comply with TIA {{ 313(b) and 313(c). A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Securities are listed. 80 The Company shall notify the Trustee if the Securities become listed on any stock exchange. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it except for such actions to the extent caused by any negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal of or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(vi) or (vii) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the 81 outstanding Securities may remove the Trustee and appoint a successor trustee with the Company's consent, by so notifying the Company and the Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under 82 Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. SECTION 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA {{ 310(a)(1) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA { 310(b); provided, however, that there shall be excluded from the operation of TIA { 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA { 310(b)(1) are met. SECTION 7.11. Preferential Collection of Claims Against Company._________________________________ The Trustee shall comply with TIA { 311(a), excluding any creditor relationship listed in TIA { 311(b). A Trustee who has resigned or been removed shall be subject to TIA { 311(a) to the extent indicated. ARTICLE EIGHT SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.01. Termination of the Company's Obligations.________________ The Company may terminate its obligations under the Securities and this Indenture, and the obligations of any Subsidiary Guarantor shall terminate, except those obligations referred to in the penultimate paragraph of this Section 8.01, if all Securities previously authenticated and delivered (other than destroyed, lost or stolen Securities which have been replaced or paid or Securities for whose payment money has 83 theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 8.04) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (1) either (i) pursuant to Article Three, the Company shall have given notice to the Trustee and mailed a notice of redemption to each Holder of the redemption of all of the Securities under arrangements satisfactory to the Trustee for the giving of such notice or (ii) all Securities have otherwise become due and payable hereunder; (2) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, money in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal of, premium, if any, and interest on the outstanding Securities to maturity or redemption; provided that the Trustee shall have been irrevocably instructed to apply such money to the payment of said principal, premium, if any, and interest with respect to the Securities; (3) no Default or Event of Default with respect to this Indenture or the Securities 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; (4) the Company shall have paid all other sums payable by it hereunder; and (5) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for the termination of the Company's and any Subsidiary Guarantor's obligation under the Securities and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under the Credit Agreement (if then in effect) or any other agreement or 84 instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02 and 7.07 and any Subsidiary Guarantor's obligations in respect thereof shall survive until the Securities are no longer outstanding pursuant to the last paragraph of Section 2.08. After the Securities are no longer outstanding, the Company's obligations in Sections 7.07, 8.04 and 8.05 and any Subsidiary Guarantor's obligations in respect thereof shall survive. After such delivery or irrevocable deposit the Trustee upon request shall acknowledge in writing the discharge of the Company's and any Subsidiary Guarantor's obligations under the Securities and this Indenture except for those surviving obligations specified above. SECTION 8.02. Legal Defeasance and Covenant Defeasance.__________________ (a) The Company may, at its option by Board Resolution of the Board of Directors of the Company, at any time, with respect to the Securities, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Securities upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company and any Subsidiary Guarantor shall be deemed to have been released and discharged from its obligations with respect to the outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "legal defeasance"). For this purpose, such legal defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of paragraph (e) below and the other Sections of and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same) except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the funds held by the Trustee in the trust fund described in paragraph (d) below and as more fully set forth in such paragraph, payments 85 in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.06, 2.07 and 4.02, and, with respect to the Trustee, under Section 7.07 and any Subsidiary Guarantor's obligations in respect thereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Section 8.02 and Section 8.05. Subject to compliance with this Section 8.02, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to the Securities. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its obligations under any covenant contained in Article five and in Sections 4.03, 4.05 through 4.09 and 4.11 through 4.18 with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the outstanding Securities, the Company and any Subsidiary Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01(iii), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Securities: (i) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 who shall agree to comply with the provisions of this Section 8.02 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (x) money in an amount or (y) direct non-callable obligations of, or non- 86 callable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged ("U.S. Government Obligations") maturing as to principal, premium, if any, and interest in such amounts of money and at such times as are sufficient without consideration of any reinvestment of such interest, to pay principal of and interest on the outstanding Securities not later than one day before the due date of any payment, or (z) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge principal of, premium, if any, and interest on the outstanding Securities on the Maturity Date or otherwise in accordance with the terms of this Indenture and of such Securities; provided, however, that the Trustee (or other qualifying trustee) shall have received an irrevocable written order from the Company instructing the Trustee (or other qualifying trustee) to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities; (ii) no Default or Event of Default or event which with notice or lapse of time or both would become a Default or an Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit or, insofar as Section 6.01(vi) or (vii) is concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (iii) such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any Securities of the Company or any Subsidiary Guarantor; (iv) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default or Event of Default under, this Indenture or any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound (and in that connection, the Trustee shall have received a certificate from the Credit Agent to that effect with respect to such Credit Agreement if then in effect); 87 (v) in the case of an election under paragraph (b) above, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) 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 shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such 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; (vi) in the case of an election under paragraph (c) above, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Securities 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; (vii) in the case of an election under either paragraph (b) or (c) above, an Opinion of Counsel to the effect that, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law; (viii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the legal defeasance under paragraph (b) above or the covenant defeasance under paragraph (c) above, as the case may be, have been complied with; and (ix) the Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Securities 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. (e) All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this 88 paragraph (e), the "Trustee") pursuant to paragraph (d) above in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company or any Affiliate of the Company), to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to paragraph (d) above or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. The Company's obligations to pay and indemnify the Trustee as set forth in this paragraph shall survive the termination of this Indenture and the Securities. Anything in this Section 8.02 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request, in writing, by the Company any money or U.S. Government Obligations held by it as provided in paragraph (d) above which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance. SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Sections 8.01 and 8.02, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal of, premium, if any, and interest on the Securities. SECTION 8.04. Repayment to Company or Subsidiary Guarantors._______________________ Subject to Sections 7.07, 8.01 and 8.02, the Trustee shall promptly pay to the Company, or if deposited with the Trustee by any Subsidiary Guarantor, to such Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess money, determined in accordance with Section 8.02, held by it 89 at any time. The Trustee and the Paying Agent shall pay to the Company or any Subsidiary Guarantor, as the case may be, upon receipt by the Trustee or the Paying Agent, as the case may be, of an Officers' Certificate, any money held by it for the payment of principal, premium, if any, or interest that remains unclaimed for two years after payment to the Holders is required; provided, however, that the Trustee and the Paying Agent before being required to make any payment may, but need not, at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company or any Subsidiary Guarantor, as the case may be, Securityholders entitled to money must look solely to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. SECTION 8.05. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then and only then the Company's and each Subsidiary Guarantor's, if any, obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had been made pursuant to this Indenture until such time as the Trustee is permitted to apply all such money or U.S. Government Obligations in accordance with this Indenture; provided, however, that if the Company or the Subsidiary Guarantors, as the case may be, has made any payment of principal of, premium, if any, or interest on any Securities because of the reinstatement of its obligations, the Company or the Subsidiary Guarantors, as the case may be, shall be, subrogated to the rights of the holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. 90 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company and the Subsidiary Guarantors, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder; (2) to comply with Article Five and Section 10.05; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; (4) to make any other change that does not adversely affect the rights of any Securityholder in any material respect; or (5) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; provided that the Company has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.01. SECTION 9.02. With Consent of Holders. Subject to Section 6.07, the Company and each Subsidiary Guarantor, when authorized by a Board Resolution, and the Trustee, together with the written consent of the Holder or Holders of at least a majority in aggregate principal amount of the outstanding Securities, may amend or supplement, or waive compliance with any provision of, this Indenture, the Securities or any Guarantee without notice to any other Securityholders; provided that without the consent of Holders of not less than two thirds in aggregate principal amount of Securities then outstanding, no such amendment, supplement or waiver may release any Subsidiary Guarantor from any of its obligations under its Guarantee or this Indenture other than in accordance with the terms of such Guarantee and this Indenture; provided, further, that without the consent of Holders of not less than 75% in aggregate principal amount of the Securities 91 then outstanding, no such amendment, supplement or waiver may change the Change of Control Payment Date or the purchase price in connection with any repurchase of Securities pursuant to Section 5.15 in a manner adverse to any Holder or waive a Default or Event of Default resulting from a failure to comply with Section 4.15. Without the consent of each Securityholder affected, however, no amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may: (1) change the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture, the Securities or the Guarantees; (2) reduce the rate or extend the time for payment of interest on any Security; (3) reduce the principal amount of any Security; (4) change the Maturity Date of any Security or alter the redemption provisions in this Indenture or the Securities in a manner adverse to any Holder; (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders of the Securities or the rights of Holders to recover the principal of, interest on, or redemption payment with respect to, any Security; (6) make any changes in Section 6.04, 6.07 or this Section 9.02; or (7) make the principal of, or the interest on any Security payable with anything or in any manner other than as provided for in this Indenture, the Securities and the Guarantees as in effect on the date hereof. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. 92 In connection with any amendment, supplement or waiver under this Article Nine, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. SECTION 9.03. Compliance with TIA. From the date on which the Indenture is qualified under the TIA, every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (1) through (7) of Section 9.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's 93 Security; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 9.05. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. SECTION 9.06. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. ARTICLE TEN GUARANTEE SECTION 10.01. Unconditional Guarantee. Each Subsidiary Guarantor hereby unconditionally, jointly and severally, guarantees (such guarantee to be referred to herein as the "Guarantee") to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Securities or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Securities will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Securities and all other 94 obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Securities or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 10.04. Each Subsidiary Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and in this Guarantee. If any Securityholder or the Trustee is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the Trustee or such Securityholder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Six, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of this Guarantee. SECTION 10.02. Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and 95 enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 10.03. Release of a Subsidiary Guarantor. 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 all or substantially all its assets) to an entity which is not a Subsidiary of the Company and which sale or disposition is otherwise in compliance with the terms of this Indenture, such Subsidiary Guarantor shall be deemed released from all obligations under this Article Ten without any further action required on the part of the Trustee or any Holder; 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. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 10.03. Any Subsidiary Guarantor not so released remains liable for the full amount of principal of and interest on the Securities as provided in this Article Ten. SECTION 10.04. Limitation of Subsidiary Guarantor's Liability. Each Subsidiary Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Subsidiary Guarantor hereby irrevocably agree that the obligations of such Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to Section 96 11.06, result in the obligations of such Subsidiary Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. SECTION 10.05. Subsidiary Guarantors May Consolidate, etc., on Certain Terms. (a) Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety, to the Company or another Subsidiary Guarantor. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Subsidiary Guarantor shall no longer have any force or effect. (b) Except as set forth in Article Four and Article Five hereof, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into a corporation or corporations other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor); provided, however, that, subject to Sections 10.03 and 10.05(a), (i) such transaction does not violate any covenants set forth in this Indenture and immediately after such transaction, and giving effect thereto, no Default or Event of Default shall have occurred as a result of such transaction and be continuing, and (ii) upon any such consolidation, merger, sale or conveyance, the Subsidiary Guarantee set forth in this Article Ten, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Subsidiary Guarantor, shall be expressly assumed (in the event that the Subsidiary Guarantor is not the surviving corporation in the merger), by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the corporation formed by such consolidation, or into which the Subsidiary Guarantor shall have merged, or by the corporation that shall have acquired such property. In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture executed and delivered to the Trustee and satisfactory in form to the Trustee of the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor; provided, however, that solely for purposes of computing amounts described in subclause (c) of the first paragraph of Section 4.03, any such successor 97 corporation shall only be deemed to have succeeded to and be substituted for any Subsidiary Guarantor with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. SECTION 10.06. Contribution. In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Guarantor") under the Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Subsidiary Guarantors in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Subsidiary Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" of such Subsidiary Guarantor at any date shall mean 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 Guarantee of such Subsidiary Guarantor, at such date and (y) the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under 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 Guarantee), excluding debt in respect of the Guarantee of such Subsidiary Guarantor, as they become absolute and matured. SECTION 10.07. Waiver of Subrogation. Each Subsidiary Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Subsidiary Guarantor's obligations under the Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, 98 exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Subsidiary Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 10.07 is knowingly made in contemplation of such benefits. SECTION 10.08. Execution of Guarantee. To evidence their guarantee to the Securityholders set forth in this Article Ten, the Subsidiary Guarantors hereby agree to execute the Guarantee in substantially the form included in Exhibit A, which shall be endorsed on each Security ordered to be authenticated and delivered by the Trustee. Each Subsidiary Guarantor hereby agrees that its Guarantee set forth in this Article Ten shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. Each such Guarantee shall be signed on behalf of each Subsidiary Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Guarantee prior to the authentication of the Security on which it is endorsed, and the delivery of such Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Guarantee on behalf of such Subsidiary Guarantor. Such signatures upon the Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantee, and in case any such officer who shall have signed the Guarantee shall cease to be such officer before the Security on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Security nevertheless may be authenticated and delivered or disposed of as though the person 99 who signed the Guarantee had not ceased to be such officer of the Subsidiary Guarantor. SECTION 10.09. Waiver of Stay, Extension or Usury Laws. Each Subsidiary Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Subsidiary Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each such Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed duties shall control. SECTION 11.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or any Subsidiary Guarantor: c/o The Yucaipa Companies 10000 Santa Monica Boulevard Fifth Floor Los Angeles, California 90067 Attention: Mark A. Resnik 100 if to the Trustee: Norwest Bank Minnesota, National Association Sixth and Marquette Minneapolis, Minnesota 55479-0069 Attention: Corporate Trust Division if to the Credit Agent: Bankers Trust Company 130 Liberty Street, 14th Floor New York, New York 10006 Attention: Mary Jo Jolly with a copy to: Bankers Trust Company 300 S. Grand Avenue, 41st Floor Los Angeles, CA 90071 Attention: Eric S. Swanson Each of the Company, the Trustee, the Subsidiary Guarantors and the Credit Agent by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to the Company, the Trustee, the Subsidiary Guarantors and the Credit Agent shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Security- holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.03. Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA { 312(b) with other Securityholders with respect to their 101 rights under this Indenture or the Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar and any other person shall have the protection of TIA { 312(c). SECTION 11.04. Certificate and Opinion as to Conditions Precedent.______________________________ Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.07, shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. 102 SECTION 11.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.07. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, Los Angeles, California or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.08. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. SECTION 11.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Securityholder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. SECTION 11.11. Successors. All agreements of the Company and each Subsidiary Guarantor in this Indenture and the Securities shall bind their 103 respective successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 11.13. Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 11.14. No Violation. Notwithstanding the provisions of this Indenture, in no event shall any transaction, agreement, payment or other event to be consummated, entered into or made in connection with the Merger or any financing thereof be considered a violation of any provision of this Indenture or constitute a Change of Control hereunder. 104 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed and attested all as of the date first written above. RALPHS GROCERY COMPANY By: Name: Jan Charles Gray Title: Senior Vice President, General Counsel and Secretary Attest: ___________________ SUBSIDIARY GUARANTORS: ALPHA BETA COMPANY BAY AREA WAREHOUSE STORES, INC. BELL MARKETS, INC. CALA CO. CALA FOODS, INC. CRAWFORD STORES, INC. FALLEY'S, 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: Name: Jan Charles Gray Title: Senior Vice President, General Counsel and Secretary (for each of the above- listed Subsidiary Guarantors) Attest: _____________________ (for each of the above-listed Subsidiary Guarantors) 105 NORWEST BANK MINNESOTA, National Association, as Trustee By: Name: Title: 106 EXHIBIT A [FORM OF NOTE] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER- DEALER) TO THE TRUSTEE OR TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE OR TRANSFER AGENT FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE OR TRANSFER AGENT AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO \ THEM BY REGULATION S UNDER THE ACT. A-1 107 FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, AS OF THE ISSUE DATE, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, (1) THE ISSUE PRICE IS $946.25; (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $53.75; (3) THE ISSUE DATE IS JUNE 6, 1996; (4) THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS 11 1/2%. A-2 108 RALPHS GROCERY COMPANY 10.45% Senior Note due 2004 No. $ RALPHS GROCERY COMPANY, a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to or registered assigns, the principal sum of Dollars, on June 15, 2004. Interest Payment Dates: June 15 and December 15 commencing on June 15, 1996. Record Dates: June 1 and December 1 provided that with respect to the interest payment on June 15, 1996, the Record Date shall be the Issue Date. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-3 109 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: RALPHS GROCERY COMPANY By: Name: Jan Charles Gray Title: Executive Vice President and Chief Financial Officer By: Name: Grey Mays Title: Senior Vice President, General Counsel and Secretary A-4 110 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Securities described in the within-mentioned Indenture. NORWEST BANK MINNESOTA, National Association, as Trustee By Authorized Signatory A-5 111 RALPHS GROCERY COMPANY 10.45% Senior Note due 2004 1. Interest. RALPHS GROCERY COMPANY, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually on each June 15 and December 15 of each year (the "Interest Payment Date"), commencing June 15, 1996 to the Holders of record on the immediately preceding June 1 and December 1; provided that the interest payment on June 15, 1996 shall be paid to the Holders of record on the Issue Date. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Company shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at a rate equal to the rate of interest otherwise payable on the Securities. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. Notwithstanding the foregoing, the Company shall pay or cause to be paid all amounts payable with respect to non-DTC eligible Securities by wire transfer of Federal funds to the account of the Holders of such Securities. A-6 112 3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota, National Association (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture and Guarantees. The Company issued the Securities under an Indenture, dated as of June 1, 1995 (the "Indenture"), among the Company, the Subsidiary Guarantors and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code {{ 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of the Company limited in aggregate principal amount to $100,000,000. Payment on each Security is guaranteed on a senior basis, jointly and severally, by the Subsidiary Guarantors pursuant to Article Ten of the Indenture. 5. Optional Redemption. On or after June 15, 2000 the Securities 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, together with accrued and unpaid interest to the Redemption Date, if redeemed during the 12 months commencing on June 15 in the years set forth below:
Year Percentage 2000 ...................... 105.225% 2001 ...................... 103.483% 2002 ...................... 101.742% 2003 and thereafter ....... 100.000%
A-7 113 In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Securities originally issued, at a redemption price equal to 110.450% of the principal amount thereof if redeemed during the period commencing on the Issue Date and ending on June 14, 1995, 108.957% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1996 and 107.464% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. In order to effect a 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. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. 8. Limitation on Asset Sales. Under certain circumstances the Company is required to apply the net proceeds from Asset Sales to the repayment of Pari Passu Indebtedness, to make Related Business Investments, an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, an investment in properties and assets that will be used in the A-8 114 business of the Company and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto or to purchase in a Net Proceeds Offer (at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase) such aggregate principal amount of Securities which, when added to the accrued interest thereon, shall be equal to the net proceeds required to be applied thereto. 9. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agents will pay the money back to the Company at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). A-9 115 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture, the Securities and the Guarantees may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, comply with Article Five or Section 10.05 of the Indenture, or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not adversely affect the rights of any Holder of a Security. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness or Liens, make payments in respect of its Capital Stock and merge or consolidate with any other person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of A-10 116 a majority in aggregate principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 20. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 21. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of A-11 117 such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: Ralphs Grocery Company, Inc., c/o The Yucaipa Companies, 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067, Attn: Mark Resnik. A-12 118 [FORM OF NOTATION ON NOTE RELATING TO GUARANTEE] GUARANTEE The Subsidiary Guarantors (as defined in the Indenture (the "Indenture") referred to in the Security upon which this notation is endorsed and each hereinafter referred to as a "Subsidiary Guarantor," which term includes any successor person under the Indenture) have unconditionally guaranteed on a senior unsecured basis (such guarantee by each Subsidiary Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Ten of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of each Subsidiary Guarantor to the Holders of Securities and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth and are senior unsecured obligations of each such Subsidiary Guarantor, to the extent and in the manner provided, in Article Ten of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Guarantee therein made. No stockholder, officer, director or incorporator, as such, past, present or future, of any Subsidiary Guarantor shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. A-13 119 The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. SUBSIDIARY GUARANTORS: CALA CO. CALA FOODS, INC. CRAWFORD STORES, INC. BELL MARKETS, INC. FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. ALPHA BETA COMPANY FOOD 4 LESS OF CALIFORNIA, INC. FALLEY'S, INC. FOOD 4 LESS MERCHANDISING, INC. BAY AREA WAREHOUSE STORES, INC. FOOD 4 LESS GM, INC. By: Name: Greg Mays (for each of the above-listed Subsidiary Guarantors) By: Name: Jan Charles Gray (for each of the above-listed Subsidiary Guarantors) A-14 120 [FORM OF ASSIGNMENT] To assign this Security fill in the form below: I or we assign and transfer this Security to - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) Please insert Social Security or other identifying number of assignee - ------------------------------------------ and irrevocably appoint _______________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:_______________ Signature:____________________________ - ------------------------------------------------------------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee:__________________________________________ In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) June 6, 1999, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Security is being transferred: A-15 121 [Check One] (1) __ to the Company or a subsidiary thereof; or (2) __ pursuant to and in compliance with Rule 144A under the Securities Act; or (3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) __ outside the United states to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act; or (6) __ pursuant to an effective registration statement under the Securities Act; or (7) __ pursuant to another available exemption from the registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. A-16 122 If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.15 of the Indenture shall have been satisfied. Dated: __________________ Signed: ____________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ____________________________ NOTICE: To be executed by an executive officer A-17 123 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, as the case may be, check the appropriate box below: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, as the case may be, state the amount you want to be purchased: $ Date:__________ Signature:____________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:______________________________________ A-18 124 EXHIBIT B FORM OF LEGEND FOR GLOBAL NOTES Any Global Note authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. B-1 125 EXHIBIT C Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors ___________, ____ Norwest Bank Minnesota, National Association Sixth and Marquette Minneapolis, Minnesota 55479-0069 Attention: Corporate Trust Division Re: Ralphs Grocery Company (the "Company") 10.45% Senior Notes due 2004 (the "Notes") Ladies and Gentlemen: In connection with our proposed purchase of $_______ aggregate principal amount of the Notes, we confirm that: 1. We have received a copy of the Offering Memorandum (the "Offering Memorandum"), dated June 3, 1996, relating to the Notes and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated on pages (1)-(3) of the Offering Memorandum and in the section entitled "Transfer Restrictions" of the Offering Memorandum, including the restrictions on duplication and circulation of the Offering Memorandum. 2. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of June 6, 1996 relating to the Notes (the "Indenture") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). C-1 126 3. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell or otherwise transfer any Notes we will do so only (i) to the Company or any subsidiary thereof, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), (iii) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you a signed letter containing certain representatives and agreements relating to the restrictions on transfer of the Notes, substantially in the form of this letter, (iv) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 4. We are not acquiring the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan (as defined in Section 3 of the Employee Retirement Income Security Act of 1974), except as permitted in the section entitled "Transfer Restrictions" of the Offering Memorandum. 5. We understand that, on any proposed resale of any Notes, we will be required to furnish to you and the Company such certification, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 6. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our C-2 127 investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 7. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You, the Company and the Initial Purchaser (as defined in the Offering Memorandum) are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By: Authorized Signature C-3 128 EXHIBIT D Form of Certificate To Be Delivered in Connection with Transfers ______Pursuant to Regulation S_____ ______________, ____ Norwest Bank Minnesota, National Association Sixth and Marquette Minneapolis, Minnesota 55479-0069 Attention: Corporate Trust Division Re: Ralphs Grocery Company (the "Company") 10.45% Senior Notes due 2004 (the "Notes") Ladies and Gentlemen: In connection with our proposed sale of $___________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre- arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; D-1 129 (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: Authorized Signature D-2 EX-5.1 4 OPINION OF LATHAM & WATKINS 1 EXHIBIT 5.1 LATHAM & WATKINS ATTORNEYS AT LAW 633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071-2007 ________, 1996 Ralphs Grocery Company 1100 West Artesia Boulevard Compton, California 90220 Re: RALPHS GROCERY COMPANY REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-______) Ladies and Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (the "Registration Statement") referenced above, which you have filed with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of $100,000,000 principal amount of 10.45% Senior Notes due 2004 (the "Exchange Notes"), to be offered and issued by Ralphs Grocery Company (the "Company"), together with guarantees of the Exchange Notes (the "Guarantees") by Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Crawford Stores, 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. (collectively, the "Guarantors"). We have examined such matters of fact and questions of law as we have considered appropriate for purposes of this opinion. We have examined, among other things, the terms of the Exchange Notes, the Guarantees and the Indenture pursuant to which the Exchange Notes and Guarantees are to be issued. