-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kCAKViTchlywVjKSm8t8R7synQ0fdFyqeoly2lvWoPVGMJmvpKZ7YB5RNVHpAmU0 xoegjc/S2vNURAQKJ1LH8Q== 0000950150-95-000029.txt : 19950608 0000950150-95-000029.hdr.sgml : 19950608 ACCESSION NUMBER: 0000950150-95-000029 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19950124 DATE AS OF CHANGE: 19950127 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS SUPERMARKETS INC CENTRAL INDEX KEY: 0000835676 STANDARD INDUSTRIAL CLASSIFICATION: 5411 IRS NUMBER: 954222386 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451 FILM NUMBER: 95502653 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALLEYS INC /KS/ CENTRAL INDEX KEY: 0000835678 STANDARD INDUSTRIAL CLASSIFICATION: 5400 IRS NUMBER: 480605992 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-01 FILM NUMBER: 95502654 BUSINESS ADDRESS: STREET 1: 3120 S KANSAS AVE CITY: TOPEKA STATE: KS ZIP: 66611 BUSINESS PHONE: 2132671501 MAIL ADDRESS: 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: 5411 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-02 FILM NUMBER: 95502655 BUSINESS ADDRESS: STREET 1: 250 WEST FIRST STREET, SUITE 210 CITY: CLAREMONT STATE: CA ZIP: 91711 BUSINESS PHONE: 7146268776 MAIL ADDRESS: 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: 0000 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-03 FILM NUMBER: 95502656 BUSINESS ADDRESS: STREET 1: 250 WEST FIRST ST,SUITE 210 CITY: CLAREMONT STATE: CA ZIP: 91711 BUSINESS PHONE: 7146268776 MAIL ADDRESS: 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: 0000 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-04 FILM NUMBER: 95502657 BUSINESS ADDRESS: STREET 1: 250 WEST FIRST ST, SUITE 210 CITY: CLAREMONT STATE: CA ZIP: 91711 BUSINESS PHONE: 7146268776 MAIL ADDRESS: 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: 5411 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-05 FILM NUMBER: 95502658 BUSINESS ADDRESS: STREET 1: 250M WEST FIRST ST, SUITE 210 CITY: CLAREMONT STATE: CA ZIP: 91711 MAIL ADDRESS: 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: 5411 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-06 FILM NUMBER: 95502659 BUSINESS ADDRESS: STREET 1: 250 WEST FIRST STREET, SUITE 210 CITY: CLAREMONT STATE: CA ZIP: 91711 BUSINESS PHONE: 7146268776 MAIL ADDRESS: 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: 5411 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-07 FILM NUMBER: 95502660 BUSINESS ADDRESS: STREET 1: 250 WEST FIRST STREET, SUITE 210 CITY: CLAREMONT STATE: CA ZIP: 91711 BUSINESS PHONE: 7146268776 MAIL ADDRESS: 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: 5411 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-08 FILM NUMBER: 95502661 BUSINESS ADDRESS: STREET 1: 250 WEST FIRST STREET, SUITE 210 CITY: CLAREMONT STATE: CA ZIP: 91711 BUSINESS PHONE: 7146268776 MAIL ADDRESS: 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: 5411 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-09 FILM NUMBER: 95502662 BUSINESS ADDRESS: STREET 1: 250 WEST FIRST STREET, SUITE 210 CITY: CLAREMONT STATE: CA ZIP: 91711 BUSINESS PHONE: 7146268776 MAIL ADDRESS: 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: 0000 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-10 FILM NUMBER: 95502663 BUSINESS ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD CITY: LA HARSERA STATE: CA ZIP: 90631 BUSINESS PHONE: 7147382000 MAIL ADDRESS: STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 S-4/A 1 AMENDMENT NO. 2 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 1995 REGISTRATION NO. 33-56451 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 ON FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ FOOD 4 LESS SUPERMARKETS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5411 95-4222386 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) SUBSIDIARY REGISTRANTS ALPHA BETA COMPANY CALIFORNIA 95-1456805 BAY AREA WAREHOUSE STORES, INC. CALIFORNIA 93-1087199 BELL MARKETS, INC. CALIFORNIA 94-1569281 CALA CO. DELAWARE 95-4200005 CALA FOODS, INC. CALIFORNIA 94-1342664 FALLEY'S, INC. KANSAS 48-0605992 FOOD 4 LESS OF CALIFORNIA, INC. CALIFORNIA 33-0293011 FOOD 4 LESS GM, INC. CALIFORNIA 95-4390407 FOOD 4 LESS MERCHANDISING, INC. CALIFORNIA 33-0483193 FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. DELAWARE 33-0483203 (EXACT NAME OF REGISTRANT AS (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
777 SOUTH HARBOR BOULEVARD LA HABRA, CALIFORNIA 90631 (714) 738-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES) ------------------------ MARK A. RESNIK, ESQ. VICE PRESIDENT AND SECRETARY FOOD 4 LESS SUPERMARKETS, INC. 777 SOUTH HARBOR BOULEVARD LA HABRA, CALIFORNIA 90631 (714) 738-2000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: THOMAS C. SADLER, ESQ. WILLIAM M. HARTNETT, ESQ. PAMELA B. KELLY, ESQ. CAHILL GORDON & REINDEL LATHAM & WATKINS 80 PINE STREET 633 WEST FIFTH STREET NEW YORK, NEW YORK 10005 LOS ANGELES, CALIFORNIA 90071 (212) 701-3000 (213) 485-1234
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ ------------------------ 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 SECTION 8(A) MAY DETERMINE. - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 2 FOOD 4 LESS SUPERMARKETS, INC. CROSS-REFERENCE SHEET PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
ITEM NO. FORM S-4 CAPTION PROSPECTUS CAPTION - - -------- ----------------------------------------- ----------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus............................... Facing Page; Cross Reference Sheet; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus............................ Inside Front Cover Page; Outside Back Cover Page 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information............ Summary; Risk Factors; Business; Selected Historical Financial Data of Food 4 Less 4. Terms of the Transaction................. The Exchange Offers and Solicitation; Certain Federal Income Tax Considerations; The Proposed Amendments; Description of the New F4L Notes; Appendix A; Appendix B 5. Pro Forma Financial Information.......... Unaudited Pro Forma Combined Financial Statements 6. Material Contracts with the Company Being Acquired................................. * 7. Additional Information Required for Reoffering by Person and Parties Deemed to Be Underwriters....................... * 8. Interests of Named Experts and Counsel... Legal Matters; Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. * 10. Information with Respect to S-3 Registrants.............................. * 11. Incorporation of Certain Information by Reference................................ * 12. Information with Respect to S-2 or S-3 Registrants.............................. * 13. Incorporation of Certain Information by Reference................................ * 14. Information with Respect to Registrants Other than S-3 or S-2 Registrants........ Inside Front Cover Page; Summary; Pro Forma Capitalization; Selected Historical Financial Data of Food 4 Less; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Consolidated Financial Statements of Food 4 Less 15. Information with Respect to S-3 Companies................................ * 16. Information with Respect to S-2 or S-3 Companies................................ * 17. Information with Respect to Companies Other than S-2 or S-3 Companies.......... * 18. Information If Proxies, Consents or Authorizations Are to Be Solicited....... * 19. Information If Proxies, Consents or Authorizations Are not to Be Solicited, or in an Exchange Offer.................. Management; Executive Compensation; Principal Stockholders; Certain Relationships and Related Transactions
- - --------------- * Inapplicable 3 PROSPECTUS AND SOLICITATION STATEMENT FOOD 4 LESS SUPERMARKETS, INC. TO BE COMBINED THROUGH MERGER WITH RALPHS GROCERY COMPANY OFFERS TO EXCHANGE UP TO $175,000,000 OF ITS SENIOR NOTES DUE MARCH 1, 2004 FOR ITS 10.45% SENIOR NOTES DUE APRIL 15, 2000 AND UP TO $145,000,000 OF ITS 13.75% SENIOR SUBORDINATED NOTES DUE MARCH 1, 2005 FOR ITS 13.75% SENIOR SUBORDINATED NOTES DUE JUNE 15, 2001 AND SOLICITATION OF CONSENTS ------------------------ Food 4 Less Supermarkets, Inc. ("Food 4 Less") hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and Solicitation Statement and in the accompanying Consent and Letter of Transmittal (the "Letter of Transmittal"), (i) to holders of its 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes") to exchange (the "F4L Senior Notes Exchange Offer") such Old F4L Senior Notes for new Senior Notes due 2004 (the "New F4L Senior Notes"), plus $5.00 in cash for each $1,000 principal amount tendered for exchange (the "Senior Notes Exchange Payment") and (ii) to holders of its 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes," and together with the Old F4L Senior Notes, the "Old F4L Notes") to exchange (the "F4L Senior Subordinated Notes Exchange Offer," and together with the F4L Senior Notes Exchange Offer, the "Exchange Offers") such Old F4L Senior Subordinated Notes for new 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes," and together with the New F4L Senior Notes, the "New F4L Notes") plus $20.00 in cash for each $1,000 principal amount tendered for exchange (the "Senior Subordinated Notes Exchange Payment," and together with the Senior Notes Exchange Payment, the "Exchange Payment"), in each case as more fully described below.
FOR EACH $1,000 THE TENDERING HOLDER PRINCIPAL AMOUNT OF: WILL RECEIVE - - ---------------------------------- -------------------------------------------------------------------- Old F4L Senior Notes $1,000 principal amount of New F4L Senior Notes and $5.00 in cash, plus accrued and unpaid interest to the date of exchange. Old F4L Senior Subordinated Notes $1,000 principal amount of New F4L Senior Subordinated Notes and $20.00 in cash, plus accrued and unpaid interest to the date of exchange.
Concurrently with the Exchange Offers and the other financing transactions described herein, Food 4 Less is offering up to $400 million principal amount of New F4L Senior Notes pursuant to a public offering (the "Public Offering") registered under the Securities Act of 1933, as amended (the "Securities Act"). The Public Offering is expected to price ten business days preceding the Expiration Date (as defined). The New F4L Senior Notes offered pursuant to the F4L Senior Notes Exchange Offer will be part of the same issue as the New F4L Senior Notes offered pursuant to the Public Offering and will bear interest at a fixed rate per annum equal to the greater of (a) 11% and (b) the Applicable Treasury Rate (as defined) plus 375 basis points (3.75 percentage points); provided, however, that in no event will the New F4L Senior Notes offered for exchange hereby bear interest at a rate per annum that is less than the interest rate on the New F4L Senior Notes offered pursuant to the Public Offering. THE EXCHANGE OFFERS AND THE SOLICITATION (AS DEFINED) WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 22, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). CONSENTS MAY BE REVOKED AND TENDERS MAY BE WITHDRAWN AT ANY TIME UNTIL THE LATER OF (A) SUCH TIME AS THE REQUISITE CONSENTS (AS DEFINED) WITH RESPECT TO THE APPLICABLE ISSUE OF OLD F4L NOTES HAVE BEEN RECEIVED AND THE SUPPLEMENTAL INDENTURE (AS DEFINED) FOR SUCH ISSUE HAS BEEN EXECUTED AND (B) 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 22, 1995. FOOD 4 LESS EXPECTS TO EXTEND THE EXPIRATION DATE TO A DATE THAT IS TEN BUSINESS DAYS FOLLOWING THE PRICING OF THE PUBLIC OFFERING. ------------------------ SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE EXCHANGE OFFERS AND THE SOLICITATION. ------------------------ The Dealer Managers for the Exchange Offers and the Solicitation are: BT SECURITIES CORPORATION CS FIRST BOSTON DONALDSON, LUFKIN & JENRETTE S E C U R I T I E S C O R P O R A T I O N ------------------------ The date of this Prospectus and Solicitation Statement is January 25, 1995 4 (cover page continued) The Exchange Offers and the Solicitation (as defined) are part of the financing required to consummate the proposed merger (the "RSI Merger") of Food 4 Less with and into Ralphs Supermarkets, Inc. ("RSI"). Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), a wholly-owned subsidiary of RSI, will merge with and into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger") and RSI will change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the "Company"). As a result of the Merger, the New F4L Notes and any Old F4L Notes not exchanged in the Exchange Offers will be the obligations of the Company. Concurrently with the Exchange Offers, Food 4 Less is soliciting (the "Solicitation") consents ("Consents") from holders of each of the Old F4L Senior Notes (the "Old F4L Senior Noteholders") and the Old F4L Senior Subordinated Notes (the "Old F4L Senior Subordinated Noteholders," and together with the Old F4L Senior Noteholders, the "Old F4L Noteholders") representing at least a majority in aggregate principal amount of each of the outstanding Old F4L Senior Notes and the Old F4L Senior Subordinated Notes held by persons other than Food 4 Less and its affiliates (the "Requisite Consents") to certain amendments described herein (the "Proposed Amendments") to the indentures under which the Old F4L Notes were issued (collectively, the "Old F4L Indentures"). As of January 1, 1995, there were issued and outstanding $175 million aggregate principal amount of the Old F4L Senior Notes and $145 million aggregate principal amount of the Old F4L Senior Subordinated Notes. HOLDERS OF OLD F4L NOTES WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. The Proposed Amendments will only become operative upon consummation of the Exchange Offers. The primary purpose of the Proposed Amendments is to permit the Merger and to eliminate substantially all of the restrictive covenants in the Old F4L Indentures. Interest on the New F4L Senior Notes will be payable semiannually on each March 1 and September 1, commencing on September 1, 1995, at the rate set forth above. The New F4L Senior Notes will mature on March 1, 2004. Interest on the New F4L Senior Subordinated Notes will be payable semiannually on each March 1 and September 1, commencing September 1, 1995, at the rate of 13.75% per annum. The New F4L Senior Subordinated Notes will mature on March 1, 2005. The New F4L Senior Notes will be redeemable, in whole or in part, at the option of the Company, at any time on and after March 1, 2000 and the New F4L Senior Subordinated Notes will be redeemable, in whole or in part, at the option of the Company, at any time on and after June 15, 1996, each at the respective redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. In addition, on or prior to March 1, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to an aggregate of 35% of the New F4L Senior Notes originally issued, at a redemption price equal to 111% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1996 and 108.25% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. Upon a Change of Control (as defined) each holder of New F4L Notes has the right to require the Company to repurchase such holders' New F4L Notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase. In addition, subject to certain conditions, the Company will be obligated to make an offer to repurchase the New F4L Notes at 100% of their principal amount, plus accrued and unpaid interest to the date of repurchase, with the net cash proceeds of certain sales or other dispositions of assets. The New F4L Senior Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with other senior and unsecured indebtedness of the Company. However, the New F4L Senior Notes will be effectively subordinated to all secured indebtedness of the Company and its subsidiaries, including indebtedness under the New Credit Facility (as defined). See "Risk Factors -- Corporate Structure" and "-- Effects of Asset Encumbrances." The New F4L Senior Notes will rank senior in right of payment to all subordinated indebtedness of the Company, including the New F4L Senior Subordinated Notes, the Old F4L Senior Subordinated Notes that remain outstanding following the F4L Senior Subordinated Notes Exchange Offer (collectively, the "F4L Senior Subordinated Notes") and the RGC Senior Subordinated Notes (as defined). At September 17, 1994, on a pro forma basis after giving effect to the Merger and the Financing (and certain related assumptions), the Company and its subsidiaries would have had outstanding $992.7 million aggregate principal amount of secured indebtedness. ii 5 (cover page continued) The New F4L Senior Subordinated Notes will be senior subordinated unsecured obligations of the Company and will be subordinated in right of payment to all Senior Indebtedness (as defined) of the Company, including the Company's obligations under the New Credit Facility, the New F4L Senior Notes and any Old F4L Senior Notes that remain outstanding following the F4L Senior Notes Exchange Offer (collectively, the "F4L Senior Notes"). The New F4L Senior Notes will be unconditionally guaranteed on a senior unsecured basis by each of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors") and the New F4L Senior Subordinated Notes will be unconditionally guaranteed (together, the "Guarantees") on a senior subordinated unsecured basis by each of the Subsidiary Guarantors. At the time the New F4L Notes are issued, the Subsidiary Guarantors will be Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Food 4 Less GM, Inc., Food 4 Less Merchandising, Inc. and Food 4 Less of Southern California, Inc. The Guarantees of the New F4L Notes will be released upon the occurrence of certain events. See "Description of the New F4L Notes -- Guarantees." At September 17, 1994, on a pro forma basis after giving effect to the Merger and the Financing (and certain related assumptions), the aggregate outstanding amount of Senior Indebtedness of the Company (excluding Company guarantees of certain Guarantor Senior Indebtedness (as defined)) would have been approximately $1,554.8 million and the aggregate outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would have been approximately $16.0 million and the Company would have had $218.2 million available to be borrowed under the New Revolving Facility (as defined). Tendering holders will receive accrued and unpaid interest on Old F4L Notes accepted for exchange, up to, but not including, the date of such exchange. Interest on the New F4L Notes will accrue from, and including, the date of such exchange, which will be the date of issuance of the New F4L Notes. If Food 4 Less shall decide to decrease the amount of Old F4L Notes being sought in either Exchange Offer or to increase or decrease the consideration offered to holders of Old F4L Notes, and if, at the time that notice of such increase or decrease is first published, sent or given to holders of Old F4L Notes in the manner specified in this Prospectus and Solicitation Statement, such Exchange Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth Business Day from and including the date that such notice is first so published, sent or given, then such Exchange Offer will be extended for such purposes until the expiration of such period of ten Business Days. As used in this Prospectus and Solicitation Statement, "Business Day" has the meaning set forth in Rule 14d-1 (and applicable to Regulation 14E) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition to the Exchange Offers and the Solicitation, (i) Food 4 Less is (A) offering up to $400 million principal amount of New F4L Senior Notes pursuant to the Public Offering (which will be part of the same issue as the New F4L Senior Notes offered for exchange pursuant to the F4L Senior Notes Exchange Offer), (B) offering to holders of RGC's 9% Senior Subordinated Notes due 2003 (the "Old RGC 9% Notes") and to holders of RGC's 10 1/4% Senior Subordinated Notes due 2002 (the "Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") to exchange (the "RGC Exchange Offers") such Old RGC Notes for new Senior Subordinated Notes due 2005 (the "New RGC Notes") plus $10.00 in cash for each $1,000 principal amount of Old RGC Notes tendered for exchange, and (C) soliciting consents from the holders of each of the Old RGC 9% Notes and the Old RGC 10 1/4% Notes to certain amendments to the indentures (collectively, the "Old RGC Indentures") under which the Old RGC Notes were issued (the RGC Exchange Offers and the solicitation of consents being referred to herein collectively as the "RGC Exchange Offers"), and (ii) Food 4 Less Holdings, Inc. ("Holdings"), which currently owns 100% of the outstanding stock of Food 4 Less, is soliciting consents from holders of its 15.25% Senior Discount Notes due 2004 (the "Holdings Discount Notes") to certain amendments to the indenture (the "Holdings Discount Note Indenture"), under which the Holdings Discount Notes were issued, with respect to which Holdings will make a cash consent payment of $20.00 for each $1,000 principal amount of Holdings Discount Notes for which a consent is properly delivered and accepted (such transaction being referred to herein as the "Holdings Consent Solicitation"). Prior to the Merger, Holdings' parent corporation, Food 4 Less, Inc. ("FFL"), will merge with and into Holdings, which will be the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging into a newly formed, wholly-owned subsidiary ("New Holdings"), incorporated in Delaware. iii 6 (cover page continued) See "The Merger and the Financing," "Description of Holding Company Indebtedness" and "The RGC Exchange Offers and the Public Offering." The RGC Exchange Offers, the Public Offering and the Holdings Consent Solicitation are sometimes hereinafter referred to as the "Other Debt Financing Transactions." The New RGC Notes and any Old RGC Notes not exchanged in the RGC Exchange Offers are collectively referred to herein as the "RGC Senior Subordinated Notes." Concurrently with the consummation of the Exchange Offers and the Other Debt Financing Transactions, Food 4 Less and RGC intend to obtain new senior financing (the "Bank Financing") pursuant to a senior facility of up to $1,075 million (the "New Credit Facility") and to obtain $150 million in cash equity financing (the "New Equity Investment"). In addition, New Holdings will issue as part of the consideration for the RSI Merger $100 million aggregate principal amount of 13% Senior Subordinated Pay-In-Kind Debentures due 2007 (the "Seller Debentures"). See "The Merger and the Financing." Notwithstanding any other provision of the Exchange Offers or the Solicitation, the obligation of Food 4 Less to accept for exchange any validly tendered Old F4L Note is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) at least 80% of the aggregate principal amount of the outstanding Old F4L Notes being validly tendered and not withdrawn pursuant to the Exchange Offers prior to the Expiration Date (the "Minimum Tender"), (ii) the receipt of the Requisite Consents with respect to each of the Old F4L Senior Notes and Old F4L Senior Subordinated Notes on or prior to the Expiration Date, (iii) the satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the RSI Merger, (iv) the prior or contemporaneous successful completion of the Other Debt Financing Transactions (including the Public Offering), and (v) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment. There can be no assurance that such conditions will be satisfied or waived. For additional information regarding other conditions to the consummation of the Exchange Offers, see "The Exchange Offers and Solicitation -- Conditions." Standard & Poor's Ratings Group ("Standard & Poor's") has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline (as defined) under the Old RGC Indentures. The consummation of the Merger (which is conditioned on, among other things, successful consummation of the Other Debt Financing Transactions and the Bank Financing, which itself is conditioned upon at least 80% of the aggregate principal amount of Old RGC Notes being tendered into the RGC Exchange Offers) and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline would constitute a Change of Control Triggering Event (as defined) under the Old RGC Indentures. Upon such a Change of Control Triggering Event the Company would be obligated to make a change of control purchase offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof ($90.9 million, assuming $90 million of Old RGC Notes are outstanding following the Merger) plus accrued and unpaid interest to the date of repurchase (the "Change of Control Offer"). The Merger will not constitute a change of control under the Old F4L Indentures and no change of control purchase offer will be made with respect to the Old F4L Notes. Although it has no obligation to do so, the Company reserves the right in the future to seek to acquire Old F4L Notes not tendered in the Exchange Offers by means of open market purchases, privately negotiated acquisitions, subsequent exchange or tender offers, redemptions or otherwise, at prices or on terms which may be higher or lower or more or less favorable than those in the Exchange Offers. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND SOLICITATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE EXCHANGE OFFERS ARE NOT BEING MADE TO, AND NO CONSENTS ARE BEING SOLICITED FROM, HOLDERS OF OLD F4L NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFERS OR THE ISSUANCE OF ANY SECURITY UPON ACCEPTANCE OF TENDERS WOULD NOT BE IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. iv 7 (cover page continued) Investors in the New F4L Notes in California will be able to transfer their New F4L Notes in California only to institutional investors (as defined under applicable California securities laws, and subject to any conditions set forth therein) or pursuant to another exemption under California securities laws. Such investors will be able to transfer their New F4L Notes to persons outside California, provided the transaction is effected through a broker-dealer registered in California and complies with the securities laws of the state in which the New F4L Notes will be offered and sold. The New F4L Notes have not been registered under the securities laws of all states. In certain jurisdictions in which the New F4L Notes have been registered, permits and orders issued in connection with such registrations typically expire after a period of time and the securities may not be offered and sold by certain holders without registration under the securities laws of such jurisdictions unless an exemption is available under such securities laws. Any Old F4L Noteholder desiring to accept the applicable Exchange Offer should either (i) complete and sign the Letter of Transmittal or facsimile thereof, have his signature thereon guaranteed and forward the Letter of Transmittal with the certificate(s) evidencing his Old F4L Notes and any other required documents to the Exchange Agent (as defined), (ii) comply with the guaranteed delivery procedures, (iii) tender such Old F4L Notes pursuant to the procedure for book-entry transfer or (iv) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him, in each case on or prior to the Expiration Date. Old F4L Noteholders having Old F4L Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if they desire to tender such Old F4L Notes. HOLDERS OF OLD F4L NOTES WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF OLD F4L NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE EXCHANGE OFFER WITH RESPECT TO ANY OLD F4L SENIOR NOTES OR OLD F4L SENIOR SUBORDINATED NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD F4L SENIOR NOTES OR OLD F4L SENIOR SUBORDINATED NOTES, AS THE CASE MAY BE. See "The Exchange Offers and Solicitation -- Procedures for Tendering and Consenting." Questions and requests for assistance or for additional copies of this Prospectus and Solicitation Statement or the accompanying Letter of Transmittal or any other required documents may be directed to the Dealer Managers or the Information Agent at the addresses and telephone numbers set forth on the back cover hereof. This Prospectus and Solicitation Statement, together with the accompanying Letter of Transmittal, is being sent to holders of Old F4L Notes who are registered holders as of January 20, 1995. v 8 (cover page continued) AVAILABLE INFORMATION Food 4 Less has filed a Registration Statement on Form S-4 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") under the Securities Act with respect to the New F4L Notes. Each of Food 4 Less and RGC is subject to the reporting and other informational requirements of the Exchange Act, and the rules and regulations promulgated thereunder, and in accordance therewith files reports and other information with the Commission. Such reports and other information filed by Food 4 Less or RGC with the Commission can be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such materials can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, whether or not it is required to do so by the rules and regulations of the Commission, the Company will be obligated under the indenture governing the New F4L Senior Notes (the "New F4L Senior Note Indenture") and the indenture governing the New F4L Senior Subordinated Notes (the "New F4L Senior Subordinated Note Indenture," and together with the New F4L Senior Note Indenture, the "New F4L Indentures") to file with the Commission (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's independent certified public accountants and (ii) all reports that would be required to be filed with the Commission on Form 8-K. The Company intends to furnish to each holder of New F4L Notes, upon their request, annual reports containing audited financial statements and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. Any such request should be directed to Jan Charles Gray, Senior Vice-President, General Counsel and Secretary of Ralphs Grocery Company at 1100 West Artesia Boulevard, Compton, California 90220, telephone number (310) 884-4000. This Prospectus and Solicitation Statement summarizes the contents and terms of documents not included herewith. These documents are available upon request from, as applicable, Food 4 Less at 777 South Harbor Blvd., La Habra, California 90631, telephone number (714) 738-2000, Attn: Robert P. Bermingham, Esq., Vice President and General Counsel; RGC at 1100 West Artesia Blvd., Compton, California 90220, telephone number (310) 884-4000, Attn: Jan Charles Gray, Esq., Senior Vice President, General Counsel and Secretary; or D.F. King & Co., Inc., at the address and telephone number set forth on the back cover hereof. In order to ensure timely delivery of the documents, any request for such documents should be made at least five business days prior to the Expiration Date. vi 9 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION................................................................. vi SUMMARY............................................................................... 1 COMPARISON OF OLD F4L SENIOR NOTES AND NEW F4L SENIOR NOTES........................... 9 COMPARISON OF OLD F4L SENIOR SUBORDINATED NOTES AND NEW F4L SENIOR SUBORDINATED NOTES............................................................................... 11 RISK FACTORS.......................................................................... 22 THE MERGER AND THE FINANCING.......................................................... 28 PRO FORMA CAPITALIZATION.............................................................. 31 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 32 SELECTED HISTORICAL FINANCIAL DATA OF RALPHS.......................................... 40 SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS..................................... 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................... 44 BUSINESS.............................................................................. 59 MANAGEMENT............................................................................ 73 EXECUTIVE COMPENSATION................................................................ 75 PRINCIPAL STOCKHOLDERS................................................................ 81 DESCRIPTION OF CAPITAL STOCK.......................................................... 82 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 85 THE EXCHANGE OFFERS AND SOLICITATION.................................................. 87 DESCRIPTION OF THE NEW F4L NOTES...................................................... 102 MARKET PRICES OF THE OLD F4L NOTES.................................................... 132 THE PROPOSED AMENDMENTS............................................................... 132 THE RGC EXCHANGE OFFERS AND THE PUBLIC OFFERING....................................... 134 DESCRIPTION OF THE NEW CREDIT FACILITY................................................ 136 DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS........................................... 138 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 141 LEGAL MATTERS......................................................................... 146 EXPERTS............................................................................... 146 INDEX TO FINANCIAL STATEMENTS......................................................... F-1 COMPARISON OF OLD F4L SENIOR NOTES AND NEW F4L SENIOR NOTES........................... A-1 COMPARISON OF OLD F4L SENIOR SUBORDINATED NOTES AND NEW F4L SENIOR SUBORDINATED NOTES............................................................................... B-1
vii 10 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the Financial Statements and notes thereto, appearing elsewhere in this Prospectus and Solicitation Statement. Unless the context otherwise requires, the terms "Food 4 Less" and "Ralphs," as used herein, refer to Food 4 Less and RSI and their consolidated subsidiaries, respectively, prior to the consummation of the Merger. The "Company" refers to Ralphs Grocery Company as the surviving and renamed corporation following the consummation of the Merger and includes, unless the context otherwise requires, all of its consolidated subsidiaries. As used herein, "Southern California" means Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego counties. Except as otherwise stated, references in this Prospectus and Solicitation Statement to numbers of stores prior to the consummation of the Merger are as of October 1, 1994. References to the "pro forma" number of stores to be operated by the Company following the consummation of the Merger are based on October 1, 1994 totals, but give effect to certain anticipated store conversions, divestitures and closings. THE COMPANY The combination of Ralphs Grocery Company and Food 4 Less Supermarkets, Inc. will create the largest food retailer in Southern California. Pro forma for the Merger, the Company will operate approximately 332 Southern California stores with an estimated 26% market share among the area's supermarkets. The Company will operate the second largest conventional supermarket chain in the region under the "Ralphs" name and the largest warehouse supermarket chain under the "Food 4 Less" name. In addition, the Company will operate approximately 24 conventional format stores and 39 warehouse format stores in Northern California and the Midwest. Management believes that by the end of the fourth full year of combined operations, approximately $90 million in net annual cost savings will be achieved as a result of the Merger. Pro forma for the Merger, the Company would have had sales of approximately $5.1 billion, operating income of $183 million and EBITDA (as defined) of $343 million for the 52 weeks ended June 25, 1994. Management believes the Merger will enhance the growth and profitability of Ralphs and Food 4 Less by providing the Company with the following benefits: - - - TWO LEADING COMPLEMENTARY FORMATS. The Company will operate its conventional supermarkets in Southern California under the "Ralphs" name and all of its price impact warehouse format stores in Southern California under the "Food 4 Less" name. Pro forma for the Merger and certain planned store conversions, the Company will operate 264 Ralphs conventional format stores and 68 Food 4 Less warehouse format stores in the region. The Ralphs stores will continue to emphasize a broad selection of merchandise, high quality fresh produce, meat and seafood and service departments, including bakery and delicatessen departments in most stores. The Company's conventional stores will also benefit from Ralphs' strong private label program and its strengths in merchandising, store operations and systems. Passing on format-related efficiencies, the price impact warehouse format stores will continue to offer consumers the lowest overall prices while providing product selections comparable to conventional supermarkets. Management believes the Food 4 Less warehouse format has demonstrated its appeal to a wide range of demographic groups in Southern California and offers a significant opportunity for future growth. The Company plans to open nine new Food 4 Less warehouse stores and 21 new Ralphs stores over the next two years. - - - SUBSTANTIAL COST SAVINGS OPPORTUNITIES. Management believes that approximately $90 million of net annual cost savings will be achieved by the end of the fourth full year of combined operations. It is also anticipated that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over the same period. Although a portion of the anticipated cost savings is premised upon the completion of such capital expenditures, management believes that over 70% of the cost savings could be achieved without making any Merger-related capital expenditures. The following anticipated savings are based on estimates and assumptions made by the Company that are inherently uncertain, though considered reasonable by the Company, and are subject to significant business, 1 11 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 has made an offsetting adjustment to reflect its expectation that a portion of the savings will be reinvested in the Company's operations. See "Risk Factors -- Ability to Achieve Anticipated Cost Savings." -- REDUCED ADVERTISING EXPENSES. Consolidating the conventional format stores in Southern California under the "Ralphs" name will eliminate the separate advertising associated with Food 4 Less' existing Alpha Beta, Boys and Viva formats. Since Ralphs' current advertising program covers the Southern California region, the Company will be able to advertise for all of its Southern California stores under the existing Ralphs program. Management estimates that annual advertising cost savings of approximately $28 million will be achieved in the first full year of combined operations. -- REDUCED STORE OPERATIONS EXPENSE. Management expects to reduce store operations costs as a result of both reduced labor and benefit costs and reduced non-labor expenses. Store-level labor savings will be achieved when Ralphs' labor scheduling, computerized record keeping and other advanced store systems are applied to the Food 4 Less store base. In addition, management believes that the adoption of Ralphs' store systems in non-labor areas, such as energy management, safety programs and pooled supply purchasing, will produce further annual cost savings. Management estimates that annual store operations cost savings of approximately $21 million will be achieved by the fourth full year of combined operations after certain required capital expenditures are made. -- INCREASED VOLUME PURCHASING EFFICIENCIES. The combined volume requirements and leading market position of the Company should generally allow the Company to obtain improved terms from vendors, including suppliers of products carried on an exclusive or promoted basis, and to convert some less-than-truckload shipping quantities to full truckload quantities. Management estimates that annual purchasing cost savings of approximately $19 million will be achieved by the second full year of combined operations. -- WAREHOUSING AND DISTRIBUTION EFFICIENCIES. Consolidating the Company's warehousing and distribution operations into Ralphs' two primary facilities located in Compton, California and in the Atwater district of Los Angeles and Food 4 Less' primary facility located in La Habra, California will result in lower outside storage, transportation and labor costs. In addition, occupancy costs will be reduced as a result of the closure of certain existing facilities. Management estimates that annual warehousing and distribution cost savings of approximately $16 million will be achieved by the third full year of combined operations after certain capital expenditures on existing facilities are completed. -- CONSOLIDATED MANUFACTURING. Ralphs and Food 4 Less operate manufacturing facilities that produce similar products or have excess capacity. Management believes that consolidating meat, bakery, dairy, and other manufacturing and processing operations, and discontinuing external purchases of certain goods that can be manufactured internally, will achieve annual cost savings of approximately $11 million by the second full year of combined operations. -- CONSOLIDATED ADMINISTRATIVE FUNCTIONS. The Company expects to achieve savings from the elimination of redundant administrative staff, the consolidation of management information systems and a decreased reliance on certain outside services and consultants. Management estimates that annual savings of approximately $15 million associated with consolidating administrative functions will be achieved by the second full year of combined operations. - - - TECHNOLOGICALLY ADVANCED WAREHOUSING AND DISTRIBUTION. The Company will utilize Ralphs' technologically advanced warehousing and distribution systems, which include a 17 million cubic foot high-rise automated storage and retrieval system warehouse (the "ASRS") for non-perishable items and a 5.4 million cubic foot perishable service center (the "PSC") designed for processing, storing and distributing all perishable items. These facilities will provide the Company with substantial operating benefits, including: (i) enhanced turnover to further improve the freshness and quality of in-store products, (ii) reduced in-store storage space to increase available selling space, (iii) added opportunities in forward buying programs and (iv) an increased percentage of inventory supplied by the Company's own warehousing and distribution system. Management believes the utilization of these facilities and Food 4 2 12 Less' La Habra warehouse will enable the Company to meet the combined inventory requirements of all stores with fewer employees and lower operating and occupancy-related expenses. - - - STORE LOCATIONS. As a result of Ralphs' 122-year history and Alpha Beta Company's ("Alpha Beta") 91-year history in Southern California, the Company will have valuable and well established store locations, many of which are in densely populated metropolitan areas. - - - RECENTLY REMODELED AND NEW STORE BASE. The Company will have a modern, technologically advanced store base. During the five years ended June 25, 1994, on a combined basis, Ralphs and Food 4 Less opened 74 new stores and remodeled 211 stores. Approximately 84% of the Company's stores have been opened or remodeled during the last five years. - - - EXPERIENCED MANAGEMENT TEAM. The executive officers of the Company have extensive experience in the supermarket industry. The strength of Ralphs management expertise is evidenced by Ralphs' reputation for quality and service, technologically advanced systems, strong store operations and high historical EBITDA margins. The Food 4 Less management team will provide valuable experience in operating warehouse supermarkets and in effectively integrating companies into a combined operation. Following the acquisition of Alpha Beta in 1991, Food 4 Less management successfully integrated Alpha Beta with its existing Southern California operations and (within three years) achieved annual cost savings in excess of $40 million (compared to a pre-acquisition estimate of approximately $33 million). THE YUCAIPA COMPANIES Food 4 Less was organized in 1989 by its sponsor, The Yucaipa Companies ("Yucaipa"), a private investment group which specializes in the supermarket industry. Yucaipa has a successful track record in acquiring, integrating and improving the cash flow of supermarket companies. Since 1986, Yucaipa and its affiliated companies have completed ten acquisition transactions, including five acquisitions by Food 4 Less and its subsidiaries. Following completion of the Merger, Yucaipa and its affiliates will control the Board of Directors of New Holdings and the Company. THE MERGER AND THE FINANCING On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food 4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4 Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and its stockholders. Pursuant to the terms of the Merger Agreement, Food 4 Less will be merged with and into RSI (the "RSI Merger"). Immediately following the RSI Merger, RGC, which is currently a wholly-owned subsidiary of RSI, will merge with and into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI will change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the "Company"). Prior to the Merger, FFL will merge with and into Holdings, which will be the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging into a newly-formed, wholly-owned subsidiary ("New Holdings"), incorporated in Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL Merger and the Reincorporation Merger the Company will become a wholly-owned subsidiary of New Holdings. See "-- Corporate Structure." As a result of the RSI Merger and the RGC Merger, the New F4L Notes and any outstanding Old F4L Notes not tendered in the Exchange Offers will be the obligations of the Company. Conditions to the consummation of the RSI Merger include the receipt of regulatory approvals and other necessary consents and the completion of financing. The purchase price for RSI is approximately $1.5 billion, including the assumption of debt. The consideration payable to the stockholders of RSI consists of $425 million in cash and $100 million principal amount of the Seller Debentures to be issued by New Holdings. New Holdings will use $150 million of cash received from the New Equity Investment, together with $100 million principal amount of the Seller Debentures, to acquire approximately 48% of the capital stock of RSI immediately prior to consummation of the RSI Merger. New Holdings will then contribute the 3 13 $250 million of purchased shares of RSI stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of RSI stock will be acquired for $275 million in cash. As currently contemplated, the Merger will be financed through the following transactions (collectively, the "Financing"): - Borrowings of up to $750 million aggregate principal amount of the New Term Loans (as defined) under the New Credit Facility to be provided by a syndicate of banks led by Bankers Trust Company ("Bankers Trust"). The New Credit Facility will also provide for a $325 million revolving credit facility (the "New Revolving Facility"), $18.4 million of which is anticipated to be drawn at closing. - The issuance of up to $400 million of the New F4L Senior Notes pursuant to the Public Offering. - The issuance of preferred stock in a private placement by New Holdings to a group of investors (the "New Equity Investors") led by Apollo Advisors, L.P. (on behalf of one or more managed entities) or its affiliates and designees ("Apollo") and including affiliates of BT Securities Corporation ("BT Securities"), CS First Boston Corporation ("CS First Boston") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and other institutional investors, yielding cash proceeds of $150 million pursuant to the New Equity Investment. Concurrently with the New Equity Investment, the New Equity Investors will purchase outstanding shares of New Holdings capital stock from a stockholder of New Holdings for a purchase price of $57.8 million. See "Description of Capital Stock -- New Equity Investment." - The exchange by Food 4 Less pursuant to the RGC Exchange Offers of up to $450 million aggregate principal amount of the Old RGC Notes for up to $450 million aggregate principal amount of the New RGC Notes plus $10.00 in cash per $1,000 principal amount exchanged, together with the solicitation of consents from the holders of the Old RGC Notes to certain amendments to the Old RGC Indentures. It is a condition to the RGC Exchange Offers that at least 80% of the outstanding principal amount of the Old RGC Notes are exchanged pursuant to the RGC Exchange Offers. - The Exchange Offers made hereunder to holders of Old F4L Notes to tender for exchange such Old F4L Notes for New F4L Notes and the Exchange Payment, together with the solicitation of consents from such holders to the Proposed Amendments to the Old F4L Indentures. - The purchase by New Holdings of approximately 48% of the outstanding common stock of RSI for an aggregate consideration of $250 million, consisting of the proceeds of the New Equity Investment and $100 million principal amount of the Seller Debentures, followed by the contribution of such common stock of RSI to Food 4 Less. Pursuant to the RSI Merger, the remaining shares of RSI stock will be acquired for $275 million in cash. - The assumption by the Company, pursuant to the Merger, of approximately $160.2 million of other indebtedness of RGC and Food 4 Less. - The solicitation of certain consents pursuant to the Holdings Consent Solicitation from the holders of the Holdings Discount Notes to certain amendments to the Holdings Discount Note Indenture. 4 14 The following table illustrates the sources and uses of funds to consummate the Merger, assuming the transaction occurs as of March 1, 1995. This presentation assumes that $360 million principal amount of Old RGC Notes is tendered into the RGC Exchange Offers and $256 million principal amount of Old F4L Notes is tendered into the Exchange Offers, in each case representing 80% of the outstanding aggregate principal amount of such securities. The presentation also assumes that the remaining $90 million of Old RGC Notes not tendered into the RGC Exchange Offers are repurchased after the Closing Date pursuant to the Change of Control Offer. Although management believes such assumptions are reasonable under the circumstances, actual sources and uses may differ from those set forth below depending upon the outcome of the RGC Exchange Offers and the Exchange Offers. For additional information regarding the Financing, see "The Merger and the Financing." SOURCES AND USES (in millions)
CASH SOURCES CASH USES - - --------------------------------------------- --------------------------------------------- New Term Loans(a)................ $ 750.0 Purchase RSI Common Stock(g)....... $ 425.9 New Revolving Facility(b)........ 18.4 Purchase Old RGC Notes(h).......... 90.9 Repay Ralphs 1992 Credit New F4L Senior Notes(c).......... 400.0 Agreement.......................... 291.0 New Equity Investment(d)......... 150.0 Repay F4L Credit Agreement......... 165.7 Pay Accrued Interest(i)............ 20.7 Pay EAR Liability(j)............... 22.8 Repay Mortgage Indebtedness(k)..... 186.7 Fees and Expenses(l)............... 114.7 -------- Total Cash Sources............ $1,318.4 Total Cash Uses.................... $1,318.4 ======== ======== NON-CASH SOURCES NON-CASH USES - - --------------------------------------------- --------------------------------------------- New F4L Senior Notes(e).......... $ 140.0 Old F4L Senior Notes Exchanged..... $ 140.0 Assumed Old F4L Senior Notes..... 35.0 Assumed Old F4L Senior Notes....... 35.0 New F4L Senior Subordinated Old F4L Senior Subordinated Notes Notes......................... 116.0 Exchanged.......................... 116.0 Assumed Old F4L Senior Assumed Old F4L Senior Subordinated Subordinated Notes............ 29.0 Notes.............................. 29.0 New RGC Notes.................... 360.0 Old RGC Notes Exchanged............ 360.0 Assumed Capital Leases and Other Assumed Capital Leases and Other Debt.......................... 160.2 Debt............................... 160.2 Seller Debentures(f)............. 100.0 Purchase RSI Common Stock(f)....... 100.0 -------- -------- Total Non-Cash Sources........ $ 940.2 Total Non-Cash Uses................ $ 940.2 ======== ========
- - --------------- (a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to which Bankers Trust has agreed, subject to certain conditions, to provide the Company up to a maximum aggregate amount of $1,075 million of financing under the New Credit Facility. It is anticipated that the New Credit Facility will be syndicated to a number of financial institutions for whom Bankers Trust will act as agent. The New Credit Facility will provide for (i) term loans in the aggregate amount of up to $750 million, comprised of a $375 million tranche with a six year term (the "Tranche A Loan"), a $125 million tranche with a seven year term (the "Tranche B Loan"), a $125 million tranche with an eight year term (the "Tranche C Loan"), and a $125 million tranche with a nine year term (the "Tranche D Loan," and, together with the Tranche A Loan, Tranche B Loan and Tranche C Loan, the "New Term Loans"); and (ii) a $325 million revolving credit facility (the "New Revolving Facility"). The New Term Loans and the New Revolving Facility are referred to collectively as the "New Credit Facility." See "Description of the New Credit Facility." (b) The New Revolving Facility will provide for a $325 million line of credit which will be available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support standby letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the New Revolving Facility. The Company anticipates that letters of credit for approximately $101 million will be issued under the New Revolving Facility at closing, in replacement of existing letters of credit, primarily to satisfy the State of California's requirements relating to workers compensation self-insurance. (c) Represents New F4L Senior Notes issued pursuant to the Public Offering. If Food 4 Less receives tenders in excess of the Minimum Tender in the RGC Exchange Offers, Food 4 Less may elect to decrease the amount of New F4L Senior Notes being offered pursuant to the Public Offering. 5 15 (d) Does not include the $10 million equity contribution by Ralphs management. See note (j) below. Concurrently with the New Equity Investment, certain existing stockholders of New Holdings (formerly stockholders of FFL), including affiliates of George Soros, will sell outstanding shares of New Holdings stock to CLH Supermarket Corp. ("CLH"), a corporation owned by certain Yucaipa partners, which in turn will sell such shares to the New Equity Investors for an aggregate purchase price of $57.8 million (which represents the same price per share as will be paid in the New Equity Investment). In connection with the New Equity Investment, the New Equity Investors will contribute the common stock so acquired to New Holdings in consideration for newly-issued preferred shares. See "Description of Capital Stock -- New Equity Investment." (e) Represents New F4L Senior Notes issued pursuant to the F4L Senior Notes Exchange Offer, which will be part of the same issue as the New F4L Senior Notes issued pursuant to the Public Offering. (f) In connection with the RSI Merger, New Holdings will issue $100 million principal amount of the Seller Debentures as part of the purchase price for the RSI common stock, up to $10 million of which may be put to Yucaipa on the closing date of the Merger at a purchase price equal to their principal amount pursuant to the Put Agreement (as defined). In addition, Yucaipa will be reimbursed by the Company for (i) any losses incurred upon the resale of the $10 million principal amount of Seller Debentures which may be put to it pursuant to the Put Agreement and (ii) its expenses in connection with the Merger and the related transactions. See "The Merger and the Financing" and "Description of Holding Company Indebtedness -- The Seller Debentures." (g) Includes $425 million to be paid in cash to stockholders of RSI and $0.9 million to be paid in cash to holders of RSI management stock options. See "Executive Compensation -- New Management Stock Option Plan and Management Investment." (h) Represents the purchase of Old RGC Notes tendered pursuant to the Change of Control Offer which will occur up to 90 days following the Merger. A portion of the proceeds of the Public Offering will be available to fund the purchase of Old RGC Notes pursuant to the Change of Control Offer. To the extent that any such Old RGC Notes are not tendered pursuant to the Change of Control Offer, any excess proceeds from the Public Offering will be used to repay borrowings under the New Credit Facility. See "The RGC Exchange Offers and the Public Offering." (i) Represents accrued interest payable on all debt securities assumed to be tendered in the Exchange Offers and the RGC Exchange Offers. (j) Represents payments to Ralphs management with respect to the cancellation of outstanding equity appreciation rights (the "EARs" or "Equity Appreciation Rights") in connection with the Merger. Ralphs management will receive New Holdings stock options in exchange for the cancellation of the remaining EAR liability of $10 million. See "Executive Compensation -- Equity Appreciation Rights Plan." (k) Represents the repayment of outstanding mortgage indebtedness of Ralphs in the principal amount of $174.4 million, plus the estimated amount of the prepayment fees payable with respect thereto. (l) Includes an advisory fee of $24 million to be paid to Yucaipa upon closing of the Merger. See "Certain Relationships and Related Transactions -- Food 4 Less." 6 16 CORPORATE STRUCTURE The following tables illustrate (i) the corporate structures of Food 4 Less and Ralphs immediately prior to the RSI Merger, the RGC Merger, the Reincorporation Merger and the FFL Merger and (ii) the corporate structure of the Company and its parent, New Holdings, and the anticipated outstanding indebtedness of the Company and New Holdings immediately after such mergers. Pursuant to the terms of the Merger Agreement, Food 4 Less will merge with and into RSI and RSI will be the surviving corporation in the RSI Merger. Immediately following the RSI Merger, RGC will merge with and into RSI and RSI will be the surviving corporation in the RGC Merger and will change its name to Ralphs Grocery Company. Prior to these transactions, FFL will merge with and into Holdings, and Holdings (which will be the surviving corporation) will reincorporate in Delaware as New Holdings. BEFORE MERGER [SEE EDGAR APPENDIX] 7 17 AFTER MERGER [SEE EDGAR APPENDIX] 8 18 COMPARISON OF OLD F4L SENIOR NOTES AND NEW F4L SENIOR NOTES The following is a brief comparison of the principal features of the Old F4L Senior Notes and the New F4L Senior Notes. The terms of the New F4L Senior Notes differ from the current (unamended) terms of the Old F4L Senior Notes in certain significant respects, including those described below. The summary comparisons set forth below do not purport to be complete and are qualified in their entirety by reference to "Description of the New F4L Notes" and to the "Comparison of Old F4L Senior Notes and New F4L Senior Notes" set forth in Appendix A hereto, and the related definitions contained therein.
OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES -------------------------------------------- --------------------------------------------
ISSUER Food 4 Less. The Company, as successor by merger to Food 4 Less. PRINCIPAL AMOUNT As of November 1, 1994, $175 million. The up to $175 million principal amount of OUTSTANDING New F4L Senior Notes offered hereby will be part of an issue of up to $575 million aggregate principal amount of New F4L Senior Notes, up to $400 million principal amount of which will be issued pursuant to the Public Offering. INTEREST RATE The Old F4L Senior Notes bear interest at Concurrently with the Exchange Offers, Food the rate of 10.45% per annum. 4 Less is offering up to $400 million principal amount of the New F4L Senior Notes pursuant to the Public Offering. The Public Offering is expected to price ten business days preceding the Expiration Date. The New F4L Senior Notes offered pursuant to the Exchange Offers will bear interest at a fixed rate per annum equal to the greater of (a) 11% and (b) the Applicable Treasury Rate (as defined) plus 375 basis points (3.75 percentage points); provided, however, that in no event will the New F4L Senior Notes offered for exchange hereby bear interest at a rate per annum that is less than the interest rate on the New F4L Senior Notes offered pursuant to the Public Offering. INTEREST PAYMENT April 15 and October 15. March 1 and September 1, commencing on DATES September 1, 1995. FINAL MATURITY DATE April 15, 2000. March 1, 2004. OPTIONAL REDEMPTION The Old F4L Senior Notes are subject to The New F4L Senior Notes are subject to redemption in whole or in part, at the redemption in whole or in part, at the option of Food 4 Less, at any time on or option of the Company, at any time on or after April 15, 1996, at the following after March 1, 2000, at the following redemption prices if redeemed during the redemption prices if redeemed during the twelve-month period commencing on April 15 twelve-month period commencing on March 1 of of the year set forth below: the year set forth below: 1996.................................104.48% 2000................................104.125% 1997.................................102.99% 2001................................102.750% 1998.................................101.49% 2002................................101.375% 1999 and thereafter..................100.00% 2003 and thereafter.................100.000% in each case plus accrued and unpaid in each case plus accrued and unpaid interest to the date of redemption. interest to the date of redemption. In the event that the interest rate on the New F4L Senior Notes is greater than 11%, the above redemption prices will be correspondingly adjusted. In addition, on or prior to March 1, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the New F4L Senior Notes originally issued, at a redemption price equal to 111% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1996 and 108.25% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1997, in each case plus accrued and unpaid interest to the redemption date.
9 19
OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES -------------------------------------------- -------------------------------------------- commencing on March 1, 1997, in each case plus accrued and unpaid interest to the redemption date. MANDATORY Under the Old F4L Senior Note Indenture, The New F4L Senior Notes are not subject to REDEMPTION Food 4 Less is required to make a mandatory a mandatory sinking fund requirement. sinking fund payment of $87.5 million on April 15, 1999, sufficient to retire 50% of the Old F4L Senior Notes originally issued, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. FOOD 4 LESS INTENDS TO CREDIT EXCHANGES OF OLD F4L SENIOR NOTES ACCEPTED PURSUANT TO THE EXCHANGE OFFERS HEREUNDER AGAINST ITS SINKING FUND OBLIGATIONS. RANKING The Old F4L Senior Notes are senior The New F4L Senior Notes will be senior unsecured obligations of Food 4 Less and are unsecured obligations of the Company and senior to all subordinated indebtedness of will rank senior in right of payment to all Food 4 Less, including the Old F4L Senior subordinated indebtedness of the Company Subordinated Notes. The Old F4L Senior Notes including the F4L Senior Subordinated Notes rank pari passu in right of payment with all and the RGC Senior Subordinated Notes. The borrowings and other obligations of Food 4 New F4L Senior Notes will rank pari passu in Less and its subsidiaries under the Credit right of payment with other senior and Agreement. Such borrowings and obligations unsecured indebtedness of the Company. under the Credit Agreement and related However, the New F4L Senior Notes will be guarantees are secured by substantially all effectively subordinated to all secured of the assets of Food 4 Less and its indebtedness of the Company and its subsidiaries, whereas the Old F4L Senior subsidiaries, including indebtedness under Notes are senior unsecured obligations of the New Credit Facility. At September 17, Food 4 Less and its subsidiaries. 1994, on a pro forma basis after giving effect to the Merger and the Financing (and certain related assumptions) the Company would have had outstanding $992.7 million in secured indebtedness. GUARANTEES Each Subsidiary Guarantor has Each Subsidiary Guarantor (including the unconditionally guaranteed, jointly and Subsidiaries of RGC) will unconditionally severally, the full and prompt performance guarantee, jointly and severally, the full of Food 4 Less's obligations under the Old and prompt performance of the Company's F4L Senior Note Indenture and Old F4L Senior obligations under the New F4L Senior Note Notes. Indenture and the New F4L Senior Notes. CHANGE OF CONTROL Upon the occurrence of a Change of Control Upon the occurrence of a Change of Control (as defined), each holder will have the (as defined), each holder will have the right to require the repurchase of such right to require the Company to repurchase holder's Old F4L Senior Notes at a purchase such holder's New F4L Senior Notes at a price equal to 101% of the principal amount purchase price equal to 101% of the thereof plus accrued and unpaid interest to principal amount thereof plus accrued and the date of repurchase. The consummation of unpaid interest to the date of repurchase. the Merger will not constitute a Change of Control under the Old F4L Senior Note Indenture. CERTAIN COVENANTS The Old F4L Senior Notes Indenture contains The New F4L Senior Notes Indenture contains certain covenants, including, but not certain covenants, including, but not limited to, covenants with respect to the limited to, covenants with respect to the following: (i) limitation on restricted following: (i) limitation on restricted payments; (ii) limitation on incurrences of payments; (ii) limitation on incurrences of additional indebtedness; (iii) limitation on additional indebtedness and incurrence of liens; (iv) limitation on disposition of subordinated indebtedness; (iii) limitation assets; (v) limitation on dividend payment on liens; (iv) limitation on asset sales; restrictions affecting subsidiaries; (vi) (v) limitation on dividend and other payment guarantees of certain indebtedness; (vii) restrictions affecting subsidiaries; (vi) limitation on transactions with affiliates; guarantees of certain indebtedness; (vii) (viii) limitation on mergers and certain limitation on transactions with affiliates; other transactions; and (ix) maintenance of (viii) limitation on mergers and certain Net Worth. other transactions; and (ix) limitations on preferred stock of subsidiaries.
10 20 COMPARISON OF OLD F4L SENIOR SUBORDINATED NOTES AND NEW F4L SENIOR SUBORDINATED NOTES The following is a brief comparison of the principal features of the Old F4L Senior Subordinated Notes to the New F4L Senior Subordinated Notes. The terms of the New F4L Senior Subordinated Notes differ from the current (unamended) terms of the Old F4L Senior Subordinated Notes in certain significant respects, including those discussed below. The summary comparisons set forth below do not purport to be complete and are qualified in their entirety by reference to "Description of New F4L Notes" and to the "Comparison of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes" set forth in Appendix B hereto, and the related definitions contained therein.
OLD F4L SENIOR NEW F4L SENIOR SUBORDINATED NOTES SUBORDINATED NOTES -------------------------------------------- -------------------------------------------- ISSUER Food 4 Less. The Company, as successor by merger to Food 4 Less. PRINCIPAL AMOUNT As of November 1, 1994, $145 million. Up to $145 million. OUTSTANDING INTEREST RATE The Old F4L Senior Subordinated Notes bear The New F4L Senior Subordinated Notes will interest at the rate of 13.75% per annum. bear interest at the rate of 13.75% per annum. INTEREST PAYMENT June 15 and December 15. March 1, and September 1, commencing on DATES September 1, 1995. FINAL MATURITY DATE June 15, 2001. March 1, 2005. OPTIONAL REDEMPTION The Old F4L Senior Subordinated Notes are The New F4L Senior Subordinated Notes are subject to redemption in whole or in part, subject to redemption in whole or in part, at the option of Food 4 Less, at any time on at the option of the Company, at any time on or after June 15, 1996, at the following or after June 15, 1996, at the following redemption prices if redeemed during the redemption prices if redeemed during the twelve-month period commencing on June 15 of twelve-month period commencing on June 15 of the year set forth below: the year set forth below: 1996................................106.111% 1996................................106.111% 1997................................104.583% 1997................................104.583% 1998................................103.056% 1998................................103.056% 1999................................101.528% 1999................................101.528% And thereafter......................100.000% And thereafter......................100.000% in each case plus accrued and unpaid in each case plus accrued and unpaid interest to the date of redemption. interest to the date of redemption. In the event of a Change of Control, the Old F4L Senior Subordinated Notes may be redeemed on or after June 15, 1994 and prior to June 15, 1996, at the option of Food 4 Less, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, together with accrued and unpaid interest to the date of redemption, if redeemed during the 12 months commencing on June 15 in the years set forth below: Year Percentage ---- ---------- 1994................................109.167% 1995................................107.639% MANDATORY REDEMPTION Under the Old F4L Senior Subordinated Note The New F4L Senior Subordinated Notes are Indenture, Food 4 Less is required to make a not subject to a mandatory sinking fund mandatory sinking fund payment on June 15, requirement. 2000, sufficient to retire 50% of the Old F4L Senior Subordinated Notes originally issued, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. FOOD 4 LESS INTENDS TO CREDIT EXCHANGES OF OLD F4L SENIOR SUBORDINATED NOTES ACCEPTED PURSUANT TO THE EXCHANGE OFFERS HEREUNDER AGAINST ITS SINKING FUND OBLIGATIONS.
11 21
OLD F4L SENIOR NEW F4L SENIOR SUBORDINATED NOTES SUBORDINATED NOTES -------------------------------------------- -------------------------------------------- RANKING The Old F4L Senior Subordinated Notes are The New F4L Senior Subordinated Notes will unsecured general obligations of Food 4 Less be senior subordinated unsecured obligations and are subordinated to all Senior of the Company and will be subordinated in Indebtedness of Food 4 Less, including the right of payment to all Senior Indebtedness Old F4L Senior Notes and the borrowings and (as defined) of the Company, including the other obligations under the Credit Company's obligations under the New Credit Agreement. As of September 17, 1994, the Facility, the Senior Unsecured Term Loan Senior Indebtedness of Food 4 Less was Agreement, and the F4L Senior Notes. At approximately $1,554.8 million. September 17, 1994, on a pro forma basis after giving effect to the Merger and the Financing (and certain related assumptions), the aggregate outstanding amount of Senior Indebtedness of the Company (excluding Company guarantees of certain Guarantor Senior Indebtedness) would have been approximately $1,554.8 million and the aggregate outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would have been approximately $16.0 million and the Company would have had $218.2 million available to be borrowed under the New Revolving Facility. GUARANTEES Each Subsidiary Guarantor has Each Subsidiary Guarantor will unconditionally guaranteed, jointly and unconditionally guarantee, jointly and severally, the full and prompt performance severally, the full and prompt performance of Food 4 Less's obligations under the Old of the Company's obligations under the New F4L Senior Subordinated Note Indenture and F4L Senior Subordinated Note Indenture and the Old F4L Senior Subordinated Notes. the New F4L Senior Subordinated Notes. CHANGE OF CONTROL Upon the occurrence of a Change of Control Upon the occurrence of a Change of Control (as defined), each holder will have the (as defined) each holder will have the right right to require the repurchase of such to require the repurchase of such holder's holder's Old F4L Senior Subordinated Notes New F4L Senior Subordinated Notes at a at a purchase price equal to 101% of the purchase price equal to 101% of the principal amount thereof plus accrued and principal amount thereof plus accrued and unpaid interest to the date of repurchase. unpaid interest to the date of repurchase. The consummation of the Merger will not constitute a Change of Control under the Old F4L Senior Subordinated Note Indenture. CERTAIN COVENANTS The Old F4L Senior Subordinated Notes The New F4L Senior Subordinated Notes Indenture contains certain covenants, Indenture contains certain covenants, including, but not limited to, covenants including, but not limited to, covenants with respect to the following: (i) with respect to the following: (i) limitation on restricted payments; (ii) limitation on restricted payments; (ii) limitation on incurrences of additional limitation on incurrences of additional indebtedness; (iii) limitation on liens; indebtedness; (iii) limitations on liens; (iv) limitation on asset sales; (v) (iv) limitation on asset sales; (v) limitation on payment restrictions affecting limitation on dividends and other payment subsidiaries; (vi) guarantees of certain restrictions affecting subsidiaries; (vi) indebtedness; (vii) limitation on guarantees of certain indebtedness; (vii) transactions with affiliates; (viii) limitation on transactions with affiliates; limitations on merger and certain other (viii) limitation on mergers and certain transactions and (ix) maintenance of Net other transactions; and (ix) limitation on Worth. preferred stock of subsidiaries.