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We are opining herein as to the effect on the subject transaction only of the federal laws of the United States, the internal laws of the State of New York and the General Corporation Law of the State of Delaware, and we express no opinion with respect to the applicability thereto, or the effect thereon, of any other laws. Based upon the foregoing, we are of the opinion that, upon issuance thereof in the manner described in the Registration Statement, the Exchange Notes will be legally valid and binding obligations of the Company and the Guarantees will be legally valid and binding obligations of the Guarantors, in each case except as may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; 2 LATHAM & WATKINS Ralphs Grocery Company ________, 1996 Page 2 and the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy. We consent to your filing this opinion as an exhibit to the Registration Statement. Very truly yours, EX-5.2 5 OPINION OF IRWIN, CLUTTER & SEVERSON 1 EXHIBIT 5.2 IRWIN CLUTTER SEVERSON & HINKEL 2201 S.W. 29TH STREET P.O. BOX 5514 TOPEKA, KANSAS 66605-0514 ___________, 1996 Falley's, Inc. 3120 South Kansas Ave. Topeka, Kansas 66611 Re: RALPHS GROCERY COMPANY REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-______) -------------------------------------------------------- Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (File No. 333-______) (the "Registration Statement") of Ralphs Grocery Company ("Ralphs") and the Subsidiary Guarantors (as defined therein), including Falley's, Inc. ("Falley's"), filed with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of the guarantee (the "Guarantee") by Falley's, and the other Subsidiary Guarantors, of $100 million principal amount of 10.45% Senior Notes due 2004 to be issued in exchange for the issued and outstanding 10.45% Senior Notes due 2004 of Ralphs Grocery Company. We have examined such matters of fact and questions of law as we have considered appropriate for purposes of this opinion. We have examined, among other things, the terms of the Guarantee and the indenture pursuant to which the Guarantee is to be issued. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We are opining herein as to the effect on the subject transaction only of the internal laws of the State of Kansas, and we express no opinion with respect to the applicability thereto, or the effect thereon, of any other laws. 2 Falley's, Inc. __________, 1996 Page 2 Based upon the foregoing, we are of the opinion that, upon issuance thereof in the manner described in the Registration Statement, the Guarantee will be a legally valid and binding obligation of Falley's, except as may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; and the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy. We consent to your filing this opinion as an exhibit to the Registration Statement. Very truly yours, IRWIN CLUTTER SEVERSON & HINKEL EX-8 6 OPINION OF LATHAM AND WATKINS 1 EXHIBIT 8 LATHAM & WATKINS ATTORNEYS AT LAW 633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071-2007 __________, 1996 Ralphs Grocery Company 1100 West Artesia Boulevard Compton, California 90220 Re: RALPHS GROCERY COMPANY REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-__________) Ladies and Gentlemen: You have requested our opinion concerning the material federal income tax consequences of the exchange of 10.45% Senior Notes due 2004 of Ralphs Grocery Company (the "Company") which have been registered under the Securities Act of 1933, as amended, for outstanding 10.45% Senior Notes due 2004 of the Company, in connection with the Registration Statement on Form S-4 filed herewith (the "Registration Statement"). The facts, as we understand them, and upon which with your permission we rely in rendering the opinion expressed herein, are set forth in the Registration Statement. Based on such facts, it is our opinion that the material federal income tax consequences are accurately set forth under the heading "Certain Federal Income Tax Considerations" in the Registration Statement. No opinion is expressed as to any matter not discussed therein. This opinion is based on various statutory provisions, regulations promulgated thereunder and interpretations thereof by the Internal Revenue Service and the courts having jurisdiction over such matters, all of which are subject to change either prospectively or retroactively. Also, any variation or difference in the facts from those set forth in the Registration Statement may affect the conclusion stated herein. This opinion is rendered to you solely for use in connection with the Registration Statement. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm under the headings "Certain Federal Income Tax Considerations" and "Legal Matters." Very truly yours, EX-10.17 7 PURCHASE AGREEMENT, 6/3/1996 1 Exhibit 10.17 RALPHS GROCERY COMPANY $100,000,000 10.45% Senior Notes due 2004 PURCHASE AGREEMENT June 3, 1996 BT Securities Corporation One Bankers Trust Plaza New York, New York 10005 Ladies and Gentlemen: Ralphs Grocery Company, a Delaware corporation (the "Company"), together with each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less of Southern California, Inc., Food 4 Less GM, Inc., and Crawford Stores, Inc. as guarantors (collectively, the "Subsidiary Guarantors", and together with the Company, the "Issuers"), hereby confirm that agreement with you (the "Initial Purchaser"), as set forth below: 1. The Securities. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Initial Purchaser $100,000,000 aggregate principal amount of its Senior Notes, which will be part of the same issue as the 10.45% Senior Notes due 2004 (the "Notes"). The Notes will be unconditionally guaranteed (the "Guarantees") on a joint and several basis, by the Subsidiary Guarantors. The Notes and the Guarantees are hereinafter referred to collectively as the "Securities". The Notes are to be issued under an indenture (the "Indenture") to be dated June 6, 1996, by and among the Company, the Subsidiary Guarantors and Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). The Notes will be offered and sold to the Initial Purchaser without such offers and sales being registered under the Securities Act of 1933, as amended (the "Act"), in reliance on exemptions therefrom. 2 In connection with the sale of the Notes, the Company has prepared a preliminary offering memorandum dated May 31, 1996 (the "Preliminary Memorandum"), and a final offering memorandum dated June 3, 1996 (the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein being referred to as a "Memorandum") setting forth or including a description of the terms of the Notes, the terms of the offering of the Notes, a description of the Company and its subsidiaries and any material developments relating to the Company and its subsidiaries occurring after the date of the most recent historical financial statements included therein. The Company and the Subsidiary Guarantors understand that the Initial Purchaser proposes to make an offering of the Notes only on the terms and in the manner set forth in the Memorandum and Section 8 hereof as soon as the Initial Purchaser deems advisable after this Agreement has been executed and delivered, to persons in the United States whom the Initial Purchaser reasonably believes to be qualified institutional buyers ("QIBs") as defined in Rule 144A under the Act, as such rule may be amended from time to time ("Rule 144A"), in transactions under Rule 144A, and to a limited number of institutional "accredited investors" ("Accredited Investors"), as defined in Rule 501(a)(1), (2), (3) and (7) under Regulation D of the Act in private sales exempt from registration under the Act, and outside the United States to certain persons in reliance on Regulation S under the Act. The Initial Purchaser and its direct and indirect transferees of the Notes will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the Issuers have agreed, among other things, to file (i) a registration statement (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") registering the Notes or the Exchange Notes (as defined in the Registration Rights Agreement) under the Act or (ii) a shelf registration statement pursuant to Rule 415 under the Act relating to the resale of the Notes by holders thereof or, if applicable, relating to the resale of Private Exchange Notes (as defined in the Registration Rights Agreement) by the Initial Purchaser pursuant to an exchange of the Notes for Private Exchange Notes. 2. Representations and Warranties. (a) Each Issuer jointly and severally represents and warrants to and agrees with the Initial Purchaser that: 3 (i) Neither the Preliminary Memorandum as of the date thereof nor the Final Memorandum nor any amendment or supplement thereto as of the date thereof and at all times subsequent thereto up to the Closing Date (as defined in Section 3 below) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchaser furnished to the Company in writing by the Initial Purchaser expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto. (ii) Each of the Issuers has all the necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby and by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). Each of the Issuers has taken all necessary corporate action to authorize the issuance of the Securities. (iii) Each of the Issuers is duly incorporated and validly existing in good standing as a corporation under the laws of its jurisdiction of incorporation, with all requisite corporate power and authority to own or lease its properties and conduct its businesses as now conducted as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), and each of the Issuers is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its businesses requires such qualification, except where the failure to be so qualified would not have (x) a material adverse effect on the business, condition (financial or other) or results of operations of the Issuers taken as a whole; or (y) an adverse effect on the ability of any Issuer to perform any of its material obligations under this Agreement, the Indenture or the Securities (a "Material Adverse Effect"); the Company has in all material respects, the authorized, issued and outstanding capitalization set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum); the only direct or indirect subsidiaries of the Company are the Subsidiary Guarantors; 4 except as aforesaid, none of the Issuers owns, directly or indirectly, any of the capital stock or other equity securities of any other person, except that Alpha Beta Company has an investment in Certified Grocers of California, Inc. ("Certified"), one of the Company's suppliers, and in Adams/Vermont Renaissance Plaza, Ltd., a California limited partnership, and Food 4 Less GM has an interest in a joint venture with Certified; the outstanding shares of capital stock of each of the Issuers have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights granted by such person; and except as described in the Final Memorandum and except as to any Indebtedness to be repaid on the Closing Date (or, if the Final Memorandum is not in existence the most recent Preliminary Memorandum), all of the outstanding shares of capital stock of each of the Subsidiary Guarantors are owned beneficially by the Company free and clear of all liens, encumbrances, security interests, mortgages, pledges, charges or claims. No holders of securities or any of the Issuers are entitled to have such securities registered under the Registration Statement. (iv) The Securities, the Exchange Securities and the Private Exchange Securities have been duly and validly authorized by the Issuers for issuance and conform in all material respects to the description thereof in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). The Securities, the Exchange Securities and the Private Exchange Securities when executed by the Issuers and authenticated by the Trustee in accordance with the provisions of the Indenture, and, in the case of the Securities, delivered to and paid for by the Initial Purchaser in accordance with the terms hereof, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Issuers entitled to the benefits of the Indenture and enforceable against the Issuers in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law), (iii) the unenforceability, under certain circumstances, of provisions imposing penalties, forfeitures, late payment charges or an increase in interest rate upon delinquency in payment or the 5 occurrence of a default, and (iv) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable. The Issuers have all requisite corporate power and authority to execute, deliver and perform their respective obligations under the Indenture and the Guarantees to issue and deliver the Securities to the Initial Purchaser as provided herein and to issue the Exchange Securities and the Private Exchange Securities as provided in the Registration Rights Agreement. The Indenture has been duly authorized and, when executed and delivered by the Issuers (assuming the due authorization, execution and delivery thereof by the Trustee), will constitute a valid and legally binding agreement of each of the Issuers enforceable against each of them in accordance with its terms, except that the enforcement thereof may be subject to (v) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws now or hereafter in effect relating to creditors' rights generally, including, without limitation, the effect on the Guarantees of Section 548 of the Bankruptcy Code and comparable provisions of state law, (w) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law), (x) the unenforceability, under certain circumstances, of provisions imposing penalties, forfeitures, late payment charges or an increase in interest rate upon delinquency in payment or the occurrence of a default, (y) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable and (z) the unenforceability of the provisions contained in the Indenture relating to the waiver of (A) stay, extension or usury laws and (B) subrogation rights or other rights and defences of the Subsidiary Guarantors. The Indenture meets the requirement for qualification under the Trust Indenture Act. (v) The Guarantees endorsed on the Securities have been, and the guarantees endorsed on the Exchange Notes and the Private Exchange Notes will be, duly authorized and, when executed and delivered, will, upon the execution, authentication and delivery of the Securities, Exchange Securities and the Private Exchange Securities and, in the case of the Securities, payment therefor, be valid and binding obligations of each Subsidiary Guarantor enforceable against such Subsidiary Guarantor in accordance with their respective terms, except that the 6 enforcement thereof may be subject to (v) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally, including, without limitation, the effect on such guarantees of Section 548 of the Bankruptcy Code and comparable provisions of state law, (w) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law), (x) the unenforceability, under certain circumstances, of provisions imposing penalties, forfeitures, late payment charges or an increase in interest rate upon delinquency in payment or the occurrence of a default, (y) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable and (z) the unenforceability of the provisions contained in the Indentures relating to the waiver of (A) stay, extension or usury laws and (B) subrogation rights or other rights and defences of the Subsidiary Guarantors. (vi) This Agreement has been duly authorized, executed and delivered by each of the Issuers and, assuming the due authorization, execution and delivery hereof by the Initial Purchaser, constitutes the valid and legally binding obligation of the Issuers enforceable against the Issuers in accordance with its terms, except that the enforcement hereof may be subject to (v) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (w) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law), (x) the unenforceability, under certain circumstances, of provisions imposing penalties, forfeitures, late payment charges or an increase in interest rate upon delinquency in payment or the occurrence of a default, (y) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable and (z) the unenforceability under certain circumstances under law or court decisions of provisions for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy (clauses (v) through (z) above are referred to collectively herein as, the "Enforceability Limitations"). Except as described in 7 the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), no consent, approval, authorization or order of any court or governmental agency or body is required for the performance of this Agreement, the Securities, the Guarantees, the Exchange Securities, the Private Exchange Securities or the Indenture by any of the Issuers (to the extent each such person is a party thereto) or the consummation by any Issuer of any of the transactions contemplated hereby or thereby or by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), except such as have been obtained and such as may be required under the Act, the Trust Indenture Act or state securities or "Blue Sky" laws or where the failure to obtain such consent, approval, authorization or order would not have a Material Adverse Effect. None of the Issuers is (i) in violation of its certificate of incorporation or bylaws, (ii) in violation of any statute, judgment, decree, order, rule or regulation applicable to any of the Issuers which violation would have a Material Adverse Effect, or (iii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or other agreement or instrument to which any of the Issuers is subject, which default would have a Material Adverse Effect. The execution, delivery and performance by the Issuers of this Agreement, the Securities, the Guarantees, the Exchange Securities, the Private Exchange Securities or the Indenture (to the extent each such person is a party thereto), and the consummation by each of the Issuers of the transactions contemplated hereby, thereby and by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) will not conflict with or constitute or result in a breach or violation by any of the Issuers of any of (x) the terms or provisions of, or constitute a default by any of the Issuers under, any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, or other agreement or instrument to which any such person is a party or to which any of them or their respective properties is subject, which conflict, breach, violation or default would have a Material Adverse Effect, (y) the certificate of incorporation or bylaws of any such person, or (z) any statute, judgment, decree, order, rule