12 22 PURPOSES OF THE EXCHANGE OFFERS AND CONSENT SOLICITATION The Exchange Offers and the Solicitation, together with the other financing and solicitation transactions described under "The Merger and the Financing," are part of the transactions required to consummate the merger of Food 4 Less with and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned subsidiary of RSI, will merge with and into RSI and RSI will change its name to Ralphs Grocery Company. As a result of the Merger, the New F4L Notes and any Old F4L Notes not tendered for exchange pursuant to the Exchange Offers, the New RGC Notes and the Old RGC Notes not tendered pursuant to the RGC Exchange Offers, and the indebtedness incurred pursuant to the New Credit Facility will become the obligations of the Company. In connection with the consummation of the Merger, Food 4 Less is making the Exchange Offers and the RGC Exchange Offers to (i) extend the maturities of the existing debt securities of Food 4 Less and RGC by exchanging such securities for new longer-term securities and (ii) establish uniform covenants in the New F4L Notes and the New RGC Notes in order to simplify the capital structure of the Company. The Exchange Offers afford Old F4L Noteholders an opportunity to elect to participate in the long-term capitalization of the Company. Food 4 Less is also seeking Consents to the Proposed Amendments in the Solicitation. The primary purpose of the Proposed Amendments is to permit the consummation of the Merger and to eliminate substantially all of the restrictive covenants in the Old F4L Indentures. See "The Proposed Amendments." If adopted by the holders of a majority in aggregate principal amount of each of the outstanding Old F4L Senior Notes and the outstanding Old F4L Senior Subordinated Notes, the Proposed Amendments will become effective immediately prior to the consummation of the Merger, upon Food 4 Less' acceptance of properly tendered Old F4L Notes for exchange pursuant to the Exchange Offers. THE EXCHANGE OFFERS AND THE SOLICITATION The Exchange Offers........... Food 4 Less is offering (i) to holders of the Old F4L Senior Notes to exchange for each $1,000 principal amount of Old F4L Senior Notes exchanged, $1,000 principal amount of New F4L Senior Notes plus $5.00 in cash and (ii) to holders of the Old F4L Senior Subordinated Notes to exchange for each $1,000 principal amount of Old F4L Senior Subordinated Notes exchanged, $1,000 principal amount of New F4L Senior Subordinated Notes plus $20.00 in cash, in each case plus accrued and unpaid interest to the date of exchange. Each Exchange Offer constitutes a separate exchange offer by Food 4 Less. See "The Exchange Offers and Solicitation -- Terms of the Exchange Offers." Holders of the Old F4L Notes may choose to participate in the applicable Exchange Offer by completing the appropriate boxes on the Letter of Transmittal. See "The Exchange Offers and Solicitation -- Procedures for Tendering and Consenting." Accrued Interest on the Old F4L Notes............... Tendering holders will receive accrued interest on Old F4L Notes accepted for exchange up to, but not including, the date of such exchange. Interest on the New F4L Notes will accrue from, and including, the date of such exchange, which shall be the date of issuance of the New F4L Notes. Accrued interest on tendered Old F4L Notes will be paid in cash to such tendering holders promptly after consummation of the Exchange Offers. See "The Exchange Offers and Solicitation -- Acceptance of Old F4L Notes for Ex- 13 23 change; Delivery of New F4L Notes and Payment of Exchange Payment." The Solicitation.............. Concurrently with the Exchange Offers, Food 4 Less is soliciting Consents from each of the Old F4L Senior Noteholders and the Old F4L Senior Subordinated Noteholders representing at least a majority in aggregate principal amount of each of the outstanding Old F4L Senior Notes and Old F4L Senior Subordinated Notes held by persons other than Food 4 Less and its affiliates to the Proposed Amendments to the Old F4L Indentures. See "The Proposed Amendments." HOLDERS OF OLD F4L NOTES WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. HOLDERS DO NOT HAVE THE OPTION TO CONSENT TO THE PROPOSED AMENDMENTS WITHOUT TENDERING INTO THE APPLICABLE EXCHANGE OFFER. See "The Exchange Offers and Solicitation -- Procedures for Tendering and Consenting." The Company and each of the Old Trustees (as defined) will execute the Supplemental Indentures (as defined) implementing the Proposed Amendments to the Old F4L Note Indentures after certification to each of the Old F4L Note Trustees that Food 4 Less has received the Requisite Consents. The Proposed Amendments will only become operative upon consummation of the Exchange Offers. If the Proposed Amendments become operative, the non-tendering holders of Old F4L Notes will be bound thereby regardless of whether they consented to the Proposed Amendments. All references herein to the Exchange Offers shall be deemed to include the Solicitation. As of January 1, 1995, there was issued and outstanding $175 million aggregate principal amount of Old F4L Senior Notes and $145 million aggregate principal amount of Old F4L Senior Subordinated Notes. See "The Exchange Offers and Solicitation -- The Consent Solicitation." Expiration Date............... Each Exchange Offer and the Solicitation will expire at 12:00 Midnight, New York City time, on February 22, 1995, unless extended by Food 4 Less. Food 4 Less reserves the right to extend either Exchange Offer or the Solicitation at its discretion, in which event the term "Expiration Date" shall mean the latest time and date at which such Exchange Offer or the Solicitation, as the case may be, as so extended by Food 4 Less, shall expire. Food 4 Less expects to extend the Expiration Date to a date that is ten Business Days following the pricing of the Public Offering. See "The Exchange Offers and Solicitation -- Expiration Date; Extensions; Termination; Amendments." 14 24 Withdrawal Rights and Revocation of Consents...... Tenders of Old F4L Notes pursuant to the Exchange Offers may be withdrawn and Consents may be revoked at any time until the later of (a) such time as the Requisite Consents with respect to the applicable issue of Old F4L Notes have been received and the Supplemental Indenture for such issue has been executed and (b) 12:00 Midnight, New York City time, on February 22, 1995. Thereafter, such tenders may be withdrawn and Consents may be revoked if the Exchange Offer with respect to such Old F4L Notes is terminated without any Old F4L Notes being accepted for exchange thereunder. Any valid revocation of Consents will automatically constitute a withdrawal of the Old F4L Notes to which such Consents relate. See "The Exchange Offers and Solicitation -- Withdrawal of Tenders and Revocation of Consents." Conditions.................... Notwithstanding any other provision of the Exchange Offers or the Solicitation, the obligation of Food 4 Less to accept for exchange any validly tendered Old F4L Note is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) satisfaction of the Minimum Tender (i.e., at least 80% of the aggregate principal amount of the outstanding Old F4L Notes being validly tendered and not withdrawn pursuant to the Exchange Offers prior to the Expiration Date), (ii) the receipt of the Requisite Consents (i.e., Consents from Old F4L Noteholders representing at least a majority in aggregate principal amount of each of the outstanding Old F4L Senior Notes and Old F4L Senior Subordinated Notes held by persons other than Food 4 Less and its affiliates) on or prior to the Expiration Date, (iii) satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the RSI Merger, (iv) the prior or contemporaneous consummation of the Other Debt Financing Transactions (including the Public Offering) and (v) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment. In addition, consummation of each Exchange Offer is subject to the consummation of the other Exchange Offer. There can be no assurance that such conditions will be satisfied or waived. Food 4 Less reserves the right to waive certain of the conditions to either Exchange Offer and, subject to certain limitations, to extend, terminate, cancel or otherwise modify or amend either Exchange Offer in any respect. See "The Exchange Offers and Solicitation -- Conditions." Procedures for Tendering and Consenting.................. Any Old F4L Noteholder desiring to accept the applicable Exchange Offer should either (i) complete and sign the Letter of Transmittal or facsimile thereof, have his signature thereon guaranteed and forward the Letter of Transmittal, together with the certificate(s) evidencing his Old F4L Notes and any other required documents, to the Exchange Agent, (ii) comply with the guaranteed delivery procedure described under the heading "The Ex- 15 25 change Offers and Solicitation -- Guaranteed Delivery Procedure," (iii) tender such Old F4L Notes pursuant to the procedure for book-entry transfer, or (iv) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him, in each case prior to the Expiration Date. Old F4L Noteholders having Old F4L Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if such holder desires to tender such Old F4L Notes. HOLDERS OF OLD F4L NOTES WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF OLD F4L NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE EXCHANGE OFFER WITH RESPECT TO ANY OLD F4L SENIOR NOTES OR OLD F4L SENIOR SUBORDINATED NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD F4L SENIOR NOTES OR OLD F4L SENIOR SUBORDINATED NOTES, AS THE CASE MAY BE. See "The Exchange Offers and Solicitation -- Procedures for Tendering and Consenting." Delivery of New F4L Notes and Payment of the Exchange Payment..................... Upon satisfaction or waiver of the conditions to each of the Exchange Offers, Food 4 Less will accept all Old F4L Notes which are properly tendered and not withdrawn, and promptly following such acceptance, the Company will issue, or cause to be issued, the New F4L Notes and will pay, or cause to be paid, the applicable Exchange Payment in accordance with the instructions of the tendering Old F4L Noteholder. See "The Exchange Offers and Solicitation -- Acceptance of Old F4L Notes for Exchange; Delivery of New F4L Notes and Payment of the Exchange Payment." Certain Consequences to Non- Tendering Old F4L Noteholders................. Consummation of the Exchange Offers and the effectiveness of the Proposed Amendments may have adverse consequences to non-tendering Old F4L Noteholders, including that non-tendering holders of Old F4L Notes will no longer be entitled to the benefit of certain of the restrictive covenants currently contained in the Old F4L Indentures and that the reduced amount of outstanding Old F4L Notes as a result of the Exchange Offers may adversely affect the trading market, liquidity and market price of the Old F4L Notes. If the Requisite Consents are received and accepted, the Proposed Amendments will be binding on all non-tendering Old F4L Noteholders. See "Risk Factors -- Potential Adverse Effects of the Exchange Offers and the Solicitation on Holders of Untendered Old F4L Notes" and "-- Effect of the Proposed Amendments on Holders That Do Not Exchange." 16 26 No Appraisal Rights........... No appraisal rights are available to holders of Old F4L Notes in connection with the Exchange Offers. Certain Federal Income Tax Considerations.............. Holders of Old F4L Notes who exchange Old F4L Notes for New F4L Notes and cash should recognize gain, but not loss, for federal income tax purposes equal to the lesser of (i) the amount of cash received (other than that portion, if any, attributable to accrued but unpaid interest on the Old F4L Notes) or (ii) the amount of any gain realized on the exchange of Old F4L Notes for New F4L Notes and cash. See "Certain Federal Income Tax Considerations." Risk Factors.................. See "Risk Factors" for a discussion of certain factors that should be considered in evaluating the Exchange Offers and the Solicitation. Dealer Managers............... BT Securities Corporation ("BT Securities"), CS First Boston Corporation ("CS First Boston") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") are serving as Dealer Managers in connection with the Exchange Offers and the Solicitation. Their telephone numbers are (212) 775-4300, (212) 909-2873 and (212) 504-4753, respectively. Exchange Agent................ Bankers Trust, an affiliate of BT Securities, is serving as Exchange Agent in connection with the Exchange Offers and the Solicitation. Its telephone number is (212) 250-6270. Information Agent............. D.F. King & Co., Inc. is serving as Information Agent in connection with the Exchange Offers and the Solicitation. Requests for additional copies of this Prospectus and Solicitation Statement, the Letter of Transmittal and any other required documents should be directed to the Information Agent or any Dealer Manager at one of its addresses set forth on the back cover page of this Prospectus and Solicitation Statement. The telephone number of the Information Agent is (800) 669-5550. 17 27 SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The following table sets forth summary unaudited pro forma combined financial data for the 52 weeks ended June 25, 1994 and for the 12 weeks ended September 17, 1994, after giving effect to the Merger and the Financing (and certain related assumptions), as if such transactions had occurred on June 27, 1993, with respect to the pro forma operating and other data, and as of September 17, 1994, with respect to the pro forma balance sheet data. Such pro forma information combines the results of operations of Food 4 Less for the 52 weeks ended June 25, 1994 and the results of operations and balance sheet data as of and for the 12 weeks ended September 17, 1994, with the results of operations of Ralphs for the 52 weeks ended July 17, 1994 and the results of operations and balance sheet data as of and for the 12 weeks ended October 9, 1994, respectively. See "The Merger and the Financing." The pro forma financial data set forth below is not necessarily indicative of the results that actually would have been achieved had such transactions been consummated as of the dates indicated, or that may be achieved in the future. The following pro forma financial data should be read in conjunction with the "Unaudited Pro Forma Combined Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of Food 4 Less and Ralphs and related notes thereto, included elsewhere in this Prospectus and Solicitation Statement.
52 WEEKS ENDED 12 WEEKS ENDED JUNE 25, 1994 SEPTEMBER 17, 1994 -------------- ------------------ (DOLLARS IN MILLIONS) OPERATING DATA: Sales.................................................... $5,053.5 $1,160.8 Gross profit............................................. 1,048.2 231.6 Selling, general and administrative expenses............. 829.9 187.6 Interest expense: Cash.................................................. 224.6 53.3 Non-cash.............................................. 15.2 3.3 Amortization of debt issuance costs................... 11.7 2.7 -------- -------- Total interest expense................................... 251.5 59.3 Net earnings (loss)(a)................................... (85.8) (23.2) Ratio of earnings to fixed charges(b).................... -- -- BALANCE SHEET DATA (END OF PERIOD): Working capital (deficit)........................................................ $ (5.7) Total assets..................................................................... 3,055.1 Total debt....................................................................... 1,971.7 Stockholder's equity............................................................. 249.2 OTHER DATA: Depreciation and amortization............................ $ 151.0 $ 34.9 Capital expenditures(c).................................. 123.2 36.3 Stores open at end of period(d).......................... -- 395 EBITDA (as defined)(a)(e)(f)............................. $ 342.5 $ 79.5 EBITDA margin(g)......................................... 6.8% 6.9%
- - --------------- (a) The summary unaudited pro forma combined financial data and the results of operations and EBITDA (as defined) for the 52 weeks ended June 25, 1994 and the 12 weeks ended September 17, 1994 do not include certain one-time non-recurring costs related to (i) severance payments under certain employment contracts with Food 4 Less management totaling $1.4 million that are subject to change of control provisions and the achievement of earnings and sales targets, (ii) costs related to the integration of the Company's operations, which are estimated to be $50.0 million over a three-year period, (iii) $1.8 million in costs related to the cancellation of an employment agreement, and (iv) other costs related to warehouse closures, which costs are not presently determinable. (b) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary items and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). The Company's pro forma earnings were insufficient to cover pro forma fixed charges by approximately $85.8 million and $23.2 million for the 52 weeks ended 18 28 June 25, 1994 and the 12 weeks ended September 17, 1994, respectively. However, such pro forma earnings included non-cash charges of $182.9 million and $41.8 million, respectively, primarily consisting of depreciation and amortization. (c) Does not include Merger-related capital expenditures of $61.0 million and $10.0 million for the 52 weeks ended June 25, 1994 and the 12 weeks ended September 17, 1994, respectively. (d) The pro forma number of stores is based on October 1, 1994 totals, but gives effect to the closing or divestiture of 32 stores (29 Food 4 Less conventional supermarkets or warehouse stores and 3 Ralphs stores) in connection with the Merger and the closure of 2 additional Food 4 Less stores. (e) "EBITDA", as defined and presented historically by RGC, represents net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provision for Equity Appreciation Rights, provision for tax indemnification payments to Federated Department Stores, Inc. ("Federated"), provision for postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses, a one-time charge for Teamsters Union sick pay benefits and gains and losses on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (f) Pro forma EBITDA does not give any effect to $90 million of anticipated net annual cost savings which management believes are achievable by the end of the fourth full year of combined operations. It is anticipated that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over the same period. Although a portion of the anticipated cost savings is premised upon the completion of such capital expenditures, management believes that over 70% of the cost savings could be achieved without making any Merger-related capital expenditures. As shown below, the sum of the components of the estimated annual cost savings exceeds $90 million; however, management has made an offsetting adjustment to reflect its expectation that a portion of the savings will be reinvested in the Company's operations. These anticipated savings are based on estimates and assumptions made by the Company that are inherently uncertain, though considered reasonable by the Company, and are subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of management. As a result, there can be no assurance that such savings will be achieved. See "Business -- The Merger" and "Risk Factors -- Ability to Achieve Anticipated Cost Savings." The components of the estimated cost savings are as follows:
(IN MILLIONS) Pro forma EBITDA for the 52 weeks ended June 25, 1994........................ $342.5 Estimated net annual cost savings: Reduced advertising expenses............................................... 28.0 Reduced store operations expense........................................... 21.0 Increased volume purchasing efficiencies................................... 19.0 Warehousing and distribution efficiencies.................................. 16.0 Consolidated manufacturing................................................. 11.0 Consolidated administrative functions...................................... 15.0 Less: Annual reinvestment of cost savings.................................. (20.0) ------ Total estimated net annual cost savings...................................... $ 90.0 ------ Sum of EBITDA (as defined) and full amount of estimated annual cost savings to be realized over four years............................................. $432.5 ======
(g) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 19 29 SUMMARY HISTORICAL FINANCIAL DATA OF RALPHS The following table sets forth summary historical financial data of RGC (as the predecessor of RSI) as of and for the 52 weeks ended January 28, 1990, 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 and January 30, 1994, which have been derived from the financial statements of RSI and RGC audited by KPMG Peat Marwick LLP, independent certified public accountants. The summary historical financial data of RSI presented below as of and for the 36 weeks ended October 10, 1993 and October 9, 1994 have been derived from unaudited interim financial statements of RSI which, in the opinion of management, reflect all material adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of RSI and RGC and related notes thereto included elsewhere in this Prospectus and Solicitation Statement.
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 36 WEEKS 36 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED ENDED JANUARY 28, FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9, 1990 1991 1992 1993 1994 1993 1994 ----------- ----------- ----------- ----------- ----------- ----------- ---------- (DOLLARS IN MILLIONS) (UNAUDITED) OPERATING DATA: Sales........................ $2,556.1 $2,799.1 $2,889.2 $2,843.8 $2,730.2 $1,874.2 $1,856.3 Gross profit................. 505.0 573.7 614.0 626.6 636.5 429.1 423.3 Selling, general and administrative expenses(a)................ 391.0 438.0 459.2 470.0 471.0 321.5 317.8 Interest expense(b).......... 130.9 128.5 130.2 125.6 108.8 75.7 77.2 Net earnings (loss)(c)....... (69.7) (51.4) (41.2) (76.1) 138.4(i) 23.7 19.9 Ratio of earnings to fixed charges(d)................. --(c) --(c) --(c) 1.02x 1.24x 1.27x 1.22x BALANCE SHEET DATA (end of period): Working capital surplus (deficit).................. $ (46.5) $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (87.5) $ (118.3) Total assets................. 1,404.8 1,406.4 1,357.6 1,388.5 1,483.7 1,363.9 1,491.4 Total debt(e)................ 991.0 986.1 941.9 1,029.8 998.9 990.4 1,000.6 Redeemable stock............. 3.0 3.0 3.0 -- -- -- -- Stockholders' equity (deficit).................. 35.4 (16.0) (57.2) (133.3) 5.1 (109.5) 15.0 OTHER DATA: Depreciation and amortization(f)............ $ 81.6 $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 51.7 $ 51.9 Capital expenditures......... 103.5 87.6 50.4 102.7 62.2 46.8 44.5 Stores open at end of period..................... 142 150 158 159 165 163 168 EBITDA (as defined)(g)....... $ 188.8 $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 155.9 $ 156.1 EBITDA margin(h)............. 7.4% 7.4% 7.8% 8.0% 8.4% 8.3% 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, $2.1 million and $1.8 million for the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993 and January 30, 1994 and the 36 weeks ended October 10, 1993 and October 9, 1994, respectively. (b) Interest expense includes non-cash charges related to the amortization of deferred debt issuance costs of $4.1 million for the 52 weeks ended January 28, 1990, $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 $4.5 and $4.3 for the 36 weeks ended October 10, 1993 and October 9, 1994, respectively. (c) Net earnings (loss) includes expenses relating to provisions for Equity Appreciation Rights and for tax indemnification payments to Federated, extraordinary item relating to debt refinancing, loss on disposal of assets, provisions for postretirement and pension benefits and provision for earthquake losses. (d) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary item and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 52 weeks ended January 28, 1990, the 53 weeks ended February 3, 1991 and the 52 weeks ended February 2, 1992 by approximately $57.7 million, $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 52 weeks ended January 28, 1990, the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993 and January 30, 1994 and the 36 weeks ended October 10, 1993 and October 9, 1994, depreciation and amortization includes amortization of the excess of cost over net assets acquired of $11.7 million, $11.0 million, $11.0 million, $11.0 million, $11.0 million, $7.6 million and $7.6 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 and loss on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Ralphs' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (h) EBITDA margin represents EBITDA (as defined) as a percentage of sales. (i) Includes recognition of $109.1 million of deferred income tax benefit and $1.1 million current income tax expense for Fiscal 1993 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.). 20 30 SUMMARY HISTORICAL FINANCIAL DATA OF FOOD 4 LESS The following table sets forth summary historical financial data of Food 4 Less as of and for the 53 weeks ended June 30, 1990 and the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994 which have been derived from the financial statements of Food 4 Less audited by Arthur Andersen LLP, independent public accountants. The summary historical financial data of Food 4 Less presented below as of and for the 12 weeks ended September 18, 1993 and September 17, 1994 have been derived from unaudited interim financial statements of Food 4 Less which, in the opinion of management, reflect all material adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of Food 4 Less and related notes thereto included elsewhere in this Prospectus and Solicitation Statement.
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 12 WEEKS 12 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED ENDED JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17, 1990 1991(a) 1992 1993 1994(b) 1993 1994 -------- -------- -------- -------- -------- ------------- ------------- (DOLLARS IN MILLIONS) (UNAUDITED) OPERATING DATA: Sales.................................... $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $616.6 $598.7 Gross profit............................. 204.8 265.7 520.8 484.2 469.3 112.4 103.0 Selling, general, administrative and other expenses......................... 157.8 213.1 469.7 434.9 388.8 95.7 88.1 Interest expense(c)...................... 50.8 50.1 70.2 69.8 68.3 15.7 16.0 Net loss................................. (10.1) (9.6) (33.8) (27.4) (2.7) (1.1) (3.3) Ratio of earnings to fixed charges(d).... --(d) --(d) --(d) --(d) 1.0x --(d) --(d) BALANCE SHEET DATA (end of period)(e): Working capital surplus (deficit)........ $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $(18.6) $(58.1) Total assets............................. 574.7 980.0 998.5 957.8 980.1 967.3 978.5 Total debt(f)............................ 360.7 558.9 525.3 538.1 517.9 530.6 518.8 Redeemable stock......................... 5.1 -- -- -- -- -- -- Stockholder's equity..................... 20.6 84.6 50.8 72.9 69.0 71.6 65.7 OTHER DATA: Depreciation and amortization(g)......... $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 13.1 $ 13.0 Capital expenditures..................... 36.4 34.7 60.3 53.5 57.5 6.6 16.8 Stores open at end of period............. 115 259 249 248 258 248 261 EBITDA (as defined)(h)................... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 29.0 $ 29.7 EBITDA margin(i)......................... 5.3% 5.0% 3.5% 3.9% 5.0% 4.7% 5.0%
- - --------------- (a) Operating data for the 52 weeks ended June 29, 1991 include the results of Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha Beta's sales for the two weeks ended June 29, 1991 were $59.2 million. (b) Operating data for the 52 weeks ended June 25, 1994 include the results of the Food Barn stores, which were not material from March 29, 1994, the date of the Food Barn acquisition. (c) Interest expense includes non-cash charges related to the amortization of deferred financing costs of $4.1 million for the 53 weeks ended June 30, 1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June 26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $1.2 million for the 12 weeks ended September 18, 1993 and $1.3 million for the 12 weeks ended September 17, 1994. (d) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of loss before provision for income taxes and extraordinary charges plus fixed charges. "Fixed charges" consist of interest on all indebtedness, amortization of deferred debt financing costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993 and the 12 weeks ended September 18, 1993 and September 17, 1994, by approximately $9.1 million, $3.4 million, $25.6 million, $25.9 million, $0.8 million and $2.4 million respectively. However, such earnings included non-cash charges of $29.9 million for the 53 weeks ended June 30, 1990, $37.0 million for the 52 weeks ended June 29, 1991, $61.2 million for the 52 weeks ended June 27, 1992, $62.5 million for the 52 weeks ended June 26, 1993, $14.3 million for the 12 weeks ended September 18, 1993 and $14.3 million for the 12 weeks ended September 17, 1994, primarily consisting of depreciation and amortization. (e) Balance sheet data as of June 30, 1990 relate to Food 4 Less and include the effect of the acquisition of Breco Holding Company (the "BHC Acquisition"), as well as the acquisitions of Bell Markets, Inc. and certain assets of ABC Market Corp. Balance sheet data as of June 29, 1991, June 27, 1992, June 26, 1993 and September 18, 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 and September 17, 1994 relate to Food 4 Less and reflect the acquisition of the Food Barn stores. (f) Total debt includes long-term debt, current maturities of long-term debt and capital lease obligations. (g) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994, and for the 12 weeks ended September 18, 1993 and September 17, 1994, depreciation and amortization includes amortization of excess of cost over net assets acquired of $5.3 million, $5.3 million, $7.8 million, $7.6 million, $7.7 million, $1.8 million and $1.8 million, respectively. (h) "EBITDA," as defined and presented historically by Food 4 Less, represents income before interest expense, depreciation and amortization expense, the LIFO provision, provision for income taxes, provision for earthquake losses and a one-time charge for Teamsters Union sick pay benefits. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Food 4 Less' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (i) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 21 31 RISK FACTORS Before deciding whether to participate in the applicable Exchange Offer and the Solicitation, each holder of Old F4L Notes should carefully consider the following factors, in addition to the other matters described in this Prospectus and Solicitation Statement. LEVERAGE AND DEBT SERVICE Following the consummation of the Merger and the Financing, the Company will be highly leveraged. At September 17, 1994, pro forma for the Merger and the Financing (and certain related assumptions), the Company's total indebtedness (including current maturities) and stockholder's equity would have been $1,971.7 million and $249.2 million, respectively, and the Company would have had an additional $218.2 million available to be borrowed under the New Revolving Facility. In addition, as of September 17, 1994, after giving effect to the Merger and the Financing, scheduled payments under operating leases of the Company and its subsidiaries for the twelve months following the Merger would have been $111.6 million. On the same pro forma basis, for the 52 weeks ended June 25, 1994 and the 12 weeks ended September 17, 1994, the Company's earnings before fixed charges would have been inadequate to cover fixed charges by $85.8 million and $23.2 million, respectively. However, such earnings include non-cash charges of $182.9 million and $41.8 million, respectively, primarily consisting of depreciation and amortization. At September 17, 1994, after giving effect to the Merger, the FFL Merger, the Financing and the Reincorporation Merger (and certain related assumptions), New Holdings would have had (i) $61.4 million in accreted value of Indebtedness outstanding under the Holdings Discount Notes, which will accrete to $103.6 million aggregate principal amount on December 15, 1997 and (ii) $100 million principal amount of Indebtedness outstanding under the Seller Debentures which, through payment of interest thereon with additional Seller Debentures, will increase to $187.7 million aggregate principal amount over a five-year period. The New F4L Indentures permit the Company (in the absence of a default or event of default thereunder) to pay cash dividends to New Holdings in an amount sufficient to allow New Holdings to pay interest on such Indebtedness when due. The Company's ability to make scheduled payments of the principal of, or interest on, or to refinance its Indebtedness (including the New F4L Notes) and to make scheduled payments under its operating leases depends on its future performance, which to a certain extent is subject to economic, financial, competitive and other factors beyond its control. The pro forma financial information presented in this Prospectus and Solicitation Statement is based on, among other things, the assumption that the interest rate borne by the New F4L Senior Notes and the New RGC Notes will be the respective minimum interest rates specified herein of 11% and 11.50%, respectively. In the event that the formula pricing for establishing the interest rate on the New F4L Senior Notes and the New RGC Notes results in interest rates that are higher than the respective specified minimum assumed interest rates, the Company's interest expense and deficiency of earnings to fixed charges would increase over the amounts reflected in such pro forma financial information. For a description of the effects on the pro forma financial information of varying acceptance levels in the Exchange Offers and the RGC Exchange Offers and of varying interest rates, see note (l) to the Notes to Unaudited Pro Forma Combined Statement of Operations. Based upon the current level of operations and anticipated cost savings, the Company believes that its cash flow from operations, together with borrowings under the New Revolving Facility and its other sources of liquidity (including leases), will be adequate to meet its anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments over the next several years. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that anticipated cost savings can be fully achieved. If the Company is unable to generate sufficient cash flow from operations in the future to service its debt and make necessary capital expenditures, or if its future earnings growth is insufficient to amortize all required principal payments out of internally generated funds, the Company may be required to refinance all or a portion of its existing debt, sell assets or obtain additional financing. There can be no assurance that any such refinancing or asset sales would be possible or that any additional financing could be obtained, particularly in view of the Company's high level 22 32 of debt following the Merger and the fact that substantially all of its assets will be pledged to secure the borrowings under the New Credit Facility and other secured obligations. 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 senior indebtedness and in the New F4L Indentures will require the Company to meet certain financial tests and will restrict its ability to borrow additional funds, to dispose of assets or to pay cash dividends; and (c) because of the Company's debt service requirements, funds available for working capital, capital expenditures, acquisitions and general corporate purposes, may be limited. The Company's leveraged position may increase its vulnerability to competitive pressures. The Company's continued growth depends, in part, on its ability to continue its expansion and store conversion efforts, and, therefore, its inability to finance capital expenditures through borrowed funds could have a material adverse effect on the Company's future operations. Moreover, any default under the documents governing the indebtedness of the Company could have a significant adverse effect on the market value of the New F4L Notes. ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS Management of the Company has estimated that approximately $90 million of annualized net cost savings can be achieved over a four year period as a result of integrating the operations of Ralphs and Food 4 Less. See "Business -- The Merger." The cost savings estimates have been prepared solely by members of the management of each company. The estimates necessarily make numerous assumptions as to future sales levels and other operating results, the availability of funds for capital expenditures as well as general industry and business conditions and other matters, many of which are beyond the control of the Company. Several of the cost savings estimates are premised on the assumption that certain levels of efficiency presently maintained by either Food 4 Less or Ralphs can be achieved by the combined Company following the Merger. Other estimates are based on a management consensus as to what levels of purchasing and similar efficiencies should be achievable by an entity the size of the Company. Certain of the estimates relating to the consolidation of warehousing and distribution facilities assume the completion of certain capital expenditures to expand the capacity of the continuing facilities. It is anticipated that $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over the four year period following the Merger, without which the estimated cost savings may not be fully achievable. Management expects that the non-recurring integration costs will effectively offset any cost savings in the first year following the Merger. Because the assumptions underlying the cost savings estimates are numerous and detailed, management believes that it would be impractical to specify all such assumptions in this Prospectus and Solicitation Statement. However, management also believes that all such assumptions are reasonable in light of existing business conditions and prospects. Investors are cautioned that the actual cost savings realized by the Company may vary considerably from the estimates contained herein and that undue reliance should not be placed upon such estimates. There also can be no assurance that unforeseen costs and expenses or other factors will not offset the projected cost savings in whole or in part. REGIONAL ECONOMIC CONDITIONS Following the consummation of the Merger, a substantial percentage of the Company's business (representing approximately 90% of pro forma sales) will be conducted in Southern California. Southern California began to experience a significant economic downturn in 1991 and has only recently begun a mild recovery. The economy in Southern California has been affected by substantial job losses in the defense and aerospace industries and other adverse economic trends. These adverse regional economic conditions have resulted in declining sales levels at Ralphs and Food 4 Less in recent periods. For the 52 weeks ended June 25, 1994, and the 52 weeks ended January 30, 1994, Food 4 Less and Ralphs experienced 6.9% and 5.8% declines, respectively, in comparable store sales as compared with the comparable period in the prior year, primarily 23 33 reflecting the weak economy in Southern California, lower levels of price inflation in certain food product categories, and increased competitive store openings in Southern California. For the 12 weeks ended September 17, 1994 and the 36 weeks ended October 9, 1994, Food 4 Less and Ralphs experienced 5.8% and 3.8% declines, respectively, in comparable store sales. Although the declines in comparable store sales have begun to moderate in recent months, and management believes that sales trends will continue to be favorable, there can be no assurance that this trend will continue or that substantial future declines in same store sales will not occur. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION The supermarket industry is highly competitive and characterized by narrow profit margins. The Company's competitors in each of its operating divisions include national and regional supermarket chains, independent and specialty grocers, drug and convenience stores, and the newer "alternative format" food stores, including warehouse club stores, deep discount drug stores and "super centers." Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. The Company regularly monitors its competitors' prices and adjusts its prices and marketing strategy as management deems appropriate in light of existing conditions. Some of the Company's competitors have greater financial resources than the Company and could use these resources to take steps which could adversely affect the Company's competitive position. See "Business -- Competition." CORPORATE STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES Following the consummation of the Merger, a significant portion of the Company's operating income will be generated by its subsidiaries. As a result, the Company will rely on distributions or advances from its subsidiaries to provide a portion of the funds necessary to meet its debt service obligations, including the payment of principal and interest on the New F4L Notes. Should the Company fail to satisfy any payment obligation under the New F4L Notes, the holders would have a direct claim therefor against the Subsidiary Guarantors pursuant to their Guarantees (as defined). However, the capital stock of, and substantially all of the assets of, the Subsidiary Guarantors will be pledged to secure the obligations of the Company and such subsidiaries under the New Credit Facility and other secured obligations. The New F4L Indentures will limit, but not prohibit, the ability of the Company and its subsidiaries to incur additional secured indebtedness. In the event of a default under the New Credit Facility (or any other secured indebtedness), the lenders thereunder would be entitled to a claim on the assets securing such indebtedness which is prior to any claim of the holders of the New F4L Notes. Accordingly, there may be insufficient assets remaining after payment of prior secured claims (including claims of lenders under the New Credit Facility) to pay amounts due on the New F4L Notes. In addition, if a court were to avoid the Guarantees under fraudulent conveyance laws or other legal principles or, by the terms of such Guarantees, the obligations thereunder were reduced as necessary to prevent such avoidance, or the Guarantees were released, the claims of other creditors of the Subsidiary Guarantors, including trade creditors, would to such extent have priority as to the assets of such Subsidiary Guarantors over the claims of the holders of the New F4L Notes. The Guarantees of the New F4L Notes by any Subsidiary Guarantor will be released upon the sale of such Subsidiary Guarantor or upon the release by the lenders under the New Credit Facility of such Subsidiary Guarantor's Guarantee of the Company's obligation under the New Credit Facility. The New F4L Indentures limit the ability of the Company and its subsidiaries to incur additional indebtedness and to enter into agreements that would restrict the ability of any subsidiary to make distributions, loans or other payments to the Company. However, these limitations are subject to certain exceptions. See "-- Fraudulent Conveyance Risks" and "Description of the New F4L Notes." CONTROL OF THE COMPANY Following completion of the Merger, the FFL Merger and the Reincorporation Merger, all of the Company's outstanding common stock will be held by New Holdings. Pro forma for the Merger and certain related events, affiliates of Yucaipa and Apollo will have beneficial ownership of approximately 37.1% and 24 34 33.1%, respectively, of the outstanding capital stock of New Holdings. Pursuant to a new stockholders' agreement (the "1995 Stockholders Agreement") which will be entered into by the New Equity Investors and certain current FFL stockholders and Holdings warrantholders, upon completion of the Merger, New Holdings and the Company will have boards consisting of nine and ten members, respectively, and (i) Yucaipa will have the right to elect six directors to the board of New Holdings and seven directors to the board of the Company, (ii) Apollo will have the right to elect two directors to the board of each of New Holdings and the Company, and (iii) the other New Equity Investors will have the right to elect one director to the board of each of New Holdings and the Company. Under the 1995 Stockholders Agreement, unless and until New Holdings has effected an initial public offering of its equity securities meeting certain criteria, New Holdings and its subsidiaries, including the Company, may not take certain actions without the approval of at least two of the three New Holdings directors which the New Equity Investors are entitled to elect, including but not limited to certain mergers, sale transactions, transactions with affiliates, issuances of capital stock and payments of dividends on or repurchases of capital stock. As a result of the ownership structure of the Company and the contractual rights described above, the voting and management control of the Company is highly concentrated. Yucaipa, acting with the consent of Apollo, has the ability to direct the actions of the Company with respect to matters such as the payment of dividends, material acquisitions and dispositions and other extraordinary corporate transactions. Yucaipa will be a party to a consulting agreement with the Company, pursuant to which Yucaipa will render certain management and advisory services to the Company, and will receive fees for such services. Yucaipa will also receive certain fees in connection with the consummation of the Merger, including a $24 million advisory fee payable upon the closing of the Merger. In addition, as a result of the Merger, certain officers and former officers of Ralphs will redeem the EARs for $22.8 million in cash and will cancel certain options to purchase common stock of RSI for $880,000. An additional $10 million of EARs, however, will be reinvested in New Holdings by such officers and former officers. Yucaipa will also be reimbursed for (i) any losses incurred upon the resale of the $10 million principal amount of Seller Debentures which may be put to it pursuant to the Put Agreement and (ii) its expenses in connection with the Merger and the related transactions. In addition, on the Closing Date the Company and EJDC will enter into a Consulting Agreement, pursuant to which EJDC will act as a consultant to the Company with respect to certain real estate and general commercial matters for a period of five years from the Closing Date in exchange for the payment of a one-time consulting fee of $9 million. See "Certain Relationships and Related Transactions," "Principal Stockholders" and "Description of Capital Stock." SUBORDINATION OF THE NEW F4L SENIOR SUBORDINATED NOTES The payment of principal, premium, if any, and interest on, and any other amounts owing in respect of, the New F4L Senior Subordinated Notes will be subordinated to the prior payment in full of all existing and future Senior Indebtedness, including indebtedness under the New Credit Facility and the F4L Senior Notes. Each Subsidiary Guarantor's Guarantee will also be subordinated in right of payment to Senior Indebtedness of the Subsidiary Guarantors ("Guarantor Senior Indebtedness"). Guarantor Senior Indebtedness will include all existing and future indebtedness not expressly subordinated to other indebtedness, including indebtedness represented by the Guarantee of such Subsidiary Guarantor under the New Credit Facility and the F4L Senior Notes. As of September 17, 1994, on a pro forma basis, after giving effect to the Merger and the Financing (and certain related assumptions), the aggregate outstanding amount of Senior Indebtedness of the Company (excluding Company Guarantees of certain Guarantor Senior Indebtedness) would have been approximately $1,554.8 million and the aggregate outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding Guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would have been approximately $16.0 million and the Company would have had $218.2 million available to be borrowed under the New Revolving Facility. The New F4L Senior Subordinated Note Indenture will limit, but not prohibit, the issuance by the Subsidiary Guarantors of additional indebtedness which is Guarantor Senior Indebtedness. See "Description of the New F4L Notes -- Guarantees." In the event of the bankruptcy, liquidation, dissolution, reorganization or other winding up of the Company, the assets of the Company will be available to pay obligations on the New F4L Senior Subordinated Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the New F4L Senior Subordinated Notes. In addition, under certain 25 35 circumstances, the Company may not pay principal of, premium, if any, or interest on, or any other amounts owing in respect of, the New F4L Senior Subordinated Notes, or purchase, redeem or otherwise retire the New F4L Senior Subordinated Notes, if a payment default or a non-payment default exists with respect to certain Senior Indebtedness and, in the case of a non-payment default, a payment blockage notice has been received by the New F4L Senior Subordinated Note Trustee (as defined). See "Description of the New F4L Notes -- Subordination of the New F4L Senior Subordinated Notes." FRAUDULENT CONVEYANCE RISKS Various fraudulent conveyance laws have been enacted for the protection of creditors and may be utilized by a court to subordinate or avoid the New F4L Notes or any Guarantee in favor of other existing or future creditors of the Company or a Subsidiary Guarantor. If a court in a lawsuit on behalf of any unpaid creditor of the Company or a representative of the Company's creditors were to find that, at the time the Company issued the New F4L Senior Notes or the New F4L Senior Subordinated Notes, the Company (x) intended to hinder, delay or defraud any existing or future creditor or contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (y) did not receive fair consideration or reasonably equivalent value for issuing such New F4L Notes and the Company (i) was insolvent, (ii) was rendered insolvent by reason of such distribution, (iii) was engaged or about to engage in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court could void such New F4L Notes and void such transactions. Alternatively, in such event, claims of the holders of such New F4L Notes could be subordinated to claims of the other creditors of the Company. The Company's obligations under the New F4L Notes will be guaranteed by the Subsidiary Guarantors. To the extent that a court were to find that (x) a Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay or defraud any present or future creditor or the Subsidiary Guarantor contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (y) such Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for issuing its Guarantee and such Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the issuance of such Guarantee, (iii) was engaged or about to engage in a business or transaction for which the remaining assets of such Subsidiary Guarantor constituted unreasonably small capital to carry on its business, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, the court could void or subordinate such Guarantee in favor of the Subsidiary Guarantor's creditors. Among other things, a legal challenge of a Guarantee on fraudulent conveyance grounds may focus on the benefits, if any, realized by the Subsidiary Guarantor as a result of the issuance by the Company of the applicable New F4L Notes. To the extent any Guarantees were avoided as a fraudulent conveyance or held unenforceable for any other reason, holders of the New F4L Notes would cease to have any claim in respect of such Subsidiary Guarantor and would be creditors solely of the Company and any Subsidiary Guarantor whose Guarantee was not avoided or held unenforceable. In such event, the claims of the holders of the applicable New F4L Notes against the issuer of an invalid Guarantee would be subject to the prior payment of all liabilities and preferred stock claims of such Subsidiary Guarantor. There can be no assurance that, after providing for all prior claims and preferred stock interests, if any, there would be sufficient assets to satisfy the claims of the holders of the applicable New F4L Notes relating to any voided portions of any of the Guarantees. Based upon financial and other information currently available to it, management of the Company believes that the New F4L Notes and the Guarantees are being incurred for proper purposes and in good faith and that the Company and each Subsidiary Guarantor (i) is solvent and will continue to be solvent after issuing the New F4L Notes or its Guarantees, as the case may be, (ii) will have sufficient capital for carrying on its business after such issuance, and (iii) will be able to pay its debts as they mature. See "Management's Discussions and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 26 36 ABSENCE OF ESTABLISHED PUBLIC MARKET FOR THE NEW F4L NOTES There are no established markets for the New F4L Notes and there can be no assurance as to the liquidity of any markets that may develop for the New F4L Notes, the ability of holders of the New F4L Notes to sell their New F4L Notes, or the price at which holders would be able to sell their New F4L Notes. Future trading prices of the New F4L Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. The Dealer Managers have advised the Company that they currently intend to make a market in the New F4L Notes. However, the Dealer Managers are not obligated to do so and any market-making may be discontinued at any time without notice. POTENTIAL ADVERSE EFFECTS OF THE EXCHANGE OFFERS AND THE SOLICITATION ON HOLDERS OF UNTENDERED OLD F4L NOTES There currently is a limited trading market for the Old F4L Notes, which from time to time trade in the over-the-counter market. See "Market Prices of the Old F4L Notes." To the extent that Old F4L Notes are tendered and accepted for exchange in the Exchange Offers the trading market for the remaining Old F4L Notes may become even more limited. A debt security with a smaller outstanding principal amount available for trading (a smaller "float") may command a lower price than would a comparable debt security with a greater float. Therefore, the market price for the Old F4L Notes not exchanged may be adversely affected to the extent that the principal amount of the Old F4L Notes tendered pursuant to the Exchange Offers reduces the float. The reduced float may also tend to make the trading price more volatile. Holders of unexchanged Old F4L Notes may attempt to obtain quotations for the Old F4L Notes from their brokers; however, there can be no assurance that any trading market will exist for the Old F4L Notes following consummation of the Exchange Offers. The extent of the public market for the Old F4L Notes following consummation of the Exchange Offers will depend upon, among other things, the remaining outstanding principal amount of the Old F4L Notes after the Exchange Offers, the number of holders remaining at such time and the interest in maintaining a market in the Old F4L Notes on the part of securities firms. EFFECT OF THE PROPOSED AMENDMENTS ON HOLDERS THAT DO NOT EXCHANGE If the Exchange Offers are consummated and the Proposed Amendments become operative, holders of Old F4L Notes that are not exchanged pursuant to the Exchange Offers for any reason will no longer be entitled to the benefits of certain of the restrictive covenants contained in the Old F4L Indentures after they have been modified by the Proposed Amendments. The modification of the restrictive covenants would permit the Company to take actions that could increase the credit risks with respect to the Company faced by such holders or that could otherwise be adverse to the interest of such holders. See "The Proposed Amendments." 27 37 THE MERGER AND THE FINANCING On September 14, 1994, Food 4 Less and its parent company, Holdings, and FFL entered into the Merger Agreement with RSI and the stockholders of RSI. Pursuant to the terms of the Merger Agreement, Food 4 Less will, subject to certain conditions being satisfied or waived, be merged with and into RSI pursuant to the RSI Merger. Immediately following the RSI Merger, RGC, which is currently a wholly-owned subsidiary of RSI, will merge with and into RSI pursuant to the RGC Merger, and RSI will change its name to Ralphs Grocery Company. Prior to the Merger, FFL will merge with and into Holdings which will be the surviving corporation in the FFL Merger. Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging into a newly-formed, wholly-owned subsidiary, New Holdings, incorporated in Delaware, pursuant to the Reincorporation Merger. As a result of the Merger, the FFL Merger and the Reincorporation Merger, the Company will become a wholly-owned subsidiary of New Holdings. Upon consummation of the RSI Merger and RGC Merger, the New F4L Notes and any outstanding Old F4L Notes not tendered into the Exchange Offers will be the obligations of the Company. Conditions to the consummation of the RSI Merger include the receipt of regulatory approvals and other necessary consents and completion of financing. The purchase price for RSI is approximately $1.5 billion, including the assumption of debt. The consideration payable to the stockholders of RSI consists of $425 million in cash and $100 million principal amount of the Seller Debentures to be issued by New Holdings. New Holdings will use $150 million of cash received from the New Equity Investment, together with $100 million principal amount of the Seller Debentures, to acquire approximately 48% of the capital stock of RSI immediately prior to consummation of the RSI Merger. New Holdings will then contribute the $250 million of purchased shares of RSI stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of RSI stock will be acquired for $275 million in cash. Pursuant to an agreement (the "Put Agreement") entered into in connection with the execution of the Merger Agreement, the Edward J. DeBartolo Corporation, an Ohio corporation ("EJDC"), which currently owns approximately 60.3% of the outstanding common stock of RSI, will have the right to put to Yucaipa, which controls Food 4 Less, on the closing date of the Merger (the "Closing Date"), up to $10 million aggregate principal amount of Seller Debentures acquired by EJDC in connection with the Merger, at a purchase price equal to their principal amount. Yucaipa also will be reimbursed for (i) any losses incurred upon the resale of the $10 million principal amount of Seller Debentures which may be put to it pursuant to the Put Agreement and (ii) its expenses in connection with the Merger and the related transactions. In addition, on the Closing Date the Company and EJDC will enter into a Consulting Agreement, pursuant to which EJDC will act as a consultant to the Company with respect to certain real estate and general commercial matters for a period of five years from the Closing Date in exchange for the payment of a consulting fee of $9 million. The Merger Agreement, as amended, provides that, in the event that the Merger closes after March 15, 1995, Food 4 Less will pay the stockholders of RSI interest on the aggregate purchase price of $525 million at a rate equal to the prime rate plus 1%. The Merger Agreement may be terminated by the parties if the Merger has not been consummated on or prior to March 31, 1995. As currently contemplated, the Merger will be financed through the following transactions: - Borrowings of up to $750 million aggregate principal amount pursuant to the New Term Loans under the New Credit Facility to be provided by a syndicate of banks led by Bankers Trust. The New Credit Facility will also provide for the $325 million New Revolving Facility, $18.4 million of which is anticipated to be drawn at closing. - The issuance of up to $400 million of New F4L Senior Notes pursuant to the Public Offering. - The issuance of preferred stock in a private placement by New Holdings to a group of investors led by Apollo and including affiliates of BT Securities, CS First Boston and DLJ and other institutional investors, yielding cash proceeds of $150 million pursuant to the New Equity Investment. Concurrently with the New Equity Investment, the New Equity Investors will purchase outstanding shares of New Holdings capital stock from a stockholder of New Holdings for a purchase price of $57.8 million. See "Description of Capital Stock -- New Equity Investment." - The exchange by Food 4 Less pursuant to the RGC Exchange Offers of (a) up to $450 million aggregate principal amount of the Old RGC Notes for up to $450 million aggregate principal amount of the New RGC Notes plus $10.00 in cash per $1,000 principal amount exchanged, together with the 28 38 solicitation of consents from the holders of the Old RGC Notes to certain amendments to the Old RGC Indentures. It is a condition to the RGC Exchange Offers that at least 80% of the outstanding principal amount of the Old RGC Notes are exchanged pursuant to the RGC Exchange Offers. - The Exchange Offers made hereunder to holders of Old F4L Notes to tender for exchange such Old F4L Notes for New F4L Notes and the Exchange Payment, together with the solicitation of consents from such holders to the Proposed Amendments to the Old F4L Indentures. - The purchase by New Holdings of approximately 48% of the outstanding common stock of RSI for an aggregate consideration of $250 million, consisting of the proceeds of the New Equity Investment and $100 million principal amount of the Seller Debentures followed by the contribution of such common stock of RSI to Food 4 Less. Pursuant to the RSI Merger the remaining shares of RSI stock will be acquired for $275 million in cash. - The assumption by the Company, pursuant to the RGC Merger, of approximately $160.2 million of other indebtedness of RGC and Food 4 Less. - The solicitation of certain consents pursuant to the Holdings Consent Solicitation from the holders of the Holdings Discount Notes to certain amendments to the Holdings Discount Note Indenture. The following table illustrates the sources and uses of funds to consummate the Merger, assuming the transaction occurs as of March 1, 1995. This presentation assumes that $360 million principal amount of Old RGC Notes is tendered into the RGC Exchange Offers and $256 million principal amount of Old F4L Notes is tendered into the Exchange Offers, in each case representing 80% of the outstanding aggregate principal amount of such securities. The presentation also assumes that the remaining $90 million of Old RGC Notes not tendered into the RGC Exchange Offers are repurchased after the Closing Date pursuant to the Change of Control Offer. Although management believes such assumptions are reasonable under the circumstances, actual sources and uses may differ from those set forth below depending upon the outcome of the RGC Exchange Offers and the Exchange Offers. SOURCES AND USES (in millions) CASH SOURCES CASH USES - - --------------------------------------------- --------------------------------------------- New Term Loans(a).................. $ 750.0 Purchase RSI Common Stock(g)....... $ 425.9 New Revolving Facility(b).......... 18.4 Purchase Old RGC Notes(h).......... 90.9 Repay Ralphs 1992 Credit New F4L Senior Notes(c)............ 400.0 Agreement.......................... 291.0 New Equity Investment(d)........... 150.0 Repay F4L Credit Agreement......... 165.7 Pay Accrued Interest(i)............ 20.7 Pay EAR Liability(j)............... 22.8 Repay Mortgage Indebtedness(k)..... 186.7 Fees and Expenses(l)............... 114.7 -------- Total Cash Sources............ $1,318.4 Total Cash Uses.................... $1,318.4 ======= ======= NON-CASH SOURCES NON-CASH USES - - --------------------------------------------- --------------------------------------------- New F4L Senior Notes(e)............ $ 140.0 Old F4L Senior Notes Exchanged..... $ 140.0 Assumed Old F4L Senior Notes....... 35.0 Assumed Old F4L Senior Notes....... 35.0 New F4L Senior Subordinated Old F4L Senior Subordinated Notes Notes............................ 116.0 Exchanged.......................... 116.0 Assumed Old F4L Senior Subordinated Assumed Old F4L Senior Subordinated Notes............................ 29.0 Notes............................ 29.0 New RGC Notes...................... 360.0 Old RGC Notes Exchanged............ 360.0 Assumed Capital Leases and Other Assumed Capital Leases and Other Debt............................. 160.2 Debt............................... 160.2 Seller Debentures(e)............... 100.0 Purchase RSI Common Stock(f)....... 100.0 -------- -------- Total Non-Cash Sources........ $ 940.2 Total Non-Cash Uses................ $ 940.2 ======= =======
29 39 - - --------------- (a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to which Bankers Trust has agreed, subject to certain conditions, to provide the Company up to a maximum aggregate amount of $1,075 million of financing under the New Credit Facility. It is anticipated that the New Credit Facility will be syndicated to a number of financial institutions for whom Bankers Trust will act as agent. The New Credit Facility will provide for (i) the New Term Loans in the aggregate amount of up to $750 million, comprised of the $375 million Tranche A Loan, the $125 million Tranche B Loan, the $125 million Tranche C Loan, and the $125 million Tranche D Loan, and (ii) the $325 million New Revolving Facility. See "Description of the New Credit Facility." (b) The New Revolving Facility will provide for a $325 million line of credit which will be available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support standby letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the New Revolving Facility. The Company anticipates that letters of credit for approximately $101 million will be issued under the New Revolving Facility at closing, in replacement of existing letters of credit, primarily to satisfy the State of California's requirements relating to workers compensation self-insurance. (c) Represents New F4L Senior Notes issued pursuant to the Public Offering. If Food 4 Less receives tenders in excess of the Minimum Tender in the RGC Exchange Offers, Food 4 Less may elect to decrease the amount of New F4L Senior Notes being offered pursuant to the Public Offering. (d) Does not include the $10 million equity contribution by Ralphs management. See note (j) below. Concurrently with the New Equity Investment, certain existing stockholders of New Holdings (formerly stockholders of FFL), including affiliates of George Soros, will sell outstanding shares of New Holdings stock to CLH, which in turn will sell such shares to the New Equity Investors for an aggregate purchase price of $57.8 million (which represents the same price per share as will be paid in the New Equity Investment). In connection with the New Equity Investment, the New Equity Investors will contribute the common stock so acquired to New Holdings in consideration for newly-issued, preferred shares. See "Description of Capital Stock -- New Equity Investment." (e) Represents New F4L Senior Notes issued pursuant to the F4L Senior Notes Exchange Offer, which will be part of the same issue as the New F4L Senior Notes issued pursuant to the Public Offering. (f) In connection with the RSI Merger, New Holdings will issue $100 million principal amount of the Seller Debentures as part of the purchase price for the RSI common stock, up to $10 million of which may be put to Yucaipa on the Closing Date at a purchase price equal to their principal amount pursuant to the Put Agreement. In addition, Yucaipa will be reimbursed by the Company for (i) any losses incurred upon the resale of the $10 million principal amount of Seller Debentures which may be put to it pursuant to the Put Agreement and (ii) its expenses in connection with the Merger and the related transactions. See "Certain Relationships and Related Transactions -- Food 4 Less." (g) Includes $425 million to be paid in cash to stockholders of RSI and $0.9 million to be paid in cash to holders of RSI management stock options. See "Executive Compensation -- New Management Stock Option Plan and Management Investment." (h) Represents purchase of Old RGC Notes tendered pursuant to the Change of Control Offer, which will occur up to 90 days following the Merger. A portion of the proceeds of the Public Offering will be available to fund the purchase of Old RGC Notes pursuant to the Change of Control Offer. To the extent that any such Old RGC Notes are not tendered pursuant to the Change of Control Offer, any excess proceeds from the Public Offering will be used to repay borrowings under the New Credit Facility. (i) Represents accrued interest payable on all debt securities assumed to be tendered in the RGC Exchange Offers and the Exchange Offers. (j) Represents payments to Ralphs management with respect to the cancellation of outstanding EARs in connection with the Merger. Ralphs management will receive New Holdings stock options in exchange for the cancellation of the remaining EAR liability of $10 million. See "Executive Compensation -- Equity Appreciation Rights Plan." (k) Represents the repayment of outstanding mortgage indebtedness of Ralphs in the principal amount of $174.4 million, plus the estimated amount of the prepayment fees payable with respect thereto. (l) Includes an advisory fee of $24 million to be paid to Yucaipa upon the closing of the Merger. See "Certain Relationships and Related Transactions -- Food 4 Less." For additional information, see "Description of the New Credit Facility," "The RGC Exchange Offers and the Public Offering" and "Description of Holding Company Indebtedness." 30 40 PRO FORMA CAPITALIZATION The following table sets forth the pro forma combined capitalization of the Company as of September 17, 1994, adjusted to give effect to the Merger and the Financing (and certain related assumptions) and the application of the proceeds therefrom. This presentation assumes that $360 million principal amount of Old RGC Notes is tendered into the RGC Exchange Offers, and $256 million principal amount of Old F4L Notes is tendered into the Exchange Offers. The presentation also assumes that the remaining $90 million of Old RGC Notes not tendered into the RGC Exchange Offers are repurchased after the Closing Date pursuant to the Change of Control Offer. The table should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and the historical consolidated financial statements of Ralphs and Food 4 Less and related notes thereto included elsewhere in this Prospectus and Solicitation Statement.
PRO FORMA CAPITALIZATION -------------- (IN MILLIONS) Cash................................................................ $ 62.7 ======== Short-term and current portion of long-term debt: New Term Loans.................................................... $ 3.8 Other indebtedness................................................ 21.5 -------- Total short-term and current portion of long-term debt..... $ 25.3 ======== Long-term debt: New Term Loans(a)................................................. $ 746.2 New Revolving Facility(b)......................................... 5.8 Other indebtedness................................................ 114.4 New F4L Senior Notes(c)........................................... 540.0 Old F4L Senior Notes.............................................. 35.0 New RGC Notes(d).................................................. 360.0 New F4L Senior Subordinated Notes................................. 116.0 Old F4L Senior Subordinated Notes................................. 29.0 -------- Total long-term debt....................................... 1,946.4 --------- Stockholder's equity: Common stock, $.01 par value...................................... 0.0 Additional paid-in capital........................................ 424.1 Notes receivable(e)............................................... (0.6) Retained deficit.................................................. (171.8) Treasury stock.................................................... (2.5) -------- Total stockholder's equity...................................... 249.2 -------- Total capitalization....................................... $2,195.6 ========
- - --------------- (a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to which Bankers Trust has agreed, subject to certain conditions, to provide the Company up to a maximum aggregate amount of $1,075 million of financing under the New Credit Facility. It is anticipated that the New Credit Facility will be syndicated to a number of financial institutions for whom Bankers Trust will act as agent. The New Credit Facility will provide for (i) the New Term Loans in the aggregate amount of up to $750 million, comprised of the $375 million Tranche A Loan, the $125 million Tranche B Loan, the $125 million Tranche C Loan and the $125 million Tranche D Loan, and (ii) the $325 million New Revolving Facility. See "Description of the New Credit Facility." (b) The New Revolving Facility will provide for a $325 million line of credit which will be available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support standby letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the New Revolving Facility. The Company anticipates that letters of credit for approximately $101 million will be issued under the New Revolving Facility at closing, in replacement of existing letters of credit, primarily to satisfy the State of California's requirements relating to workers' compensation self-insurance. (c) Includes New F4L Senior Notes issued pursuant to both the Public Offering and the F4L Senior Notes Exchange Offer. (d) In accordance with the terms of the Old RGC Indentures, holders of Old RGC Notes not exchanged for New RGC Notes pursuant to the RGC Exchange Offers will be entitled to have such Old RGC Notes repurchased by the Company pursuant to the Change of Control Offer, which will occur up to 90 days following the Merger. A portion of the proceeds of the Public Offering will be available to fund the purchase of Old RGC Notes pursuant to the Change of Control Offer. To the extent that any such Old RGC Notes are not tendered pursuant to the Change of Control Offer, any excess proceeds from the Public Offering will be used to repay borrowings under the New Credit Facility. (e) Represents notes receivable from shareholders of Holdings with respect to the purchase of Holdings' common stock. See "Executive Compensation -- Food 4 Less Stock Plan." 31 41 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements of the Company for the 52 weeks ended June 25, 1994 and as of and for the 12 weeks ended September 17, 1994, give effect to the Merger and the Financing (and certain related assumptions set forth below) and the application of the proceeds therefrom as if such transactions occurred on June 27, 1993, with respect to the pro forma operating and other data, and as of September 17, 1994, with respect to the pro forma balance sheet data. Such pro forma information combines the results of operations of Food 4 Less for the 52 weeks ended June 25, 1994 and the results of operations and balance sheet data as of and for the 12 weeks ended September 17, 1994, with the results of operations of Ralphs for the 52 weeks ended July 17, 1994 and the results of operations and balance sheet data as of and for the 12 weeks ended October 9, 1994, respectively. For information regarding the Merger and the Financing, see "The Merger and the Financing." The pro forma adjustments are based upon the assumption that all conditions to the consummation of the Exchange Offers are satisfied, including the following: (i) $360 million aggregate principal amount of Old RGC Notes are tendered into the RGC Exchange Offers and (ii) $256 million aggregate principal amount of Old F4L Notes are tendered into the Exchange Offers. The presentation also assumes that the remaining $90 million of Old RGC Notes not tendered into the RGC Exchange Offers are repurchased following the Closing Date pursuant to the Change of Control Offer and that $400 million principal amount of New F4L Senior Notes are issued pursuant to the Public Offering. In addition, the unaudited pro forma combined financial statements have been prepared based upon the assumption that upon consummation of the Merger, the Company will divest or close 32 stores. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable. The Merger will be accounted for by the Company as a purchase of Ralphs by Food 4 Less and Ralphs' assets and liabilities will be recorded at their estimated fair market values at the date of the Merger. The adjustments included in the unaudited pro forma combined financial statements represent the Company's preliminary determination of these adjustments based upon available information. There can be no assurance that the actual adjustments will not differ significantly from the pro forma adjustments reflected in the pro forma financial information. The unaudited pro forma combined financial statements are not necessarily indicative of either future results of operations or results that might have been achieved if the foregoing transactions had been consummated as of the indicated dates. The unaudited pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements of Food 4 Less and Ralphs, together with the related notes thereto, included elsewhere in this Prospectus and Solicitation Statement. 32 42 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (DOLLARS IN MILLIONS)
52 WEEKS ENDED -------------------------- RALPHS FOOD 4 LESS (HISTORICAL) (HISTORICAL) (UNAUDITED) (AUDITED) JULY 17, JUNE 25, PRO FORMA PRO FORMA 1994 1994 ADJUSTMENTS COMBINED ----------- ------------ ----------- --------- Sales........................................... $2,709.7 $2,585.2 $(241.4)(a) $5,053.5 Cost of sales................................... 2,076.3 2,115.9 (194.7)(a) 4,005.3 4.2(b) 2.8(c) 0.8(d) -------- -------- ------- -------- Gross profit............................... 633.4 469.3 (54.5) 1,048.2 Selling, general and administrative expenses.... 465.9 388.8 (36.4)(a) 829.9 8.1(b) 1.4(d) 1.6(e) 0.5(f) Amortization of excess cost over net assets acquired...................................... 11.0 7.7 11.0(g) 29.7 Provision for restructuring..................... 2.4 0.0 -- 2.4 Provision for postretirement benefits........... 3.2 0.0 -- 3.2 -------- -------- ------- -------- Operating income........................... 150.9 72.8 (40.7) 183.0 Other expenses: Interest expense -- cash(l)................... 93.2 57.0 74.4(h) 224.6 Interest expense -- non-cash(l)............... 9.4 5.8 -- 15.2 Amortization of debt issuance costs(l)........ 6.4 5.5 (0.2)(h) 11.7 Loss on disposal of assets.................... 1.8 -- -- 1.8 Provision for earthquake loss................. 11.0 4.5 -- 15.5 -------- -------- ------- -------- Earnings (loss) before income tax provision................................ 29.1 (0.0) (114.9) (85.8) Income tax expense (benefit).................... (108.0) 2.7 105.3(i) -- -------- -------- ------- -------- Net earnings (loss)(o)..................... $ 137.1 $ (2.7) $(220.2) $ (85.8) ======== ======== ======= ======== Preferred stock accretion....................... -- 8.8 (8.8)(j) -- Earnings (loss) applicable to common shares................................... $ 137.1 $ (11.5) $(211.4) $ (85.8) ======== ======== ======= ======== Ratio of earnings to fixed charges(k)(l)... 1.2x 1.0x -- ======== ======== ======= ======== Other Data: EBITDA(as defined)(m)(p)...................... $ 228.1 $ 130.5 $ (16.1)(n) $ 342.5 EBITDA margin(o).............................. 8.4% 5.0% 6.8%
See Notes to Unaudited Pro Forma Combined Statement of Operations. 33 43 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- CONTINUED (DOLLARS IN MILLIONS)
12 WEEKS ENDED --------------------------- RALPHS FOOD 4 LESS (HISTORICAL) (HISTORICAL) (UNAUDITED) (UNAUDITED) OCTOBER 9, SEPTEMBER 17, PRO FORMA PRO FORMA 1994 1994 ADJUSTMENTS COMBINED ----------- ------------- ----------- --------- Sales.......................................... $615.4 $598.7 $(53.3)(a) $1,160.8 Cost of sales.................................. 476.6 495.7 (44.4)(a) 929.2 1.0(b) 0.0(c) 0.3(d) ------ ------ ------ -------- Gross profit.............................. 138.8 103.0 (10.2) 231.6 Selling, general and administrative expenses... 104.8 88.1 (8.2)(a) 187.6 1.9(b) 0.5(d) 0.4(e) 0.1(f) Amortization of excess cost over net assets acquired..................................... 2.6 1.8 2.6(g) 7.0 Provision for restructuring.................... 0.0 0.0 -- 0.0 Provision for postretirement benefits.......... 0.6 0.0 -- 0.6 ------ ------ ------ -------- Operating income.......................... 30.8 13.1 (7.5) 36.4 Other expenses: Interest expense -- cash(l).................. 22.3 13.4 17.6(h) 53.3 Interest expense -- non-cash(l).............. 2.0 1.3 -- 3.3 Amortization of debt issuance costs(l)....... 1.4 1.3 0.0(h) 2.7 Loss (gain) on disposal of assets............ 0.8 (0.5) -- 0.3 Provision for earthquake loss................ 0.0 0.0 -- 0.0 ------ ------ ------ -------- Earnings (loss) before income tax provision............................... 4.3 (2.4) (25.1) (23.2) Income tax expense (benefit)................... 0.0 0.9 (0.9)(i) 0.0 ------ ------ ------ -------- Net earnings (loss)(o).................... $ 4.3 $ (3.3) $(24.2) $ (23.2) ====== ====== ====== ======== Preferred stock accretion...................... -- 2.4 (2.4)(j) -- Earnings (loss) applicable to common shares.................................. $ 4.3 $ (5.7) $(21.8) $ (23.2) ====== ====== ====== ======== Ratio of earnings to fixed charges(k)(l)........................... 1.1x -- -- ====== ====== ====== ======== Other Data: EBITDA (as defined)(m)(p).................... $ 52.0 $ 29.7 $ (2.2)(n) $ 79.5 EBITDA margin(o)............................. 8.5% 5.0% 6.9%
See Notes to Unaudited Pro Forma Combined Statement of Operations. 34 44 NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (a) Reflects the anticipated closing or divestiture of 32 stores. Does not give effect to the closure of 2 Food 4 Less stores open at October 1, 1994 which were closed subsequent to September 17, 1994. Food 4 Less has determined that there is no impairment on existing goodwill related to the store closures based on its projections of future undiscounted cash flows. (b) Represents the additional depreciation expense associated with the purchase price allocation to property, plant and equipment of $160.0 million based on the current estimate of fair market value. Property, plant and equipment is being depreciated over an average useful life of 13 years. Depreciation expense has been allocated among cost of sales and selling, general and administrative expenses. (c) Reflects the elimination of Ralphs historical LIFO provision. (d) Reflects depreciation expense associated with approximately $36.8 million of additional fixed assets required for the conversion of 23 Ralphs stores to the Food 4 Less warehouse format and 122 Alpha Beta, Boys and Viva stores to the Ralphs format. (e) Reflects additional Yucaipa management fees ($2.0 million for the 52 weeks ended June 25, 1994 and $0.5 million for the 12 weeks ended September 17, 1994) and the elimination of an annual guarantee fee ($0.4 million for the 52 weeks ended June 25, 1994 and $0.1 million for the 12 weeks ended September 17, 1994) paid by Ralphs to EJDC. (f) Reflects increased compensation resulting from new employment agreements with certain of the current executive officers of Ralphs. (g) Reflects the amortization of the excess of cost over net assets acquired in the Merger ($22.0 million for the 52 weeks ended June 25, 1994 and $5.1 million for the 12 weeks ended September 17, 1994) and elimination of Ralphs' historical amortization ($11.0 million for the 52 weeks ended June 25, 1994 and $2.5 million for the 12 weeks ended September 17, 1994). Amortization has been calculated on the straight line basis over a period of 40 years. (h) The following table presents a reconciliation of pro forma interest expense and amortization of deferred financing costs:
52 WEEKS 12 WEEKS ENDED ENDED JUNE 25, 1994 SEPTEMBER 17, 1994 ------------- ------------------ Historical interest expense -- cash........................................ $150.2 $ 35.7 ------ ------ Plus: Interest on borrowings under: New Credit Facility.................................................... 74.6 16.3 New F4L Senior Notes................................................... 44.0 10.1 New RGC Notes.......................................................... 41.4 9.5 Other bank fees........................................................ 3.5 0.8 Other debt............................................................. 4.2 2.7 Less: Interest on borrowings under: Old bank term loans: Ralphs............................................................... (21.3) (5.4) Food 4 Less.......................................................... (11.5) (2.5) Old RGC Notes.......................................................... (43.9) (10.1) Other debt............................................................. (16.6) (3.8) ------ ------ Pro forma adjustment..................................................... 74.4 17.6 ------ ------ Pro forma interest expense -- cash......................................... $224.6 $ 53.3 ====== ====== Historical amortization of debt issuance costs............................. $ 11.9 $ 2.7 Plus: Financing and exchange/consent fees.................................... 8.8 2.0 Other fees and expenses................................................ 2.4 0.6 Less: Historical financing costs: Ralphs................................................................. (6.1) (1.4) Food 4 Less............................................................ (5.3) (1.2) ------ ------ Pro forma adjustment..................................................... (0.2) 0.0 ------ ------ Pro forma amortization of debt issuance costs.............................. $ 11.7 $ 2.7 ====== ======
(i) Represents the elimination of the historical income tax benefit of Ralphs ($108.0 million for the 52 weeks ended June 25, 1994) and Food 4 Less income tax expense ($2.7 million for the 52 weeks ended June 25, 1994 and $0.9 million for the 12 weeks ended September 17, 1994) given expected pro forma losses. The Company's ability to recognize income tax benefits may be limited in accordance with Financial Accounting Standard No. 109 "Accounting for Income Taxes." As such, no income tax benefit has been reflected in these pro forma financial statements. See "Certain Federal Income Tax Considerations." (j) Reflects cancellation of cumulative convertible preferred stock of Food 4 Less held by Holdings. (k) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary item and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). The Company's pro forma earnings were inadequate to cover pro forma fixed charges for the 52 weeks ended June 25, 1994 and for the 12 weeks ended September 17, 1994 by approximately $85.8 million and $23.2 million, respectively. However, such pro forma earnings included non-cash charges of $182.9 million for the 52 weeks ended June 25, 1994 and $41.8 million for the 12 weeks ended September 17, 1994, primarily consisting of depreciation and amortization. 35 45 (l) Supplemental Pro Forma Adjustments: The table below shows the variations that would occur in the pro forma cash and non-cash interest expense, the amortization of debt issuance costs and the amount of the deficiency of earnings to fixed charges at different participation levels in the Exchange Offers and the RGC Exchange Offers. The table also indicates the changes in the foregoing items (at each participation level) that would result from each 25 basis point increase in the interest rate on the New F4L Senior Notes over the assumed rate of 11% (and the corresponding 25 basis point increase in the interest rate on the New RGC Notes over the assumed rate of 11.50%).