or regulation (excluding state securities and "Blue Sky" laws) of any court or governmental agency or other body 8 applicable to any such person, or any of their respective properties, which conflict, breach, violation or default would have a Material Adverse Effect. (vii) (x) Immediately after the consummation of the issuance of the Securities and the consummation of the other transactions contemplated by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), the fair value and present fair saleable value of the assets of each Issuer will exceed the sum of its stated liabilities and identified contingent liabilities; and (y) after giving effect to the issuance of the Securities and the consummation of the other transactions contemplated by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), none of the Issuers is (a) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (b) unable to pay its debts (contingent or otherwise) as they mature or (c) insolvent. (viii) Each of the Issuers has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and validly authorized and, when executed and delivered by the Issuers will constitute a valid and legally binding agreement of each of the Issuers enforceable against each of the Issuers in accordance with its terms, except that the enforcement thereof may be subject to the Enforceability Limitations. (ix) The Company has delivered to the Initial Purchaser a true and correct copy of the New Credit Facility (as defined in the Memorandum) together with all related documents, instruments and agreements and all schedules, exhibits, appendices and attachments thereto except as described in the Final Memorandum (or if the Final Memorandum is not yet in existence the most recent Preliminary Memorandum); there will have been no material amendments, alterations, modifications or waivers of any of the provisions of the New Credit Facility since its date of execution, other than the first, second and third amendments thereto, the limited waiver thereunder dated January 28, 1996 and certain releases of collateral thereunder in connection with equipment sale-leaseback transactions; there exists as of the date hereof and will exist on the Closing Date, after giving effect to the issuance of the Securities and the consummation of the other transactions contemplated by the Final Memorandum 9 (or if the Final Memorandum is not yet in existence, the most recent Preliminary Memorandum) no event or condition which would constitute a default or an event of default or other violation or breach of the New Credit Agreement. (x) Except as disclosed in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), and except as would not individually or in the aggregate have a Material Adverse Effect (w) each of the Issuers is in compliance with all applicable Environmental Laws (as defined below), (x) each of the Issuers has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with their requirements, (y) there are no pending, or to the best knowledge of any of the Issuers threatened, Environmental Claims (as defined below) against any of the Issuers and (z) each of the Issuers does not have knowledge of any circumstances with respect to any of their respective properties or operations that could reasonably be anticipated to form the basis of an Environmental Claim against any of the Issuers or any of their respective properties or operations and the business operations relating thereto that could reasonably be expected to have a Material Adverse Effect. For purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means, with respect to any person, any federal, state, local or municipal statute, law, rule, regulation, ordinance, code and any published judicial or administrative interpretation thereof including any judicial or administrative order, consent decree or judgment binding on such person or any of its subsidiaries, relating to the environment, health, safety or any chemical, material or substance, exposure to which is prohibited, limited or regulated by any such governmental authority. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law. (xi) The audited consolidated financial statements of the Company included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) present fairly the consolidated financial position, results of operations and cash flows of the Company at the dates and for the periods to which they relate, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein, and 10 the unaudited consolidated financial statements of the Company and the related notes included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) present fairly the consolidated financial position, results of operations and cash flows of the Company at the dates and for the periods to which they relate, subject to year-end audit adjustments, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein. The pro forma financial statements and other pro forma financial information (including the notes thereto) included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) have been prepared in accordance with applicable requirements of Regulation S-X promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and have been properly computed on the bases described therein. The assumptions used in the preparation of the pro forma financial statements and other pro forma financial information included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. Each of Arthur Andersen LLP and KPMG Peat Marwick, which has audited certain of such financial statements as set forth in their reports included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) is an independent public accounting firm as within the meaning of the Act. The statistical and market-related data (including, without limitation, the estimated cost savings information) included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) are based on or derived from sources which the Issuers believe to be reliable and accurate. (xii) Except as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) there is not pending or, to the knowledge of any of the Issuers, threatened, any action, suit, proceeding, inquiry or investigation to which any Issuer, or to which the property of any Issuer is subject, before or brought by any court or governmental 11 agency or body, which would if adversely determined have a Material Adverse Effect. (xiii) Each of the Issuers has (a) good and marketable title to all the real properties and other material assets (personal, tangible, intangible or mixed) owned by it, or purported to be owned by it, and, as of the Closing Date, such title will be free and clear of all liens, except for liens which would be permitted under the Indenture and (b) peaceful and undisturbed possession under all leases to which it is a party as lessee or sublessee, except for such defects in title or lack of possession that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Each of the Issuers operates all material real and personal property leased by it under valid and enforceable leases and has performed in all material respects the obligations required to be performed by it with respect to each such lease, except for such leases and obligations which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. As to leases with respect to which any Issuer is the lessor, the lessees and other parties under such leases are in compliance with all terms and conditions thereunder and such leases are in full force and effect except for any failures to comply or remain in full force and effect which could not reasonably be expected to have a Material Adverse Effect. All tangible assets and properties of each Issuer are in good working order (subject to ordinary wear and tear) and are adequate for the uses to which they are being put or would be put in the ordinary course of business except for such assets and properties as are not material in the aggregate to the business, condition (financial or otherwise) or results of operations of the Issuers taken as a whole. (xiv) The Issuers own, or are licensed under, and have the rights to use, all trademarks and trade names (collectively, "Intellectual Property") used in, or necessary for the conduct of, their businesses as currently conducted, and the consummation of the transactions contemplated hereby and by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) will not alter or impair any such rights, except for such alterations or impairments as could not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Issuers no claims have been asserted by any person to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement related thereto, except for 12 such claims as could not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Issuers, there is no valid basis for any such claim and the use of such Intellectual Property by the Issuers does not infringe on the rights of any person. Each of the Issuers has obtained all licenses, permits, franchises and other governmental authorizations, the lack of which would have a Material Adverse Effect. (xv) Subsequent to the respective dates as of which information is given in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) and except as described therein or contemplated thereby, (x) none of the Issuers has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, not in the ordinary course of business and (y) none of the Issuers has purchased any of its respective outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on their respective capital stock or otherwise. (xvi) All taxes, assessments, fees and other charges (including, without limitation, withholding taxes, penalties, and interest) due or claimed to be due from any of the Issuers that are due and payable have been paid, other than those being contested in good faith or those currently payable without penalty or interest and for which an adequate reserve or accrual has been established in accordance with generally accepted accounting principles, and except where the failure so to pay is not reasonably likely to have, singly or in the aggregate, a Material Adverse Effect. The Issuers know of no actual or proposed additional tax assessments for any fiscal period against the Issuers that, singly or in the aggregate, is reasonably likely to have a Material Adverse Effect. (xvii) None of the Issuers, or any agent acting on behalf of any of them has taken or will take any action that might cause this Agreement, the issuance or sale of the Securities or the issuance of the Guarantees to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System as in effect on the Closing Date. (xviii) None of the Issuers is now, nor after giving effect to the issuance of the Securities or the consummation of the other transactions contemplated by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) will 13 any Issuer be, an "investment company" or a company "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xix) Except as stated in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) none of the Issuers knows of any outstanding claims for services, either in the nature of a finder's fee, financial advisory fee, origination fee or similar fee, with respect to the transactions contemplated hereby. (xx) Except as stated in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) none of the Issuers nor, to the best of the Issuers' knowledge, any of the Issuers' respective directors, officers or controlling persons has taken, directly or indirectly, any action designed, or which might reasonably be expected, to cause or result, under the Act or otherwise, in, or which has constituted, stablization or manipulation of the price of any security of the Issuers to facilitate the issuance of the Securities. (xxi) None of the Company, the Subsidiary Guarantors or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in repsect of, any "security" (as defined in the Act) which is or could be integrated with the sale of the Securities in a manner that would require the registration under the Act of the Securities or (ii) assuming the accuracy of the representations and warranties of the Initial Purchaser in Section 8 hereof, engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. Assuming (i) the accuracy of the representations and warranties of the Initial Purchaser in Section 8 hereof, (ii) the due performance by the Initial Purchaser of the covenants and agreements set forth in Section 8 hereof, and (iii) compliance by the Initial Purchaser with the transfer restrictions described under the caption "Transfer Restrictions" in the Memorandum, it is not necessary in connection with the offer, sale and deliver of the Securities to the Initial Purchaser in the manner contemplated by this Agreement to register any of the 14 Securities under the Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "TIA"). (xxii) No securities of any Issuer are of the same class (within the meaning of Rule 144A under the Act) as the Securities and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealter quotation system. (xxiii) The Issuers have not (a) "incurred," as such term is used in the Existing Indentures (as defined below), any "Indebtedness" pursuant to, or in reliance on, the last clause of the definition of "Permitted Indebtedness," (b) "made," as such term is used in the Existing Indentures, any "Investments" pursuant to, or in reliance on, the last clause of the definition of "Permitted Investments" or (c) "created, incurred, assumed or suffered to exist," as such terms are used in the Existing Indentures, any "Liens" pursuant to, or in reliance on, the last full clause of the definition of "Permitted Liens". For purposes of the preceding sentence, Existing Indentures shall mean, collectively, (i) the 13.75% Senior Subordinated Notes Indenture and the 11% Senior Subordinated Notes Indenture, each dated as of June 1, 1995 by and between the Issuers and United States Trust Company of New York, as trustee and (ii) the 10.45% Senior Notes Indenture dated as of June 1, 1995 by and between the Issuers and Norwest Bank Minnesota, National Association, as trustee. Capitalized terms in quotes used in this clause (xxiii) shall have the meanings ascribed to such terms in the applicable Existing Indenture. Any certificate signed by any officer of any Issuer and delivered pursuant to this Agreement or in connection with the payment of the purchase price and delivery of the Securities shall be deemed a representation and warranty by the Issuers to the Initial Purchaser as to the matters covered thereby, and shall not be deemed a representation by such officer as an individual. 3. Purchase, Sale and Delivery of the Securities. (a) On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Issuers agree to issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase from the Issuers, at 92.375% of their principal amount, the Securities. One or more certificates in definitive form for the Securities that the 15 Initial Purchaser has agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchaser requests upon notice to the Issuers at least 48 hours prior to the Closing Date, shall be delivered by or on behalf of the Company, against payment by or on behalf of the Initial Purchaser of the purchase price therefor by wire transfer or check of immediately available funds to the account of the Company. Such delivery of and payment for the Securities shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, at 10:00 A.M., New York time, on June 6, 1996, or at such other place, time or date as the Initial Purchaser and the Issuers may agree upon, such time and date of delivery against payment being herein referred to as the "Closing Date." The Issuers will make such certificate or certificates for the Securities available for checking and packaging by the Initial Purchaser at the offices in New York, New York of BT Securities Corporation at least 24 hours prior to the Closing Date. (b) The obligation of the Company and the Subsidiary Guarantors to issue and sell the Securities hereunder shall be subject to the condition that the Agent and the Requisite Lenders (as defined in the New Credit Facility) shall have approved the terms thereof in accordance with the Third Amendment, Consent and Waiver dated as of March 8, 1996 under the New Credit Facility. 4. Offering by the Initial Purchaser. The Initial Purchaser proposes to make an offering of the Securities at the price and upon the terms set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchaser is advisable. 5. Certain Covenants. Each Issuer jointly and severally covenants and agrees with the Initial Purchaser that: (i) The Issuers will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchaser shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchaser shall not have given its consent (which consent shall not be unreasonably withheld). The Issuers will promptly, upon the reasonable request of the Initial Purchaser or counsel for the Initial Purchaser, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary in connection with the resale of the Securities by the Initial Purchaser for such Memorandum not to contain any untrue statement of a material fact or 16 omission of a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or to comply with applicable laws, rules or regulations. (ii) Each Issuer will cooperate with the Initial Purchaser in arranging for the qualification of the Securities for offering and sale under the securities or "Blue Sky" laws of such jurisdictions as the Initial Purchaser may designate and will continue such qualifications in effect for as long as may be necessary to complete the resale of the Securities by the Initial Purchaser; provided, however, that in connection therewith no Issuer shall be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or, except at the expense of the Initial Purchaser, to keep any state qualification effective after one year. (iii) If, at any time prior to the completion of the initial resale by the Initial Purchaser of the Securities, any event shall occur as a result of which it is necessary, in the opinion of counsel for the Initial Purchaser, to amend or supplement the Final Memorandum in order to make the Final Memorandum not misleading in light of the circumstances existing at the time it is delivered to a purchaser, or if for any other reason it shall be necessary to amend or supplement the Final Memorandum in order to comply with applicable law, the Issuers shall (subject to Section 5(i)) forthwith amend or supplement the Final Memorandum (in form and substance reasonable satisfactorily to counsel for the Initial Purchaser and in compliance with applicable law) so that, as so amended or supplemented, the Final Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time it is delivered to a purchaser, not misleading and will comply with applicable law, and the Issuers will furnish to the Initial Purchaser a reasonable number of copies of such amendment or supplement. (iv) The Issuers will, without charge, provide to the Initial Purchaser and to counsel for the Initial Purchaser as many copies of the Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto as the Initial Purchaser may reasonably request. (v) For so long as any of the Securities remain outstanding, the Company will furnish to the Initial 17 Purchaser copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or to the holders of the Securities and, as soon as available, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (vi) Neither the Company nor any of its Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Act of the Securities. (vii) The Company will not and will not permit any of its subsidiaries to, engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. (viii) For so long as any of the Securities remain outstanding, the Company will make available at its expense, upon request, to any holder of Securities and any prospective purchasers thereof the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (ix) The Company will use its best efforts to (i) permit the Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the NASD relating to trading in the Private Offerings, Resales and Trading through Automated Linkages market (the "Portal Market") and (ii) permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (x) The Company will apply the net proceeds from the sale of the Securities as set forth under "Use of Proceeds" in the Final Memorandum. (xi) Prior to the Closing Date, the Issuers will furnish to the Initial Purchaser, as soon as they have been prepared by or are available to the Issuers, a copy of any unaudited interim consolidated financial statements of the Company and its subsidiaries, for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum. 18 6. Expenses. The Issuers jointly and severally agree to pay all costs and expenses incident to the performance of their respective obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 hereof, including all costs and expenses incident to (i) the printing, word processing or other production of documents with respect to such transactions, including any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial Purchaser of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by any Issuer, (iv) the preparation, issuance and delivery to the Initial Purchaser of any certificates evidencing the Securities and the Guarantees, including trustees' fees, (v) the qualification of the Securities under state securities and "Blue Sky" laws, including filing fees and reasonable fees and disbursements of counsel for the Initial Purchaser relating thereto, (vi) expenses of the Issuers in connection with any meetings with prospective investors in the Securities, (viii) fees and expenses of the Trustee including fees and expenses of its counsel, (ix) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL Market, and (x) any fees charged by investment rating agencies for the rating of the Securities. Notwithstanding any of the foregoing, the Company will not be responsible for any of the fees and expenses of the Initial Purchaser (including, without limitation, fees and disbursements of counsel for the Initial Purchaser) incurred in connection with the transactions contemplated hereby. 7. Conditions of the Initial Purchaser's Obligations. The obligation of the Initial Purchaser to purchase and pay for the Securities are subject to the accuracy of the representations and warranties contained herein, to the performance by each Issuer of its covenants and agreements hereunder and to the following additional conditions: (i) The Initial Purchaser shall have received opinions in form and substance satisfactory to the Initial Purchaser, dated the Closing Date, of (a) Latham & Watkins, special counsel for the Issuers, substantially in the form of Exhibit B hereto and (b) Irwin, Clutter & Severson, special Kansas counsel to the Issuers, substantially in the form of Exhibit C hereto. (ii) The Initial Purchaser shall have received an opinion, dated the Closing Date, of Cahill Gordon & 19 Reindel, counsel for the Initial Purchaser, with respect to the sufficiency of certain corporate proceedings and other legal matters relating to this Agreement, and such other related matters as the Initial Purchaser may require. In rendering such opinion, Cahill Gordon & Reindel shall have received and may rely upon such certificates and other documents and information as they may reasonably request to pass upon such matters. In addition, in rendering their opinion, Cahill Gordon & Reindel may state that their opinion is limited to matters of New York, Delaware corporate and federal law. (iii) The Initial Purchaser shall have received, from Arthur Andersen LLP, independent public accountants for the Issuers, letters dated, respectively, the date hereof and the Closing Date, in form and substance satisfactory to the Initial Purchaser and Cahill Gordon & Reindel, counsel for the Initial Purchaser. (iv) The Initial Purchaser shall have received from KPMG Peat Marwick, independent public accountants for RSI and RGC, letters dated, respectively, the date hereof and the Closing Date, in form and substance satisfactory to the Initial Purchaser and Cahill Gordon & Reindel, counsel for the Initial Purchaser. (v) The representations and warranties of each Issuer contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date (other than to the extent any such representation or warranty is expressly made as to a certain date); each Issuer shall have complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and subsequent to the date of the most recent financial statements in the Final Memorandum, there shall have been no material adverse change in the business, condition (financial or other) or results of operations of the Company and its subsidiaries taken as a whole (a "Material Adverse Change"), or any development involving a prospective Material Adverse Change, except as set forth in, or contemplated by, the Final Memorandum. (vi) Neither the issuance and sale of the Securities pursuant to this Agreement nor any of the other transactions contemplated by the Final Memorandum shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued or any action, suit or proceeding shall have been commenced with respect to this Agreement or any of the transactions 20 contemplated by the Final Memorandum, before any court or governmental authority. (vii) The Initial Purchaser shall have received a certificate, dated the Closing Date, of the Vice Chairman, President or any Vice President (and with respect to (B) below, the Chief or Principal Financial Officer) of the Company to the effect that: (A) The representations and warranties of each Issuer in this Agreement are true and correct in all material respects as if made on and as of the Closing Date, and each Issuer has performed all covenants and agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date after giving effect to the transactions contemplated hereby and the Final Memorandum; (B) Subsequent to the respective dates as of which information is given in the the Final Memorandum, there has not been any Material Adverse Change; (C) Neither the sale of the Securities by the Issuers nor any of the other transactions contemplated hereby or by the Final Memorandum has been enjoined (temporarily or permanently); and (D) The Issuers have complied in all material respects with all agreements and covenants in the New Credit Facility and performed in all material respects all conditions to borrowing specified therein. (viii) On the Closing Date, the Initial Purchaser shall have received the Registration Rights Agreement executed by the Issuers and such agreement shall be in full force and effect at all times from and after the Closing Date. (ix) The Agent and the Requisite Lenders shall have approved the sale and issuance of the Securities in accordance with the Third Amendment, Consent and Waiver dated as of March 8, 1996 under the New Credit Facility. On or before the Closing Date, the Initial Purchaser and counsel for the Initial Purchaser shall have received such further documents, opinions, certificates and schedules or instruments relating to the business, corporate, legal and financial affairs of the Issuers as they shall have heretofore reasonably requested from the Issuers. 21 All such opinions, certificates, letters, schedules, documents or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Initial Purchaser and counsel for the Initial Purchaser. The Issuers shall furnish to the Initial Purchaser such conformed copies of such opinions, certificates, letters, schedules, documents and instruments in such quantities as the Initial Purchaser shall reasonably request. 8. Offering of Securities; Restrictions on Transfer. The Initial Purchaser represents and warrants that it is a QIB. The Initial Purchaser agrees with the Issuers that (i) it has not and will not solicit offers for, or offer or sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (ii) it has and will solicit offers for the Securities only from, and will offer the Securities only to (A) in the case of offers inside the United States (x) persons whom the Initial Purchaser reasonably believes to be QIBs or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchaser that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions under Rule 144A or (y) a limited number of other institutional investors reasonably believed by the Initial Purchaser to be Accredited Investors that, prior to their purchase of the Securities, deliver to the Initial Purchaser a letter containing the representations and agreements set forth in Annex A to the Final Memorandum and (B) in the case of offers outside the United States, to persons other than U.S. persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)); provided, however, that, in the case of this clause (B), in purchasing such Securities such persons are deemed to have represented and agreed as provided under the caption "Transfer Restrictions" contained in the Final Memorandum. 9. Indemnification and Contribution. (a) Each Issuer jointly and severally agrees to indemnify and hold harmless the Initial Purchaser, and each person, if any, who controls the Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which such Initial Purchaser or such controlling 22 person may become subject under the Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in (A) any Memorandum or any amendment or supplement thereto or (B) any application or other document, or any amendment or supplement thereto, executed by any Issuer or based upon written information furnished by or on behalf of any Issuer filed in any jurisdiction in order to qualify the Securities under the securities or "Blue Sky" laws thereof or filed with any securities association or securities exchange (each an "Application") or (ii) the omission or alleged omission to state, in any Memorandum or any amendment or supplement thereto, or any Application, a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse, as incurred, the Initial Purchaser and each such controlling person for any legal or other expenses reasonably incurred by the Initial Purchaser or such controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, that none of the Issuers will be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Memorandum or any amendment or supplement thereto, or any Application in reliance upon and in conformity with written information furnished to any Issuer by the Initial Purchaser specifically for use therein; and provided, further, that neither the Company nor the Subsidiary Guarantors will be liable to the Initial Purchaser or any person controlling the Initial Purchaser with respect to any such untrue statement or omission made in the Preliminary Memorandum that is corrected in the Offering Memorandum (or any amendment or supplement thereto) if the person asserting any such loss, claim, damage or liability purchased Securities from the Initial Purchasers in reliance upon the Preliminary Memorandum but was not sent or given a copy of the Offering Memorandum (as amended or supplemented) at or prior to the written confirmation of the sale of such Notes to such person, unless such failure to deliver the Offering Memorandum (as amended or supplemented) was a result of noncompliance by the Company or the Subsidiary Guarantors with Section 5(iv) of this Agreement. This 23 indemnity agreement will be in addition to any liability that any Issuer may otherwise have to the indemnified parties. None of the Issuers will, without the prior written consent of the Initial Purchaser, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification from the Initial Purchaser may be sought hereunder (whether or not the Initial Purchaser or any person who controls the Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Initial Purchaser and each such controlling person from all liability arising out of such claim, action, suit or proceeding. (b) The Initial Purchaser will indemnify and hold harmless each Issuer, their respective directors, their respective officers and each person, if any, who controls any Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which any Issuer or any such director, officer or controlling person may become subject under the Act, the Exchange Act, or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto, or any Application or (ii) the omission or the alleged omission to state therein a material fact required to be stated in any Memorandum or any amendment or supplement thereto, or any Application, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to any Issuer by the Initial Purchaser specifically for use therein; and, subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses reasonably incurred by any Issuer or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third- party witness in connection with any such loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability that the Initial Purchaser may otherwise have to the indemnified parties. The Initial Purchaser will not, without the prior written consent of the Company and any affected Subsidiary Guarantor settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification from the Company or any 24 affected Subsidiary Guarantor may be sought hereunder (whether or not the Company or any such affected Subsidiary Guarantor or any person who controls the Company or any such affected Subsidiary Guarantor within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Company or any such affected Subsidiary Guarantor and each such controlling person from all liability arising out of such claim, action, suit or proceeding. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 9. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, then the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same 25 jurisdiction arising out of the same general allegations or circumstances, designated by the Initial Purchaser in the case of paragraph (a) of this Section 9 or the Issuers in the case of paragraph (b) of this Section 9, representing the indemnified parties under such paragraph (a) or paragraph (b), as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying party, unless such indemnified party waived its rights under this Section 9, in which case the indemnified party may effect such a settlement without such consent. (d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 9 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers on the one hand and the Initial Purchaser on the other shall be deemed to be in the same proportion as the total proceeds from the offering (before deducting expenses other than discounts and commissions) received by the Company bear to the total discounts and commissions received by the Initial Purchaser. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Subsidiary Guarantors on the one hand, or the Initial Purchaser on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such 26 statement or omission, and any other equitable considerations appropriate in the circumstances. Each Issuer and the Initial Purchaser agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the Issuers on the one hand and the Initial Purchaser on the other hand were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), the Initial Purchaser shall not be obligated to make contributions hereunder that in the aggregate exceed the total discounts and commissions received by the Initial Purchaser under this Agreement, less the aggregate amount of any damages that the Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls the Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Initial Purchaser, and each director of each Issuer, each officer of each Issuer and each person, if any, who controls any Issuer within the meaning of Section 15 of the Act of Section 20 of the Exchange Act, shall have the same rights to contribution as each such Issuer. 10. Survival Clause. The respective representations, warranties, agreements, covenants, indemnities and other statements of each Issuer, their respective officers and the Initial Purchaser set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of any Issuer, any of their respective officers or directors, the Initial Purchaser or any controlling person referred to in Section 9 hereof and (ii) delivery of and payment for the Securities, and shall be binding upon and shall inure to the benefit of, any successors, assigns, heirs, personal representatives of the Issuers, the Initial Purchaser, RSI and indemnified parties referred to in Section 9 hereof. The respective agreements, covenants, indemnities and other statements set forth in Sections 6 and 9 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. Termination. (a) This Agreement may be terminated in the sole discretion of the Initial Purchaser by 27 notice to the Issuers given prior to the Closing Date in the event that any Issuer shall have failed, refused or been unable to perform all obligations and satisfy all conditions on their respective part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing Date: (i) Any Issuer shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, which loss or interference has had or has a Material Adverse Effect or there shall have been any Material Adverse Change, or any development involving a prospective Material Adverse Change (including without limitation a change in management or control of any Issuer), except as described in or contemplated by the Final Memorandum (exclusive of any amendment or supplement thereto); (ii) trading in securities generally on the New York or American Stock Exchange shall have been suspended or minimum or maximum prices shall have been established on any such exchange; (iii) a banking moratorium shall have been declared by New York or United States authorities; or (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or (c) any material change in the financial markets of the United States which, in the sole judgment of the Initial Purchaser, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities as contemplated by the Final Memorandum, as amended as of the date hereof. (b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof. 12. Notices. All communications hereunder shall be in writing and, if sent to the Initial Purchaser, shall be mailed or delivered or telecopied and confirmed in writing to the Initial Purchaser c/o BT Securities Corporation, One Bankers Trust Plaza, New York, New York 10005, Attention: Gerald McConnell, and with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, Attention: William M. Hartnett, Esq. If sent to any Issuer, shall be mailed, 28 delivered or telegraphed and confirmed in writing to Ralphs Grocery Company, 1100 West Artesia Blvd., Compton, California 90220, Attention: Jan Charles Gray, Esq., Senior Vice President, General Counsel and Secretary, with a copy to Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California 90071, Attention: Thomas C. Sadler, Esq. 13. Successors. This Agreement shall inure to the benefit of and be binding upon the Initial Purchaser, each Issuer and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of each Issuer contained in Section 9 of this Agreement shall also be for the benefit of any person or persons who control the Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchaser contained in Section 9 of this Agreement shall also be for the benefit of the directors of each Issuer, their respective officers and any person or persons who control any Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from the Initial Purchaser will be deemed a successor because of such purchase. 14. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW. 15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 29 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among each of the Issuers and the Initial Purchaser. Very truly yours, RALPHS GROCERY COMPANY By: Name: Jan Charles Gray Title: Senior Vice President General Counsel & Secretary ALPHA BETA COMPANY, BAY AREA WAREHOUSE STORES, INC. BELL MARKETS, INC., CALA CO., CALA FOODS, INC., FALLEY'S, INC., FOOD 4 LESS OF CALIFORNIA, INC., FOOD 4 LESS MERCHANDISING, INC., FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC., FOOD 4 LESS GM, INC. CRAWFORD STORES, INC. as Subsidiary Guarantors By: Name: Jan Charles Gray Title: Senior Vice President General Counsel & Secretary 30 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT SECURITIES CORPORATION By: _____________________________ Name: Gerald McConnell Title: Vice President 31 Exhibit B Form of Opinion of Latham & Watkins 1. Each of Ralphs Grocery Company (the "Company") and the Subsidiary Guarantors (other than Falley's ) (collectively, the "Corporations") has been duly incorporated and is validly existing and in good standing under the laws of its state of incorporation with corporate power and authority to own or lease its properties and to conduct its business as now conducted as described in the Final Memorandum. 2. Each of the Company, Cala Co. and Food 4 Less of Southern California, Inc. is duly qualified to do business as a foreign corporation in California and is in good standing in California. 3. The Company or a subsidiary or subsidiaries of the Company own of record in the aggregate 100% of the capital stock of each corporation that is a Subsidiary Guarantor (other than Falley's) and all such capital stock has been duly authorized and validly issued and is fully paid and nonassessable. 4. Each of the Corporations has full corporate power and authority to execute, deliver and perform each of its obligations under the Purchase Agreement, the Indenture, the Notes, the Exchange Notes, the Private Exchange Notes and the Guarantees and to issue the Notes, the Exchange Notes, the Private Exchange Notes and the Guarantees to be issued by it pursuant to the Indenture. 5. Except as set forth in the Final Memorandum, to the best of such counsel's knowledge, no holder of securities of the Corporations is entitled to have such securities registered under a registration statement filed by the Company pursuant to the Registration Rights Agreement. 6. To the best of our knowledge, there is no action, suit, proceeding or investigation pending or threatened against or affecting any of the Corporations or any of their respective properties or assets in any court or before any governmental authority or arbitration board or tribunal that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the Purchase Agreement, the Registration Rights Agreement, the Indenture or the issuance, sale and delivery of the Notes or the Guarantees. 32 7. The Indenture has been duly authorized, executed and delivered by the Corporations and (assuming due authorization, execution and delivery by the Trustee) is the legally valid and binding agreement of the Corporations, enforceable against the Corporations in accordance with its terms; the Indenture meets the requirements for qualification under the Trust Indenture Act of 1939, as amended. 8. The Notes have been duly authorized by the Company for issuance and, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchaser in accordance with the terms of the Purchase Agreement, will be legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. 9. The Exchange Notes and the Private Exchange Notes have been duly and validly authorized by the Company and when the Exchange Notes and the Private Exchange Notes have been duly executed and delivered by the Company in accordance with the terms of the Registration Rights Agreement and the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee and due authentication and delivery of the Exchange Notes and the Private Exchange Notes by the Trustee in accordance with the Indenture), will constitute the valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms. 10. Each of the Purchase Agreement and the Registration Rights Agreement has been duly authorized, executed and delivered by the Corporations; the execution and delivery of the Purchase Agreement, the Registration Rights Agreement, the Indenture, the Notes and the Guarantees by the Corporations, to the extent each is a party thereto, and the issuance and sale of the Notes pursuant to the Purchase Agreement and the making of the Guarantees pursuant to the Indenture will not result in the violation by any Corporation of its certificate or articles of incorporation or bylaws or any federal, New York, California, or Delaware General Corporation Law statute, rule or regulation known to us to be applicable to the Corporations (other than federal or state securities laws, which are specifically addressed elsewhere herein) or in the breach of or a default by any Corporation under any of the material agreements or court orders specifically directed to the Corporations (which material agreements have been identified to us by an officer of such person as material to such person), which conflict, violation, breach or default would have a material adverse effect on the Company and the Subsidiary Guarantors, taken as a whole. 33 11. The Company and the Subsidiary Guarantors have all requisite corporate power and authority to execute, deliver and perform their obligations under the Registration Rights Agreement; the Registration Rights Agreement has been duly and validly authorized, executed and delivered by the Company and the Subsidiary Guarantors and (assuming due authorization, execution and delivery thereof by the Initial Purchaser) constitutes the valid and legally binding agreement of the Company and the Subsidiary Guarantors and is enforceable against the Company and the Subsidiary Guarantors and in accordance with its terms. 12. To the best of our knowledge, no consent, approval, authorization or order of, or filing with, any federal, New York, California, or Delaware court or governmental agency or body is required for the issuance and sale of the Notes by the Company pursuant to the Purchase Agreement and the making of the Guarantees by the respective Subsidiary Guarantors (other than Falley's) pursuant to the Indenture, except such as may be required under state securities laws in connection with the purchase and distribution of such Notes and Guarantees by the Initial Purchaser. 13. We call your attention to the fact that the Purchase Agreement, the Registration Rights Agreement, the Indenture, the Notes and the Guarantees select the internal laws of the State of New York as the governing law. It is our opinion that a New York State court or a federal court sitting in New York will honor the parties' choice of the internal laws of the State of New York as the law applicable to such documents. 14. The statements set forth in the Offering Memorandum under the caption "Description of Notes", insofar as they purport to summarize certain provisions of the Notes and the Indenture, provide fair summaries thereof and are accurate in all material respects. 15. No registration under the Act of the Notes is required in connection with the sale of the Notes to the Initial Purchaser as contemplated by this Agreement and the Final Memorandum or in connection with the initial resale of the Notes by the Initial Purchaser in accordance with Section 8 of this Agreement, and prior to the commencement of the Exchange Offer (as defined in the Registration Rights Agreement) or the effectiveness of the Shelf Registration Statement (as defined in the Registration Rights Agreement), the Indenture is not required to be qualified under the TIA, in each case assuming (i) that the Initial Purchaser and the purchasers who buy such Notes in the initial resale thereof are qualified institutional 34 buyers as defined in Rule 144A promulgated under the Act ("QIBs") or, in the case of purchasers who buy Notes in the initial resale, are a limited number of accredited investors as defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Act ("Accredited Investors"), (ii) the accuracy of the Initial Purchaser's representations in Section 8 and those of the Corporations contained in this Agreement regarding the absence of a general solicitation in connection with the sale of such Notes to the Initial Purchaser and the initial resale thereof, (iii) the due performance by the Initial Purchaser of the agreements set forth in Section 8 hereof (iv) compliance by the Initial Purchaser with the transfer restrictions described under the caption "Transfer Restrictions" in the Memorandum and (v) the accuracy of the representations made by each Accredited Investor who purchases Notes in the initial resale as set forth in the Memorandum. 16. In addition, we have participated in conferences with officers and other representatives of the Company and the Subsidiary Guarantors, representatives of the independent public accountants for the Company and the Subsidiary Guarantors and your representatives, at which the contents of the Memorandum and related matters were discussed and, although we are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Memorandum and have not made any independent check or verification thereof, during the course of such participation (relying as to materiality to a large extent upon the statements of officers and other representatives of the Company and the Subsidiary Guarantors), no facts came to our attention that caused us to believe that the Memorandum, at the date thereof or at the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; it being understood that we express no belief with respect to the financial statements, schedules and other financial and statistical data included in the Final Memorandum. 35 Exhibit C Form of Opinion of Irwin, Clutter & Severson (1) Falley's is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Kansas, and has the requisite corporate power and authority to own, lease and operate its properties and to conduct its business as now conducted. (2) The authorized capital stock of Falley's is 1,000 shares of common stock, ten cents par value. As of the date herein, 1,000 shares of such common stock are issued and outstanding, all of which are owned of record by the Company. All such outstanding shares of stock have been duly authorized and validly issued and are fully paid and nonassessable. (3) Falley's has full corporate power and authority to execute, deliver and perform its obligations under the Purchase Agreement, the Registration Rights Agreement, the Indenture and the Guarantees pursuant thereto. (4) Each of the Purchase Agreement, the Registration Rights Agreement, the Indenture and the Guarantees has been duly authorized by all necessary corporate action, executed and delivered by Falley's. (5) The execution and delivery of the Purchase Agreement, the Registration Rights Agreement, the Indenture and the issuance of the Guarantees by Falley's pursuant to the Indenture will not result in the violation of any Kansas statute, rule or regulation (other than state securities laws) known to us to be applicable to Falley's, which violation would have a material adverse effect on the Company and the Subsidiary Guarantors, taken as a whole. To the best of our knowledge, no consent, approval, authorization or order of, or filing with, any Kansas court or governmental agency or body is required for the making of the Guarantees by Falley's pursuant to the Indenture, except such as may be required under state securities laws. EX-10.18 8 REGISTRATION RIGHTS AGREEMENT, 6/06/96 1 EXHIBIT 10.18 REGISTRATION RIGHTS AGREEMENT Dated as of June 6, 1996 by and among RALPHS GROCERY COMPANY, THE GUARANTORS named herein and BT SECURITIES CORPORATION as Initial Purchaser $100,000,000 10.45% SENIOR NOTES DUE 2004 2 TABLE OF CONTENTS
Page 1. Definitions................................................. 1 2. Exchange Offer.............................................. 5 3. Shelf Registration.......................................... 9 4. Liquidated Damages.......................................... 10 5. Registration Procedures..................................... 12 6. Registration Expenses....................................... 22 7. Indemnification............................................. 24 8. Rules 144 and 144A.......................................... 28 9. Underwritten Registrations.................................. 28 10. Miscellaneous............................................... 28 (a) Remedies.............................................. 28 (b) No Inconsistent Agreements............................ 29 (c) Adjustments Affecting Registrable Notes............................................... 29 (d) Amendments and Waivers................................ 29 (e) Notices............................................... 30 (f) Successors and Assigns................................ 31 (g) Counterparts.......................................... 31 (h) Headings.............................................. 31 (i) Governing Law......................................... 32 (j) Severability.......................................... 32 (k) Notes Held by an Issuer or Its Affiliates................................... 32 (l) Third Party Beneficiaries............................. 32 (m) Joint and Several Obligations......................... 32 (n) Entire Agreement...................................... 32
-i- 3 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of June 6, 1996, by and among Ralphs Grocery Company, a Delaware corporation (the "Company"), 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. and Crawford Stores, Inc. (collectively, the "Guarantors") and BT Securities Corporation (the "Initial Purchaser"). This Agreement is entered into in connection with the Purchase Agreement, dated June 3, 1996, by and among the Company, the Guarantors and the Initial Purchaser (the "Purchase Agreement") relating to the sale by the Company to the Initial Purchaser of $100,000,000 aggregate principal amount of the Company's 10.45% Senior Notes due 2004 (the "Notes"). In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Company and the Guarantors have agreed to provide the registration rights set forth in this Agreement for the benefit of the holders of Registrable Notes (as defined), including, without limitation, the Initial Purchaser. The execution and delivery of this Agreement is a condition to the Initial Purchaser's obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Advice: See the last paragraph of Section 5. Agreement: See the first introductory paragraph to this Agreement. Applicable Period: See Section 2(b). Business Day: A day that is not a Saturday, a Sunday, or a day on which banking institutions in New York, New York are required to be closed. Closing Date: The Closing Date as defined in the Purchase Agreement. 4 Company: See the first introductory paragraph to this Agreement. Effectiveness Date: The 120th day after the Filing Date. Effectiveness Period: See Section 3(a). Event Date: See Section 4(b). Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Notes: See Section 2(a). Exchange Offer: See Section 2(a). Exchange Registration Statement: See Section 2(a). Filing Date: The 30th day after the Issue Date. Holder: Any registered holder of Registrable Notes. Indemnified Person: See Section 7(c). Indemnifying Person: See Section 7(c). Indenture: The Indenture, dated as of [ ], 1996, by and among the Company, the Guarantors and Norwest Bank Minnesota, N.A., as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. Initial Purchaser: See the first introductory paragraph to this Agreement. Initial Shelf Registration: See Section 3(a). Inspectors: See Section 5(o). Issue Date: The date on which the original Notes were sold to the Initial Purchaser pursuant to the Purchase Agreement. Issuers: The Company and the Guarantors. Liquidated Damages: See Section 4(a). 5 NASD: National Association of Securities Dealers, Inc. Notes: See the second introductory paragraph to this Agreement. Participant: See Section 7(a). Participating Broker-Dealer: See Section 2(b). Person: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Private Exchange: See Section 2(b). Private Exchange Notes: See Section 2(b). Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Notes covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post- effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the second introductory paragraph to this Agreement. Records: See Section 5(o). Registrable Notes: Each Note upon original issuance thereof and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance thereof and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until, in the case of any such Note, Exchange Note or Private Exchange Note, as the case may be, the earliest to occur of (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable) covering such Note, Exchange Note or Private Exchange Note, as the case may be, has been declared effective by the SEC and such Note, Exchange Note or Private 6 Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note, as the case may be, is sold in compliance with Rule 144, (iii) in the case of any Note, such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes which may be resold without restriction under federal securities laws, or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture. Registration Statement: Any registration statement of the Company, including, but not limited to, the Exchange Registration Statement, that covers any of the Registrable Notes pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(c). Shelf Registration: See Section 3(b). Subsequent Shelf Registration: See Section 3(b). 