52 WEEK PERIOD 12 WEEK PERIOD --------------------------------- ----------------------------- PARTICIPATION LEVEL(1) PARTICIPATION LEVEL(1) --------------------------------- ----------------------------- 80% 85% 90% 95% 80% 85% 90% 95% ------ ------ ------ ------ ----- ----- ----- ----- Interest expense -- cash.................................. $224.6 $224.6 $224.5 $224.4 $53.3 $53.1 $52.8 $52.6 Interest expense -- non-cash.............................. 15.2 15.2 15.2 15.2 3.3 3.3 3.3 3.3 Amortization of debt issuance costs....................... 11.7 11.6 11.6 11.5 2.7 2.7 2.7 2.7 Deficiency of earnings to fixed charges(2)................ 85.8 85.7 85.6 85.4 23.2 23.0 22.7 22.5 EFFECT OF EACH 25 BASIS POINT INCREASE IN THE INTEREST RATE ON THE NEW F4L SENIOR NOTES AND NEW RGC NOTES Additional interest expense -- cash....................... $ 2.3 $ 2.3 $ 2.3 $ 2.3 $ 0.5 $ 0.5 $ 0.5 $ 0.5 Additional interest expense -- non-cash................... -- -- -- -- -- -- -- -- Additional amortization of debt issuance costs.......................................... -- -- -- -- -- -- -- -- Additional deficiency of earnings to fixed charges(2)..................................... 2.3 2.3 2.3 2.3 0.5 0.5 0.5 0.5
- - --------------- (1) If Food 4 Less receives tenders in excess of the 80% Minimum Tender in the RGC Exchange Offers, Food 4 Less may elect to decrease the amount of New F4L Senior Notes being offered pursuant to the Public Offering. (2) "Earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary item and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). (m) "EBITDA," as defined and presented historically by RGC, represents net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, post-retirement benefits, the LIFO charge, provision for restructuring, provision for earthquake losses, a one-time charge for Teamsters Union sick pay benefits, and gains and losses on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (n) Reflects primarily EBITDA (as defined) associated with closed or divested stores and the adjustments referred to in notes (e) and (f) above. (o) EBITDA margin represents EBITDA (as defined) as a percentage of sales. (p) The unaudited pro forma results of operations and EBITDA for the 52 weeks ended June 25, 1994 and the 12 weeks ended September 17, 1994 do not include certain one-time non-recurring costs related to (i) severance payments under certain employment contracts with Food 4 Less management totalling $1.4 million that are subject to change of control provisions and the achievement of earnings and sales targets, (ii) costs related to the integration of the Company's operations which are estimated to be $50.0 million over a three-year period, (iii) $1.8 million in costs related to the cancellation of an employment agreement, or (iv) other costs related to warehouse closures, which costs are not presently determinable. 36 46 UNAUDITED PRO FORMA COMBINED BALANCE SHEET (DOLLARS IN MILLIONS)
FOOD 4 LESS RALPHS (HISTORICAL) (HISTORICAL) (UNAUDITED) (UNAUDITED) SEPTEMBER 17, PRO FORMA OCTOBER 9, 1994 1994 ADJUSTMENTS PRO FORMA --------------- ------------- ----------- --------- ASSETS Current assets: Cash and cash equivalents................ $ 33.3 $ 29.4 $ 0.0(a) $ 62.7 Accounts receivable...................... 45.2 25.4 -- 70.6 Inventories.............................. 217.2 210.6 39.9(b) 467.7 Prepaid expense and other current assets................................ 18.3 13.4 -- 31.7 -------- ------ ------- -------- Total current assets............. 314.0 278.8 39.9 632.7 Investments................................ 0.0 12.7 12.7 Property, plant and equipment.............. 611.6 370.0 160.0(c) 1,111.7 (27.9)(d) (2.0)(e) Excess of cost over net assets acquired, net...................................... 368.8 266.1 511.6(f) 1,146.5 Beneficial lease rights.................... 50.7 0.0 -- 50.7 Deferred debt issuance costs, net.......... 22.7 27.2 76.2(g) 80.0 (46.1)(h) Deferred income taxes...................... 113.6 0.0 (113.6)(i) 0.0 Other assets............................... 10.0 23.7 (12.9)(d) 20.8 -------- ------ ------- -------- Total assets..................... $1,491.4 $978.5 $ 585.2 $3,055.1 ======== ====== ======= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current maturities of long-term debt..... $ 79.9 $ 23.2 $ (77.8)(j) $ 25.3 Short-term debt.......................... 37.4 0.0 (37.4)(k) 0.0 Accounts payable......................... 177.5 176.1 -- 353.6 Accrued expenses......................... 109.3 108.1 (22.1)(l) 201.8 4.7(d) 1.8(m) Current portion of self-insurance reserves.............................. 28.2 29.5 -- 57.7 -------- ------ ------- -------- Total current liabilities........ 432.3 336.9 (130.8) 638.4 Long-term debt............................. 883.4 495.7 567.3(n) 1,946.4 Self-insurance reserves.................... 46.0 65.5 -- 111.5 Deferred income taxes...................... 0.0 14.7 -- 14.7 Lease valuation reserve.................... 30.1 0.0 -- 30.1 Other non-current liabilities.............. 84.6 0.0 (33.8)(o) 64.8 11.0(p) 3.0(e) -------- ------ ------- -------- Total liabilities................ 1,476.4 912.8 416.7 2,805.9 -------- ------ ------- -------- Stockholder's equity: Preferred Stock.......................... 0.0 61.4 (61.4)(q) 0.0 Common Stock............................. 0.3 0.0 (0.3)(t) 0.0 Additional paid-in capital............... 175.2 107.7 61.4(q) 424.1 10.0(o) 145.0(r) 100.0(s) (175.2)(t) Notes receivable from shareholders of parent................................ 0.0 (0.6) -- (0.6) Accumulated deficit...................... (160.5) (100.3) (24.2)(u) (171.8) 160.5(t) (45.5)(d) (1.8)(m) Treasury stock........................... 0.0 (2.5) -- (2.5) -------- ------ ------- -------- Total stockholder's equity(v).... 15.0 65.7 168.5 249.2 -------- ------ ------- -------- Total liabilities and stockholder's equity........... $1,491.4 $978.5 $ 585.2 $3,055.1 ======== ====== ======= ========
See Notes to Unaudited Pro Forma Combined Balance Sheet. 37 47 NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (a) Reflects gross proceeds received from (i) the New Term Loans, (ii) the New Revolving Facility, (iii) the New Equity Investment and (iv) the Public Offering used to retire certain debt and liabilities and to pay financing costs and other related fees as set forth in the following table: New Term Loans............................................................................ $ 750.0 New Revolving Facility.................................................................... 5.8 New F4L Senior Notes...................................................................... 400.0 New Equity Investment..................................................................... 150.0 Purchase RSI Common Stock................................................................. (425.9) Repay Ralphs 1992 Credit Agreement........................................................ (296.2) Repay F4L Credit Agreement................................................................ (140.3) Purchase Old RGC Notes.................................................................... (90.9) Pay EAR liability......................................................................... (23.8) Repay other Ralphs debt................................................................... (191.9) Accrued Interest.......................................................................... (22.1) Fees and Expenses......................................................................... (114.7) ------- Pro forma adjustment.............................................................. $ 0.0 =======
(b) Reflects the elimination of Ralphs historical LIFO reserve ($17.4 million) and the write-up of merchandise inventory ($22.5 million); both to reflect current estimated selling prices less costs of disposal and a reasonable profit allowance for the selling effort of the acquiring company. (c) Reflects the estimated write-up to fair value of Ralphs property, plant and equipment as of the date of the Merger. (d) Reflects estimated restructuring charge associated with closing 29 Food 4 Less conventional supermarkets or warehouse stores and converting 16 Food 4 Less conventional supermarkets to warehouse stores. Pursuant to the settlement agreement with the State of California, 24 Food 4 Less (as well as 3 Ralphs stores) stores must be closed by December 31, 1995. See "Business -- California Settlement Agreement." Although not required by such settlement agreement, an additional 5 under-performing stores selected by the Company also are scheduled to be closed by December 31, 1995. The restructuring charge consists of write-downs of property, plant and equipment ($27.9 million), write-off of the Alpha Beta trademark ($8.6 million), write-off of other assets ($4.3 million), lease termination expenses ($3.1 million), and miscellaneous expense accruals ($1.6 million). The expected cash payments to be made in connection with the restructuring charge total $7.1 million. It is expected that such cash payments will be made by December 31, 1995. No additional expenses are expected to be incurred in future periods in connection with these closings. Food 4 Less has determined that there is no impairment on existing goodwill related to the store closures based on its projections of future undiscounted cash flows. (e) Reflects the anticipated closing of 3 Ralphs stores. (f) Reflects the excess of costs over the fair value of the net assets of Ralphs acquired in connection with the Merger ($880.4 million) and the elimination of Ralphs historical excess of costs over the fair value of the net assets acquired ($368.8 million). The purchase price and preliminary calculation of the excess of cost over the net book value of assets acquired is as follows: Purchase price: Purchase of outstanding common equity.................................................. $ 525.9 Fees and expenses...................................................................... 54.1 -------- Total purchase price................................................................... $ 580.0 -------- Purchase price is financed by: Seller Debentures...................................................................... $ 100.0 New Equity Investment.................................................................. 150.0 New borrowings......................................................................... 330.0 -------- $ 580.0 ======= Preliminary calculation of purchase price allocated to assets and liabilities based on management's estimate of fair values as of October 9, 1994: Cash................................................................................... $ 33.3 Receivables............................................................................ 45.2 Inventories............................................................................ 257.1 Other current assets................................................................... 18.3 Property, fixtures and equipment....................................................... 771.6 Beneficial lease rights................................................................ 50.7 Goodwill............................................................................... 880.4 Other assets........................................................................... 10.7 Current liabilities.................................................................... (432.3) Obligations under capital leases....................................................... (58.1) Long-term debt......................................................................... (825.3) Other non-current liabilities.......................................................... (171.6) -------- $ 580.0 ======= Pro forma book value of historical assets acquired: Historical net book value at October 9, 1994........................................... $ 15.0 Less book value of historical assets with no value at the acquisition date: Historical deferred tax asset.................................................113.6 Historical goodwill...........................................................368.8 Historical deferred debt costs.................................................21.9 (504.3) -------- Negative pro forma book value of net assets acquired............................... 489.3 -------- Excess of purchase price to be allocated............................................... $1,069.3 =======
38 48 Excess allocated to: Inventories............................................................................ $ 39.9 Property, fixtures and equipment....................................................... 160.0 Goodwill............................................................................... 880.4 Other non-current liabilities.......................................................... (11.0) -------- $1,069.3 ========
(g) Reflects the debt issuance costs associated with the New Credit Facility, ($26.9 million), the RGC Exchange Offers ($4.5 million), the F4L Exchange Offers ($3.2 million), the Holdings Consent Solicitation ($0.5 million), RGC Exchange Offers cash payments ($3.6 million), F4L Exchange Offers cash payments ($5.2 million), the Holdings Consent Solicitation cash payments ($3.1 million), the New F4L Senior Notes ($12.0 million) and other financing costs ($17.2 million). These amounts have been capitalized as deferred financing costs. (h) Reflects the elimination of deferred debt issuance costs associated with the Ralphs 1992 Credit Agreement (as defined) ($7.4 million), the F4L Credit Agreement (as defined) ($10.4 million), the Old RGC Notes ($10.8 million) and the Old F4L Notes ($13.8 million) and other indebtedness of RGC and Food 4 Less ($3.7 million) to be repaid in connection with the Merger. (i) Reflects the elimination of Ralphs deferred tax asset associated with changes in the financial reporting basis of assets. The combined Company may be required to record a valuation allowance on all or some deferred tax assets in compliance with Financial Accounting Standard No. 109 "Accounting for Income Taxes." This determination may be based, in part, on historical or expected earnings. For purposes of these pro forma financial statements it has been assumed that all deferred net tax assets have been fully reserved. (j) Reflects the repayment and cancellation of the current maturities of Ralphs 1992 Credit Agreement ($62.5 million), the F4L Credit Agreement ($17.0 million), certain other Ralphs debt ($2.1 million) and the recording of the current maturities of the New Credit Facility ($3.8 million). (k) Reflects the repayment of Ralphs' old revolving credit facility. (l) Reflects the payment of accrued interest on the Ralphs 1992 Credit Agreement ($2.3 million), the F4L Credit Agreement ($0.5 million), the Old RGC Notes ($7.4 million), the Old F4L Notes ($10.8 million) and other indebtedness of RGC and Food 4 Less ($1.1 million) to be repaid in connection with the Merger. (m) Represents the liability to an executive under his employment contract due to a change of control provision. (n) Reflects the repayment and cancellation of the Ralphs 1992 Credit Agreement and the F4L Credit Agreement, and the repayment of certain other Ralphs debt, and records borrowings under the New Credit Facility as set forth in the table below: New Term Loans............................................................................ $ 746.2 New Revolving Facility.................................................................... 5.8 New F4L Senior Notes...................................................................... 400.0 Repay Ralphs 1992 Credit Agreement........................................................ (196.3) Repay F4L Credit Agreement................................................................ (123.3) Purchase Old RGC Notes.................................................................... (90.0) Repay other Ralphs debt................................................................... (175.1) ------- Net pro forma adjustment.......................................................... $ 567.3 =======
(o) Reflects the payment of a portion of the Ralphs EAR liability ($23.8 million) and the issuance of New Holdings stock options in consideration of the cancellation of the remaining Ralphs EAR liability ($10.0 million). See "Executive Compensation -- Equity Appreciation Rights Plan." No future compensation expense will be recorded as the cancellation of certain EAR liabilities ($10.0 million) in consideration for the issuance of New Holdings stock options is deemed to reflect fair value. (p) Reflects a reserve for Ralphs unfunded defined benefit pension plan, determined as the difference between the projected benefit obligation of the plans as compared to the fair value of plan assets, less amounts previously accrued. (q) Reflects cancellation of cumulative convertible preferred stock of Food 4 Less held by Holdings. (r) Reflects the contribution by New Holdings of RSI stock acquired with the cash proceeds of the New Equity Investment of $150.0 million offset by $5.0 million in related commitment fees. (s) Reflects the contribution by New Holdings of RSI stock acquired through the issuance of $100.0 million aggregate principal amount of the Seller Debentures. (t) Reflects the elimination of Ralphs historical equity. (u) Represents the write-off of the historical deferred debt issuance costs of Food 4 Less related to its refinanced debt. (v) The unaudited pro forma combined balance sheet as of September 17, 1994 does not include certain one-time non-recurring costs related to (i) severance payments under certain employment contracts with Food 4 Less management totaling $1.4 million that are subject to change of control provisions and the achievement of earnings and sales targets, (ii) costs related to the integration of the Company's operations which are estimated to be $50.0 million (includes an estimated $12.0 million related to termination and severance costs) over a three-year period, (iii) other costs related to warehouse closures, which costs are not presently determinable, or (iv) any contingent liability to reimburse Yucaipa in the event it incurs a loss on the resale of $10 million of Seller Debentures. 39 49 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 52 weeks ended January 28, 1990, 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 and January 30, 1994, which have been derived from the financial statements of RSI and RGC audited by KPMG Peat Marwick LLP, independent certified public accountants. The selected historical financial data of RSI presented below as of and for the 36 weeks ended October 10, 1993 and October 9, 1994 have been derived from unaudited interim financial statements of RSI which, in the opinion of management, reflect all material adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements of RSI and RGC and related notes thereto included elsewhere in this Prospectus and Solicitation Statement.
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 36 WEEKS 36 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED ENDED JANUARY 28, FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9, 1990 1991 1992 1993 1994 1993 1994 ----------- ------------ ------------ ----------- ----------- ----------- ----------- (DOLLARS IN MILLIONS) (UNAUDITED) OPERATING DATA: Sales......................... $2,556.1 $2,799.1 $2,889.2 $2,843.8 $2,730.2 $1,874.2 $1,856.3 Cost of sales................. 2,051.1 2,225.4 2,275.2 2,217.2 2,093.7 1,445.2 1,433.0 -------- -------- -------- -------- -------- -------- -------- Gross profit.................. 505.0 573.7 614.0 626.6 636.5 429.0 423.3 Selling, general and administrative expenses(a)................. 391.0 438.0 459.2 470.0 471.0 321.5 317.8 Provision for equity appreciation rights......... 26.0 15.3 18.3 -- -- -- -- Amortization of excess of cost over net assets acquired.... 11.7 11.0 11.0 11.0 11.0 7.6 7.6 Provisions for restructuring and tax indemnification payments(b)................. -- -- 10.0 7.1 2.4 -- -- -------- -------- -------- -------- -------- -------- -------- Operating income.............. 76.3 109.4 115.5 138.5 152.1 99.9 97.9 Interest expense(c)......... 130.9 128.5 130.2 125.6 108.8 75.7 77.2 Loss on disposal of assets and provisions for legal settlement and earthquake losses(d)................. 3.1 6.4 13.0 10.1 12.9 0.4 0.8 Income tax expense (benefit)................... 12.0 12.8 13.5 8.3 (108.0)(e) -- -- Cumulative effect of change in accounting for postretirement benefits other than pensions......... -- (13.1) -- -- -- -- -- Extraordinary item-debt refinancing, net of tax benefits.................... -- -- -- (70.6) -- -- -- -------- -------- -------- -------- -------- -------- -------- Net earnings (loss)........... $ (69.7) $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 23.8 $ 19.9 ======== ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges(f).................. --(f) --(f) --(f) 1.02x 1.24x 1.27x 1.22x BALANCE SHEET DATA (end of period): Working capital surplus (deficit)................... $ (46.5) $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (87.5) $ (118.3) Total assets.................. 1,404.8 1,406.4 1,357.6 1,388.5 1,483.7 1,363.9 1,491.4 Total debt(g)................. 991.0 986.1 941.9 1,029.8 998.9 990.4 1,000.6 Redeemable stock.............. 3.0 3.0 3.0 -- -- -- -- Stockholders' equity (deficit)................... 35.4 (16.0) (57.2) (133.3) 5.1 (109.5) 15.0 OTHER DATA: Depreciation and amortization(h)............. $ 81.6 $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 51.7 $ 51.9 Capital expenditures.......... 103.5 87.6 50.4 102.7 62.2 46.8 44.5 Stores open at end of period...................... 142 150 158 159 165 163 168 EBITDA (as defined)(i)........ $ 188.8 $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 155.9 $ 156.1 EBITDA margin(j).............. 7.4% 7.4% 7.8% 8.0% 8.4% 8.3% 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, $2.1 million and $1.8 million for the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993 and January 30, 1994 and the 36 weeks ended October 10, 1993 and October 9, 1994, respectively. (b) Provisions for restructuring are charges for expenses relating to closing of Ralphs central bakery operation. The charge reflected the complete write-down of the bakery building, machinery and equipment, leaseholds, related inventory and supplies, and providing severance pay to terminated employees. These charges were $7.1 million and $2.4 million for the 52 weeks ended January 31, 1993 and the 52 weeks ended January 30, 1994, respectively. Provision for tax indemnification payments to Federated were $10.0 million for the 52 weeks ended February 2, 1992. (c) Net earnings (loss) includes non-cash charges related to the amortization of deferred debt issuance costs of $4.1 million for the 52 weeks ended January 28, 1990, $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 $4.5 and $4.3 for the 36 weeks ended October 10, 1993 and October 9, 1994, respectively. 40 50 (d) Loss on disposal of assets was $3.1 million, $6.4 million, $13.0 million, $2.6 million, $1.9 million, $0.4 million and $0.8 million for the 52 weeks ended January 28, 1990, the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993, and January 30, 1994 and the 36 weeks ended October 10, 1993 and October 9, 1994, 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). (f) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary items and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 52 weeks ended January 28, 1990, the 53 weeks ended February 3, 1991 and the 52 weeks ended February 2, 1992 by $57.7 million, $25.5 million and $27.7 million, respectively. (g) Total debt includes long-term debt, current maturities of long-term debt, short-term debt and capital lease obligations. (h) For the 52 weeks ended January 28, 1990, the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993, and January 30, 1994 and the 36 weeks ended October 10, 1993 and October 9, 1994, depreciation and amortization includes amortization of the excess of cost over net assets acquired of $11.7 million, $11.0 million, $11.0 million, $11.0 million, $11.0 million, $7.6 million and $7.6 million, respectively. (i) "EBITDA," as defined and presented historically by RGC, represents net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provisions for Equity Appreciation Rights, provision for tax indemnification payments to Federated, provision for postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses, a one-time charge for Teamsters Union sick pay benefits and loss on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Ralphs' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (j) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 41 51 SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS The following table presents selected historical financial data of Food 4 Less as of and for the 53 weeks ended June 30, 1990 and the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994 which have been derived from the financial statements of Food 4 Less audited by Arthur Andersen LLP, independent public accountants. The summary historical financial data of Food 4 Less presented below as of and for the 12 weeks ended September 18, 1993 and September 17, 1994 have been derived from unaudited interim financial statements of Food 4 Less which, in the opinion of management, reflect all material adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with the Unaudited Pro Forma Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements of Food 4 Less and related notes thereto included elsewhere in this Prospectus and Solicitation Statement.