7 TIA: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and, if existent, the trustee under any indenture governing the Exchange Notes and Private Exchange Notes (if any). Underwritten registration or underwritten offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Exchange Offer (a) Each of the Issuers agrees to file with the SEC no later than the Filing Date, an offer to exchange (the "Exchange Offer") any and all of the Registrable Notes (other than Private Exchange Notes, if any) for a like aggregate principal amount of debt securities of the Company, guaranteed by the Guarantors, which are identical in all material respects to the Notes (the "Exchange Notes") (and which are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA) and which, in either case, has been qualified under the TIA), except that the Exchange Notes shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon. The Exchange Offer shall be registered under the Securities Act on the appropriate form (the "Exchange Registration Statement") and shall comply with all applicable tender offer rules and regulations under the Exchange Act. Each of the Issuers agrees to use its best efforts to (x) cause the Exchange Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20 Business Days (or longer if required by applicable law) after the date that notice of the Exchange Offer is first mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 60th day following the date on which the Exchange Registration Statement is declared effective. If after such Exchange Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Exchange Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder who participates in the Exchange Offer will be required to represent that any Exchange Notes received by it will be acquired in the ordinary course of its business, that at the 8 time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes, that such Holder is not an affiliate of any of the Issuers within the meaning of the Securities Act, and any additional representations that in the written opinion of counsel to the Issuers are necessary under then-existing interpretations of the SEC in order for the Exchange Registration Statement to be declared effective. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Notes that are Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the Issuers shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 of this Agreement. (b) The Issuers shall include within the Prospectus contained in the Exchange Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchaser, which shall contain a summary statement of the positions taken or policies made by the Staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the Staff of the SEC or such positions or policies, in the judgment of the Initial Purchaser, represent the prevailing views of the Staff of the SEC. Such "Plan of Distribution" section shall also allow, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent so permitted, all Participating Broker-Dealers, and include a statement describing the manner in which Participating Broker-Dealers may resell the Exchange Notes. Each of the Issuers shall use its best efforts to keep the Exchange Registration Statement effective and to amend and supplement the Prospectus contained therein, in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such Persons must comply with such requirements in connection with offers and sales of the Exchange Notes, provided that such period shall not exceed 180 days after the Exchange Registration Statement 9 is declared effective (or such longer period if extended pursuant to the last paragraph of Section 5.) (the "Applicable Period"). If, upon consummation of the Exchange Offer, the Initial Purchaser holds any Notes acquired by it and having the status of an unsold allotment in the initial distribution, the Issuers upon the request of any such Initial Purchaser shall, simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to the Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by the Initial Purchaser, a like principal amount of debt securities of the Company that are identical in all material respects to the Exchange Notes except for the existence of restrictions on transfer thereof under the Securities Act and securities laws of the several states of the U.S. (the "Private Exchange Notes") (and which are issued pursuant to the same indenture as the Exchange Notes). The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes. Interest on the Exchange Notes and Private Exchange Notes will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the Issue Date. In connection with the Exchange Offer, the Issuers shall: (1) mail to each Holder a copy of the Prospectus forming part of the Exchange Registration Statement, together with an appropriate letter of transmittal and related documents; (2) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate thereof; (3) permit Holders to withdraw tendered Registrable Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (4) otherwise comply in all material respects with all applicable laws. As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, the Issuers shall: 10 (1) accept for exchange all Registrable Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer or the Private Exchange; (2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder tendering such Registrable Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture, which in either event will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture and that the Exchange Notes, the Private Exchange Notes and the Notes, if any, will vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes, if any, will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Company is not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not consummated within 240 days of the Issue Date, (iii) any holder of Private Exchange Notes so requests in writing to the Company or (iv) in the case of any Holder that participates in the Exchange Offer (and tenders its Registrable Notes prior to the expiration thereof), such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under federal securities laws (other than due solely to the status of such Holder as an affiliate of any of the Issuers within the meaning of the Securities Act) and so notifies the Company within 30 days following the consummation of the Exchange Offer (and providing a reasonable basis for its conclusions), in the case of each of clauses (i)-(iv), then the Issuers shall promptly deliver to the Holders and the Trustee written notice thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant to Section 3. 3. Shelf Registration If a Shelf Notice is delivered as contemplated by Section 2(c), then: 11 (a) Shelf Registration. The Issuers shall as promptly as reasonably practicable file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes (the "Initial Shelf Registration"). If the Issuers shall not have yet filed the Exchange Registration Statement, each of the Issuers shall use its best efforts to file with the SEC the Initial Shelf Registration on or prior to the Filing Date and shall use its best efforts to cause such Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date. Otherwise, each of the Issuers shall use its best efforts to file with the SEC the Initial Shelf Registration within 30 days of the delivery of the Shelf Notice and shall use its best efforts to cause such Shelf Registration to be declared effective under the Securities Act as promptly as practicable thereafter. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). No Issuers shall permit any securities other than the Registrable Notes to be included in any Shelf Registration. Each of the Issuers shall use its best efforts to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is 36 months from the Issue Date (or, if Rule 144(k) under the Securities Act is amended to permit unlimited resales by non-affiliates within a lesser period, such lesser period) (subject to extension pursuant to the last paragraph of Section 5 hereof) or such shorter period ending when (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes has been declared effective under the Securities Act (the "Effectiveness Period"). (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), each of the Issuers shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend the Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes (a "Subsequent Shelf Registration"). If a Subsequent Shelf 12 Registration is filed, each of the Issuers shall use its best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registrations was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Issuers shall promptly supplement and amend any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Shelf Registration or by any underwriter of such Registrable Notes. 4. Liquidated Damages (a) The Issuers and the Initial Purchaser agree that the Holders of Registrable Notes will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers agree to pay liquidated damages ("Liquidated Damages") to holders of the Registrable Notes under the circumstances and to the extent set forth below (each of which shall be given independent effect): (i) if neither the Exchange Registration Statement nor the Initial Shelf Registration has been filed on or prior to the Filing Date, then commencing on the day after the Filing Date, Liquidated Damages shall accrue on the Registrable Notes at a rate of 0.50% per annum of the principal amount of the Registrable Notes for the first 90 days immediately following the Filing Date, such Liquidated Damages increasing by an additional 0.25% per annum of the principal amount of the Registrable Notes at the beginning of each subsequent 90-day period; (ii) if neither the Exchange Registration Statement nor the Initial Shelf Registration is declared effective on or prior to the Effectiveness Date applicable thereto, then commencing on the day after such Effectiveness Date, Liquidated Damages shall accrue on the Registrable Notes at a rate of 0.50% per annum of the principal amount of the Registrable Notes for the first 90 days immediately 13 following the day after the Effectiveness Date, such Liquidated Damages rate increasing by an additional 0.25% per annum of the principal amount of the Registration Notes at the beginning of each subsequent 90-day period; and (iii) if (A) the Company has not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to 60 days after the date on which the Exchange Registration Statement was declared effective or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period, then Liquidated Damages shall accrue on the Registrable Notes at a rate of 0.50% per annum of the principal amount of the Registrable Notes for the first 90 days commencing on the (x) 61st day after such effective date in the case of (A) above or (y) the day such Shelf Registration ceases to be effective in the case of (B) above, such Liquidated Damages increasing by an additional 0.25% per annum of the principal amount of the Registrable Notes at the beginning of each such subsequent 90-day period; provided, however, that Liquidated Damages on the Registrable Notes may not exceed in the aggregate 1.0% per annum of the principal amount of the Registrable Notes; provided further that (1) upon the filing of the Exchange Registration Statement or the Initial Shelf Registration (in the case of (i) above), (2) upon the effectiveness of the Exchange Registration Statement or the Initial Shelf Registration, as the case may be (in the case of (ii) above), or (3) upon the exchange of Exchange Notes for all Registrable Notes tendered (in the case of (iii)(A) above) or upon the effectiveness of a Shelf Registration which had ceased to remain effective (in the case of (iii)(B) above), Liquidated Damages on any Registrable Notes then accruing Liquidated Damages as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Company shall notify the Trustee within one business day after each and every date on which an event occurs in respect of which Liquidated Damages are required to be paid (an "Event Date"). Any Liquidated Damages due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semi-annually on each regular interest payment date specified in the Indenture (to the Holders of Registrable Notes of record on the regular record date therefor (as specified in the Indenture) immediately preceding such dates), commencing with the first such regular interest payment date occurring 14 after any such Liquidated Damages commence to accrue. The amount of Liquidated Damages will be determined by multiplying the applicable Liquidated Damages rate by the principal amount of the Notes subject thereto, multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of such securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder, each of the Issuers shall: (a) Prepare and file with the SEC prior to the Filing Date, the Exchange Registration Statement or if the Exchange Registration Statement is not filed or is unavailable, a Shelf Registration as prescribed by Section 2 or 3, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided that, if (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period and has advised the Company that it is a Participating Broker-Dealer, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall, if requested, furnish to and afford the Holders of the Registrable Notes to be registered pursuant to such Shelf Registration or each such Participating Broker-Dealer, as the case may be, covered by such Registration Statement, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five business days prior to such filing). The Issuers shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object. 15 (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their best efforts to keep a Registration Statement effective during the Applicable Period if any of them voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law, rule or regulation or unless each of the Issuers complies with this Agreement, including, without limitation, the provisions of paragraph 5(k) hereof and the last paragraph of Section 5. (c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period from whom the Company has received written notice that it will be a Participating Broker-Dealer, notify the selling Holders of Registrable Notes, and each such Participating Broker-Dealer, their counsel and the managing underwriters, if any, promptly (but in any event within two business days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of 16 any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes the representations and warranties of any Issuer contained in any agreement (including any underwriting agreement) contemplated by Section 5(n) hereof cease to be true and correct in any material respect, (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in, or amendments or supplements to, such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible date. (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriters, if 17 any, or the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information or revisions to information therein relating to such Underwriters or selling Holders as the managing underwriters, if any, or such Holders or their counsel reasonably request to be included or made therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, without charge, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer, deliver to each selling Holder of Registrable Notes or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes and each Participating Broker-Dealer, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. 18 (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to register or qualify, and cooperate with the selling Holders of Registrable Notes and each such Participating Broker-Dealer, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes or Exchange Notes, as the case may be, for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters, if any, reasonably request in writing; provided that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered pursuant to an underwritten offering, counsel to the underwriters shall, at the cost and expense of the Issuers, perform the Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided that no Issuer shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3, cooperate with the selling Holders of Registrable Notes, any Participating Broker-Dealer and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) Use its best efforts to cause the Registrable Notes covered by the Registration Statement to be registered with or approved by such governmental agencies or authorities 19 as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Notes, except as may be required solely as a consequence of the nature of such selling holder's business, in which case the Issuers will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the Issuers' sole expense, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (l) Use its best efforts to cause the Registrable Notes covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement or the managing underwriter or underwriters, if any. (m) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with printed certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (n) In connection with an underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate 20 the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to the underwriters, with respect to the business of the Issuers and their subsidiaries and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested; (ii) obtain the opinion of counsel to the Issuers and updates thereof in form and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of debt securities similar to the Notes and such other matters as may be reasonably requested by underwriters; (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of any subsidiary of the Issuers or of any business acquired by any of the Issuers for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and such other matters as reasonably requested by the managing underwriter or underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (o) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, and each Participating Broker-Dealer, any underwriter participating in any such disposition of Registrable Notes, if any, and any 21 attorney, accountant or other agent retained by any such selling Holder, each Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of any of the Issuers and their subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of each Issuer and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records which an Issuer determines, in good faith, to be confidential and any Records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) the information in such Records has been made generally available to the public other than as a result of a disclosure or failure to safeguard by such Inspector or (iv) disclosure of such information is, in the opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, related to, or involving this Agreement, or any transactions contemplated hereby or arising hereunder. Each selling Holder of such Registrable Notes and each Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of any Issuer unless and until such is made generally available to the public. Each Inspector, each selling Holder of such Registrable Notes and each Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction or is deemed necessary or advisable pursuant to clauses (ii) or (iv) of the previous sentence or otherwise, give notice to the Company and allow the Company to undertake appropriate action to obtain a protective order or otherwise prevent disclosure of the Records deemed confidential at its expense. (p) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a), as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Notes; and 22 in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (q) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (r) Upon consummation of the Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or the Private Exchange Notes, as the case may be, and the related indenture constitute legally valid and binding obligations of the Issuers, enforceable against each Issuer in accordance with their respective terms. (s) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Issuers (or to such other Person as directed by the Issuers) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall mark, or caused to be marked, on such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (t) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes 23 and their respective counsel in connection with any filings required to be made with the NASD. (u) Use its reasonable best efforts to take all other steps reasonably necessary to effect the registration of the Registrable Notes covered by a Registration Statement contemplated hereby. The Issuers may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Notes as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Notes of any seller who fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, and, in each case, dissemination of such Prospectus until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Company shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) or (y) the Advice. 24 6. Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers shall be borne by the Issuers whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, or by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or by any Participating Broker- Dealer, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Issuers and fees and disbursements of special counsel for the sellers of Registrable Notes (subject to the provisions of Section 6(b)), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(n)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) rating agency fees, (vii) Securities Act liability insurance, if the Issuers desire such insurance, (viii) fees and expenses of all other Persons retained by the Issuers, (ix) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of any Issuers performing legal or accounting duties), (x) the expense of any annual or special audit, (xi) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, (xii) the fees and disbursements of underwriters, if any, customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of the Registrable Notes which discounts, commissions or taxes shall 25 be paid by Holders of such Registrable Notes) and (xiii) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. (b) In connection with any Shelf Registration hereunder, the Issuers, jointly and severally, shall reimburse the Holders of the Registrable Notes being registered in such registration for the fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Registrable Notes to be included in such Registration Statement. 7. Indemnification (a) Each of the Issuers agrees, jointly and severally, to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker-Dealer, the officers and directors of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other reasonable expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (as amended or supplemented if any Issuer shall have furnished any amendments or supplements thereto) or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to any Issuer in writing by or on behalf of such Participant expressly for use therein; provided, however, that the Issuers shall not be liable if such untrue statement or omission or alleged untrue statement or omission was contained or made in (A) any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and any such loss, liability, claim, damage or expense suffered or 26 incurred by the Participants resulted from any action, claim or suit by any Person who purchased Registrable Notes or Exchange Notes which are the subject thereof from such Participant and it is established in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Notes or Exchange Notes sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by any Issuer with Section 5 of this Agreement or (B)(i) any preliminary prospectus or Prospectus, as the case may be, (or an amendment or supplement thereto) which is the subject of a notice delivered by the Issuers pursuant to, and in accordance with Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), and (ii) any such losses arise out of the breach by such Indemnified Person of the obligations of such Indemnified Person contained in the last paragraph of Section 5, unless the Issuers fail to deliver a supplemented or amended prospectus as contemplated by Section 5(k). (b) Each Participant will be required to agree, severally and not jointly, to indemnify and hold harmless the Issuers, their respective directors and officers and each Person who controls any Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Issuers to each Participant, but only with reference to information relating to such Participant furnished to any Issuer in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such proceeding and shall pay the reasonable fees and expenses incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Person shall not relieve 27 it of any obligation or liability which it may have hereunder or otherwise, except to the extent the Indemnifying Person is actually damaged by such failure. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, unless there is a conflict among Indemnified Persons, the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes sold by all such Participants and any such separate firm for the Issuers, their respective directors, officers and such control Persons of the Issuers shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there is a final non-appealable judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person, in form and substance satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of an Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to 28 therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions (or alleged statements or omissions) that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or by the Participants or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission and any other equitable considerations appropriate under the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any 29 liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rules 144 and 144A Each of the Issuers covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner and, if at any time it is not required to file such reports, it will, upon the request of any Holder of Registrable Notes, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. Each of the Issuers further covenants, for so long as any Registrable Notes remain outstanding, to make available to any Holder or beneficial owner of Registrable Notes in connection with any sale thereof and any prospective purchaser of such Registrable Notes from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Registrable Notes pursuant to Rule 144A. 9. Underwritten Registrations If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes included in such offering and reasonably acceptable to the Issuers. No Holder of Registrable Notes may participate in any underwritten registation hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous (a) Remedies. In the event of a breach by any Issuer of any of its obligations under this Agreement, each Holder of Registrable Notes and each Participating Broker- Dealer holding Exchange Notes, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Initial Purchaser, in the Purchase Agreement, 30 or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Each Issuer agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. None of the Issuers has entered, as of the date hereof, and none of the Issuers shall enter, after the date of this Agreement, into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. None of the Issuers has entered or will enter into any agreement with respect to any of its securities which will grant to any Person piggy-back rights with respect to a Registration Statement. (c) Adjustments Affecting Registrable Notes. None of the Issuers shall, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes held by all Participating Broker-Dealers; provided, however, that Section 7 and this Section 10(d) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker- Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being tendered pursuant to the Exchange Offer or sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of 31 Registrable Notes may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being tendered or being sold by such Holders pursuant to such Registration Statement. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or telecopier: 1. if to a Holder of Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchaser as follows: BT SECURITIES CORPORATION Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Facsimile No.: (212) 250-7200 Attention: Corporate Finance Department with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Facsimile No.: (212) 269-5420 Attention: William M. Hartnett, Esq. 2. if to the Initial Purchaser, at the address specified in Section 10(e)(1); 3. if to the Company, as follows: Ralphs Grocery Company 1100 West Artesia Boulevard Compton, California 90220 Facsimile No.: (310) 884-2610 Attention: Jan Charles Gray, Esq. 32 with copies to: Latham & Watkins 633 West Fifth Street Suite 4000 Los Angeles, California 90071 Facsimile: (213) 891-8763 Attention: Thomas C. Sadler, Esq. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier guaranteeing overnight delivery; and when receipt is acknowledged by the addressee, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in such Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto and the Holders. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (j) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or 33 unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) Notes Held by an Issuer or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by an Issuer or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (l) Third Party Beneficiaries. Holders of Registrable Notes and Participating Broker-Dealers are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. (m) Joint and Several Obligations. Unless otherwise stated herein, each of the obligations of the Issuers under this Agreement shall be joint and several obligations of each of them. (n) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchasers on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 34 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. RALPHS GROCERY COMPANY By: Name: Jan Charles Gray Title: Senior Vice President General Counsel & Secretary ALPHA BETA COMPANY, BAY AREA WAREHOUSE STORES, INC. BELL MARKETS, INC., CALA CO., CALA FOODS, INC., FALLEY'S, INC., FOOD 4 LESS OF CALIFORNIA, INC., FOOD 4 LESS MERCHANDISING, INC., FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC., FOOD 4 LESS GM, INC. CRAWFORD STORES, INC. as Subsidiary Guarantors By: Name: Jan Charles Gray Title: Senior Vice President General Counsel & Secretary BT SECURITIES CORPORATION By: Name: Gerald McConnell Title: Vice President EX-12 9 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS) (UNAUDITED)
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 31 WEEKS ENDED JUNE 29, 1991 JUNE 27, 1992 JUNE 26, 1993 JUNE 25, 1994 JANUARY 29, 1995 ----------------- ------------------ ------------------ ------------------ ------------------ FIXED FIXED FIXED FIXED FIXED EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- Income (loss) before provision for income taxes and extraordinary charges . . . . . . . . . $(3,387) $ -- $(25,555) $ -- $(25,936) $ -- $ -- $ -- $(11,500) $ -- Add: Fixed charges: Interest expense including amortization of deferred financing costs . . . . . 50,084 50,084 70,211 70,211 69,732 69,732 68,250 68,250 42,222 42,222 Interest factor in rent expense(1) . . . . . . . 6,523 6,523 15,569 15,569 14,835 14,835 16,596 16,596 11,153 11,153 ------- ------- -------- ------- -------- ------- ------- ------- -------- ------- $53,220 $56,607 $ 60,225 $85,780 $ 58,631 $84,567 $84,846 $84,846 $ 41,875 $53,375 ======= ======= ======== ======= ======== ======= ======= ======= ======== ======= Ratio of earnings to fixed charges . . . . . . . . . -- -- -- 1.0 -- ======= ======== ======== ======= ======== Deficiency of earnings to cover fixed charges . . . $ 3,387 $ 25,555 $ 25,936 $ -- $ 11,500 ======= ======== ======== ======= ======== - ------------------ (1) Calculated as one-third of minimum rent expense:
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 31 WEEKS ENDED JUNE 29, 1991 JUNE 27, 1992 JUNE 26, 1993 JUNE 25, 1994 JANUARY 29, 1995 -------------- -------------- -------------- -------------- ---------------- Minimum rent . . . . . . . . . $19,570 $46,706 $44,504 $49,788 $33,458 Interest factor . . . . . . . /3 /3 /3 /3 /3 ------- ------- ------- ------- ------- $ 6,523 $15,569 $14,835 $16,596 $11,153 ======= ======= ======= ======= =======
2 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS) (UNAUDITED) Income (loss) before provision for income taxes and extra- ordinary charges............. $(259,617) $ -- $(2,512) $ -- $(31,981) $ -- $(289,100) $ -- Add Fixed charges: Interest expense including amortization of deferred financing costs.............. 178,774 178,774 16,916 16,916 56,084 56,084 246,200 246,200 Interest factor in rent expense(1)................... 32,584 32,584 5,484 5,484 9,873 9,873 32,584 32,584 --------- -------- ------- ------- -------- ------- --------- -------- $ (48,259) $211,358 $19,888 $22,400 $ 33,976 $65,957 $ (10,316) $278,784 ========= ======== ======= ======= ======== ======= ========= ======== Ratio of earnings to fixed charges..................... -- -- -- -- ========= ======= ======== ========= Deficiency of earnings to cover fixed charges......... $ 259,617 $ 2,512 $ 31,981 $ 289,100 ========= ======= ======== ========= - ------------------------------ (1) Calculated as one-third of minimum rent expense:
PRO FORMA 52 WEEKS ENDED 12 WEEKS ENDED 12 WEEKS ENDED 52 WEEKS ENDED JANUARY 28, 1996 APRIL 23, 1995 APRIL 21, 1996 JANUARY 28, 1996 ---------------- -------------- -------------- ---------------- Minimum rent.................. $97,752 $16,451 $29,620 $97,752 Interest factor............... /3 /3 /3 /3 ------- ------- ------- ------- $32,584 $ 5,484 $ 9,873 $32,584 ======= ======= ======= =======
3 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a) (DOLLARS IN THOUSANDS) (UNAUDITED)
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 20 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29, JUNE 13, 1991 1992 1993 1994 1995 1995 ----------- ----------- ----------- ----------- ----------- -------- Earnings (loss) before income taxes, cumulative effect of change in accounting and extraordinary item . . . . . . $(25,529) $(27,734) $ 2,792 $ 30,317 $ 32,118 $ 7,400 Add: Portion of rents representative of the interest factor . . . . . . 12,936 15,135 17,745 19,218 19,467 7,987 Capitalized interest . . . . 915 510 1,074 740 325 32 Interest expense . . . . . . 128,477 130,206 125,611 108,755 112,651 41,000 -------- -------- -------- -------- -------- ------- Earnings as adjusted . . . . $116,799 $118,117 $147,222 $159,030 $164,561 $56,419 ======== ======== ======== ======== ======== ======= Fixed charges: Interest expense . . . . . . . 128,477 130,206 125,611 108,755 112,651 41,000 Capitalized interest . . . . . 915 510 1,074 740 325 32 Portion of rents representative of the interest factor . . . . . . 12,936 15,135 17,745 19,218 19,467 7,987 -------- -------- -------- -------- -------- ------- Total fixed charges . . . . . $142,328 $145,851 $144,430 $128,713 $132,443 $49,019 ======== ======== ======== ======== ======== ======= Ratio of earnings to fixed charges . . . . . . . . -- (b) -- (b) 1.02 1.24 1.24 1.15 ======== ======== ======== ======== ======== ======= - --------------- (a) The ratio of earnings to fixed charges has been computed based upon net earnings (loss) before income taxes, cumulative effect of change in accounting, extraordinary item and fixed charges. Fixed charges consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of debt discount and expense and one-third of rental expense (the proportion deemed representative of the interest factor). (b) Earnings before income taxes and fixed charges were insufficient to cover fixed charges for the periods ended February 3, 1991 and February 2, 1992 by $25,529 and $27,734, respectively.
EX-23.1 10 CONSENT OF ARTHUR ANDERSON LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Los Angeles, California June 26, 1996 EX-23.2 11 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC AUDITORS The Board of Directors Ralphs Grocery Company: The audits referred to in our report dated March 9, 1995, included the related financial statement schedule as of January 29, 1995, and for each of the years in the three-year period ended January 29, 1995, included in the registration statement. This financial statement schedule is the responsibility of the Company's 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 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 "Selected Historical Financial Data of Ralphs," "Summary of Historical Financial Data of Ralphs" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Los Angeles, California June 26, 1996 -----END PRIVACY-ENHANCED MESSAGE-----