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 12 WEEKS ENDED 12 WEEKS ENDED JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17, 1990 1991(A) 1992 1993 1994(B) 1993 1994 -------------- -------------- -------------- -------------- -------------- -------------- -------------- (DOLLARS IN MILLIONS) (UNAUDITED) OPERATING DATA: Sales........ $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $616.6 $598.7 Cost of sales...... 1,113.4 1,340.9 2,392.7 2,257.8 2,115.9 504.2 495.7 -------- -------- -------- -------- -------- ------ ------ Gross profit..... 204.8 265.7 520.8 484.2 469.3 112.4 103.0 Selling, general, administrative and other expenses..... 157.8 213.1 469.7 434.9 388.8 95.7 88.1 Amortization of excess cost over net assets acquired..... 5.3 5.3 7.8 7.6 7.7 1.8 1.8 -------- -------- -------- -------- -------- ------ ------ Operating income..... 41.7 47.3 43.3 41.7 72.8 14.9 13.1 Interest expense(c)..... 50.8 50.1 70.2 69.8 68.3 15.7 16.0 Loss (gain) on disposal of assets..... -- 0.6 (1.3) (2.1) -- -- (0.5) Provision for earthquake losses..... -- -- -- -- 4.5 -- -- Provision for income taxes...... 1.0 2.5 3.4 1.4 2.7 0.3 0.9 Extraordinary charge..... -- 3.7(d) 4.8(e) -- -- -- -- -------- -------- -------- -------- -------- ------ ------ Net loss..... $ (10.1) $ (9.6) $ (33.8) $ (27.4) $ (2.7) $ (1.1) $ (3.3) ======== ======== ======== ======== ======== ====== ====== Ratio of earnings to fixed charges(f).... --(f) --(f) --(f) --(f) 1.0x --(f) --(f) BALANCE SHEET DATA (end of period)(g): Working capital surplus (deficit)... $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $(18.6) $(58.1) Total assets...... 574.7 980.0 998.5 957.8 980.1 967.3 978.5 Total debt(h)...... 360.7 558.9 525.3 538.1 517.9 530.6 518.8 Redeemable stock....... 5.1 -- -- -- -- -- -- Stockholder's equity...... 20.6 84.6 50.8 72.9 69.0 71.6 65.7 OTHER DATA: Depreciation and amorti- zation(i)... $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 13.1 $ 13.0 Capital expen- ditures..... 36.4 34.7 60.3 53.5 57.5 6.6 16.8 Stores open at end of period...... 115 259 249 248 258 248 261 EBITDA (as de- fined)(j)... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 29.0 $ 29.7 EBITDA margin(k)... 5.3% 5.0% 3.5% 3.9% 5.0% 4.7% 5.0%
- - --------------- (a) Operating data for the 52 weeks ended June 29, 1991 include the results of Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha Beta's sales for the two weeks ended June 29, 1991 were $59.2 million. (b) Operating data for the 52 weeks ended June 25, 1994 include the results of the Food Barn stores, which were not material, from March 29, 1994, the date of the acquisition of the Food Barn stores. (c) Interest expense includes non-cash charges related to the amortization of deferred financing costs of $4.1 million for the 53 weeks ended June 30, 1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June 26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $1.2 million for the 12 weeks ended September 18, 1993 and $1.3 million for the 12 weeks ended September 17, 1994. (d) Represents an extraordinary charge of $3.7 million (net of related income tax benefit of $2.5 million) relating to the refinancing of certain indebtedness in connection with the Alpha Beta acquisition and the write-off of related debt issuance costs. (e) Represents an extraordinary net charge of $4.8 million reflecting the write-off of $6.7 million (net of related income tax benefit of $2.5 million) of deferred debt issuance costs as a result of the early redemption of a portion of Food 4 Less' term loan facility under the F4L Credit Agreement, partially offset by a $1.9 million extraordinary gain (net of a related income tax expense of $0.7 million) on the replacement of partially depreciated assets following the civil unrest in Los Angeles. 42 52 (f) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of loss before provision for income taxes and extraordinary charges, plus fixed charges. "Fixed charges" consist of interest on all indebtedness, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993 and the 12 weeks ended September 18, 1993 and September 17, 1994 by approximately $9.1 million, $3.4 million, $25.6 million, $25.9 million, $0.8 million and $2.4 million, respectively. However, such earnings included non-cash charges of $29.9 million for the 53 weeks ended June 30, 1990, $37.0 million for the 52 weeks ended June 29, 1991, $61.2 million for the 52 weeks ended June 27, 1992 and $62.5 million for the 52 weeks ended June 26, 1993, $14.3 million for the 12 weeks ended September 18, 1993 and $14.3 million for the 12 weeks ended September 17, 1994, primarily consisting of depreciation and amortization. (g) Balance sheet data as of June 30, 1990 relate to Food 4 Less and include the effect of the BHC Acquisition, as well as the acquisitions of Bell Markets, Inc. and certain assets of ABC Market Corp. Balance sheet data as of June 29, 1991, June 27, 1992, June 26, 1993 and September 18, 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 and September 17, 1994 relate to Food 4 Less and reflect the acquisition of the Food Barn stores. (h) Total debt includes long-term debt, current maturities of long-term debt and capital lease obligations. (i) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994, and the 12 weeks ended September 18, 1993 and September 17, 1994, depreciation and amortization includes amortization of excess of cost over net assets acquired of $5.3 million, $5.3 million, $7.8 million, $7.6 million, $7.7 million, $1.8 million and $1.8 million, respectively. (j) "EBITDA," as defined and presented historically by Food 4 Less, represents income before interest expense, depreciation and amortization expense, the LIFO provision, provision for incomes taxes, provision for earthquake losses and the one-time adjustment to the Teamsters Union sick pay accrual. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Food 4 Less' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (k) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 43 53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The combination of Ralphs and Food 4 Less will create the largest supermarket operator in Southern California with an estimated 264 conventional format Ralphs stores and an estimated 68 price-impact Food 4 Less warehouse format stores. The Company will operate an additional 63 stores in Northern California and certain areas of the Midwest. Management believes that the Company's dual format strategy will appeal to a broad range of Southern California consumers and enable the Company to significantly enhance its overall competitive position. In addition, the Company expects to achieve cost savings and incremental profitability through the integration of advertising, administration, purchasing, distribution, manufacturing and other operations. Due to its increased size, dual format strategy and integration related costs, the Company believes that its future operating results may not be directly comparable to the historical operating results of either Ralphs or Food 4 Less. Certain factors which are expected to affect the future operating results of the Company (or their comparability to prior periods) are discussed below. Regional Economic Conditions. In recent periods Ralphs and Food 4 Less have each been affected by the adverse economic conditions that have existed in Southern California since approximately 1991. These conditions were exacerbated by the substantial layoffs in the defense and aerospace industries and by the civil unrest in Los Angeles in April, 1992. In addition, management estimates that approximately eight million square feet of supermarket selling space has been added in Southern California over the past five years. As a result of these factors and general deflationary pressures in certain food product categories, Ralphs and Food 4 Less have each experienced declining comparable store sales in recent periods. Over the last three fiscal years, Food 4 Less' and Ralphs' total sales declined by 11.3% and 5.5%, respectively. Despite these adverse sales trends, however, each company has improved its profitability over the same period as discussed in greater detail below. In addition, comparable store sales declines have begun to moderate in recent periods, which is consistent with data indicating a mild recovery in the Southern California economy. Management believes that its dual format strategy and anticipated cost savings will leave it well positioned to take advantage of improvements in the regional economy and growing population and to compete effectively in the Southern California marketplace. See "Risk Factors -- Regional Economic Conditions." Integration Costs and Restructuring Charges. The two principal components of the Company's integration strategy will be (i) the conversion of up to 122 of Food 4 Less' conventional stores (primarily Alpha Beta stores) to the Ralphs name and format and the conversion of 16 other Food 4 Less conventional stores (Boys and Viva) and 23 Ralphs stores to the Food 4 Less price impact warehouse format; and (ii) the achievement of substantial cost savings through the consolidation of warehousing, manufacturing and distribution operations and the elimination of certain other duplicative overhead costs. Management has estimated that approximately $90 million of net annual cost savings are achievable by the end of the fourth year of combined operations. Although a portion of the anticipated cost savings is premised upon the completion of such capital expenditures, management believes that over 70% of the cost savings could be achieved without making any Merger-related capital expenditures. See "Business -- The Merger" and "Risk Factors -- Ability to Achieve Anticipated Cost Savings." Management believes that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over this four-year period. Management expects that the non-recurring integration costs will effectively offset any cost savings in the first year following the Merger. See "-- Liquidity and Capital Resources." In addition, management anticipates that certain non-recurring costs associated with the integration of operations will be recorded as a restructuring charge. The charge will cover costs associated with the writedown of property and equipment and related reserves associated with the conversion of certain Food 4 Less conventional supermarkets to warehouse stores and the closure of certain Food 4 Less conventional stores as well as the write-off of the Alpha Beta trademark. On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement Agreement (the "Settlement Agreement") with the State of California. See "Business -- California Settlement Agreement." Under the Settlement Agreement, the Company must divest a total of 27 stores (24 Food 4 Less conventional supermarkets or warehouse stores and 44 54 3 Ralphs stores). In addition, although not required pursuant to the Settlement Agreement, an additional 5 under-performing stores selected by the Company are scheduled to be closed following the Merger. It is anticipated that such closures and store conversions will be substantially completed by December 31, 1995. The estimated restructuring charge aggregating $45.5 million for the 24 Food 4 Less stores to be divested under the Settlement Agreement, the planned closures (5 Food 4 Less stores) and the conversion of 16 Food 4 Less conventional stores to warehouse format stores reflects (i) the writedown of property, plant and equipment ($27.9 million), (ii) the write-off of Alpha Beta trademark ($8.6 million), (iii) the write-off of other assets ($4.3 million), (iv) lease termination expense ($3.1 million), and (v) miscellaneous expense accruals ($1.6 million). The expected cash payments to be made in connection with the restructuring charge will total $7.1 million. It is expected that such cash payments will be made by December 31, 1995. As a result of the completion of 11 of the 16 planned Food 4 Less conventional store conversions during the second quarter of the current fiscal year, Food 4 Less will record a portion of the anticipated restructuring charge (presently estimated to be between $5 million and $7 million) in its results of operations for the second quarter (which ended on January 7, 1995). Food 4 Less has determined that there is no impairment of existing goodwill related to the store closures based on its projections of future undiscounted cash flows. The remaining estimated restructuring charge will be recorded as an expense once the Merger is completed. The divestiture of the 3 Ralphs stores pursuant to the Settlement Agreement will be reflected in the allocation of the purchase price and therefore will not give rise to any restructuring charge. Store Mix. Approximately 28% of the Company's total anticipated number of stores following the Merger are expected to be warehouse format stores. Because these stores offer prices that are generally 5-12% below those in Food 4 Less' conventional stores, they produce lower gross profit margins than an average conventional supermarket. As a result, the Company's consolidated gross margin following the Merger is expected to decline from the levels historically reported by Ralphs. In addition, if the percentage of warehouse stores in the overall store mix increases following the Merger, as expected, the Company's consolidated gross margins should also be expected to decline slightly over time. Because of the reduced SG&A (as defined) costs associated with the warehouse format stores, management believes that overall profitability of the warehouse stores is comparable to that of conventional stores. Purchase Accounting. The Merger will be accounted for as a purchase of Ralphs by Food 4 Less. As a result, the assets and liabilities of Ralphs will be recorded at their estimated fair market values on the date the Merger is consummated. The purchase price in excess of the fair market value of Ralphs' assets will be recorded as goodwill and amortized over a forty year period. The purchase price allocation reflected in the pro forma statements is based on management's preliminary estimates. The actual purchase accounting adjustments will be determined following the Merger and may vary from the amounts reflected in the Unaudited Pro Forma Financial Data included elsewhere herein. Fiscal Year and Restatement of Food 4 Less Financial Statements. Following the Merger, the Company will adopt Ralphs' fiscal year end for financial reporting purposes. Ralphs' fiscal year ends on the Sunday closest to January 31. In connection with the preparation of this Prospectus and Solicitation Statement, Food 4 Less elected to restate its historical financial statements to conform to Ralphs' classification of certain expenses. The changes primarily involved the reclassification of certain labor, occupancy and utility costs associated with product deliveries as cost of goods sold, which were previously classified as selling, general, administrative and other expense, net. In addition, depreciation expense, which had been reported separately by Food 4 Less with the amortization of goodwill, was classified as cost of goods sold or selling, general, administrative and other expense, net, as appropriate. The amounts aggregated $236.2 million, $224.5 million, $219.5 million and $50.9 million (unaudited) for the fiscal years ended June 27, 1992, June 26, 1993, June 25, 1994 and the 12 weeks ended September 18, 1993. Food 4 Less has also classified a portion of its self-insurance costs as interest expense that was previously recorded in selling, general, administrative and other expense, net. These self-insurance amounts were reclassified to more completely segregate the interest component of self-insurance costs arising from discounting long-term obligations. The amounts reclassified aggregated $5.0 million, $5.9 million, $5.8 million and $1.4 million (unaudited) for the fiscal years ended June 27, 1992, June 26, 1993, June 25, 1994 and the 12 weeks ended September 18, 1993. All historical financial information for Food 4 Less included in this Prospectus and Solicitation Statement reflects these reclassifications. See Note 15 of Notes to Food 4 Less Consolidated Financial Statements. 45 55 RESULTS OF OPERATIONS OF RALPHS The following table sets forth the historical operating results of Ralphs for the 52 weeks ended February 2, 1992 ("Fiscal 1991"), January 31, 1993 ("Fiscal 1992") and January 30, 1994 ("Fiscal 1993") and for the 36 weeks ended October 10, 1993 and October 9, 1994:
52 WEEKS ENDED 36 WEEKS ENDED -------------------------------------------------------- ------------------------------------ FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9, 1992 1993 1994 1993 1994 ---------------- ---------------- ---------------- ---------------- ---------------- (IN MILLIONS) (UNAUDITED) Sales.......................... $2,889.2 100.0% $2,843.8 100.0% $2,730.2 100.0% $1,874.2 100.0% $1,856.3 100.0% Cost of sales.................. 2,275.2 78.8 2,217.2 78.0 2,093.7 76.7 1,445.2 77.1 1,433.0 77.2 Selling, general and administrative expenses...... 456.6 15.8 466.7 16.4 467.6 17.1 319.4 17.1 316.0 17.0 Operating income(a)............ 115.5 4.0 138.5 4.9 152.1 5.6 99.9 5.3 97.9 5.3 Net interest expense........... 130.2 4.5 125.6 4.4 108.8 4.0 75.7 4.0 77.2 4.2 Provision for earthquake losses(b).................... -- -- -- -- 11.0 0.4 -- -- -- -- Income tax expense (benefit)... 13.5 0.4 8.3 0.3 (108.0) (4.0) -- -- -- -- Extraordinary item............. -- -- 70.6 2.5 -- -- -- -- -- -- Net earnings (loss)............ (41.2) (1.4) (76.1) (2.7) 138.4 5.1 23.8 1.3 19.9 1.1
- - --------------- (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 36 WEEKS ENDED OCTOBER 9, 1994 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 36 WEEKS ENDED OCTOBER 10, 1993. Sales For the thirty-six weeks ended October 9, 1994, sales were $1,856.3 million, a decrease of $17.9 million or 1.0% from the thirty-six weeks ended October 10, 1993. During the first three quarters of the fiscal year ending January 29, 1995 ("Fiscal 1994"), Ralphs opened five new stores (three in Los Angeles County, one in San Diego County and one in Riverside County), closed two stores (in conjunction with new stores opening in the same areas), and completed three store remodels. Comparable store sales decreased 3.8%, which included an increase of 0.3% for replacement store sales, from $1,855.0 million in the first three quarters of Fiscal 1993 to $1,784.4 million in the first three quarters of 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. 46 56 Cost of Sales Cost of sales decreased $12.2 million or 0.8% from $1,445.2 million in the first three quarters of Fiscal 1993 to $1,433.0 million in the first three quarters of Fiscal 1994. As a percentage of sales, cost of sales increased to 77.2% in the first three quarters of Fiscal 1994 from 77.1% in the first three quarters of Fiscal 1993. The increase in cost of sales as a percentage of sales included a one-time charge for Teamsters Union sick pay benefits pursuant to a new contract ratified in August 1994 with the Teamsters. The total charge was $2.5 million, of which $2.1 million was included in cost of sales and $0.4 million in selling, general and administrative expense. Increases in cost of sales were partially offset by savings in warehousing and distribution costs, reductions in self-insurance costs, pass-throughs of increased operating costs and increases in relative margins where allowed by competitive conditions. Warehousing and distribution cost savings were primarily attributable to Ralphs' ASRS and PSC facilities. The ASRS facility can hold substantially more inventory and requires fewer employees to operate than does a conventional warehouse of equal size. This facility has reduced Ralphs' warehousing costs of non-perishable items markedly, enabling it to take advantage of advance buying opportunities and minimize "out-of-stocks." Ralphs engages in forward-buy purchases to take advantage of special prices or to delay the impact of upcoming price increases by purchasing and warehousing larger quantities of merchandise than immediately required. The PSC facility has consolidated the operations of three existing facilities and holds more inventory than the facilities it replaced, thereby reducing Ralphs' warehouse distribution costs. Over the last several years, Ralphs has been implementing modifications in its workers compensation and general liability insurance programs. Ralphs believes that these modifications have resulted in a significant reduction in self-insurance costs for Fiscal 1994. Based on a review of the results of these modifications by Ralphs and its actuaries, adjustments to the accruals for self-insurance costs were made during the second and third quarters of Fiscal 1994 resulting in reductions of approximately $7.8 million and $3.9 million, respectively. Of the total $11.7 million reduction in self-insurance costs, $4.3 million is included in cost of sales and $7.4 million is included in selling, general and administrative expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") decreased $3.4 million or 1.1% from $319.4 million in the first three quarters of Fiscal 1993 to $316.0 million in the first three quarters of Fiscal 1994. As a percentage of sales, SG&A decreased from 17.1% in the first three quarters of Fiscal 1993 to 17.0% in the first three quarters of 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 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 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 Fiscal 1994. In the first three quarters of Fiscal 1994 $8.7 million of the excess reserve was recognized. 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. 47 57 Operating Income Operating income in the first three quarters of Fiscal 1994 decreased 2.0% to $97.9 million from $99.9 million in the first three quarters of Fiscal 1993. Operating margin, defined as operating income as a percentage of sales, remained at 5.3% in the first three quarters of Fiscal 1994 and Fiscal 1993. EBITDA, defined as net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provision for post-retirement benefits, gain or loss on disposal of assets and a one-time charge for Teamsters Union sick pay benefits, was 8.4% of sales or $156.1 million in the first three quarters of Fiscal 1994 and 8.3% of sales or $155.9 million in the first three quarters of Fiscal 1993. Net Interest Expense Net interest expense for the first three quarters of Fiscal 1994 was $77.2 million versus $75.7 million for the first three quarters of Fiscal 1993. Net interest expense increased primarily as a result of increases in interest rates. Included as interest expense during the first three quarters of Fiscal 1994 was $66.5 million, representing interest expense on existing debt obligations, capitalized leases and a swap agreement. Comparable interest expense for the first three quarters of Fiscal 1993 was $64.6 million. Also included in net interest expense for the first three quarters of Fiscal 1994 was $10.7 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 $11.1 million for the first three quarters of Fiscal 1993. Investment income, which is immaterial, has been offset against interest expense. The continuation of higher interest rates subsequent to the end of the third quarter has continued to increase interest expense and adversely affect Ralphs' net income. Net Earnings For the first three quarters of Fiscal 1994, Ralphs reported net earnings of $19.9 million compared to net earnings of $23.8 million for the first three quarters of Fiscal 1993. The decrease in net earnings is primarily the result of decreased operating income and higher interest expense due to increased interest rates. Other In February 1994, the Board of Directors of RGC 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 RGC's indebtedness that impose limitations on the declaration or payment of dividends. RGC's 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. 48 58 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 $0.9 million or 0.2% from $466.7 million in Fiscal 1992 to $467.6 million in Fiscal 1993. As a percentage of sales, SG&A increased from 16.4% in Fiscal 1992 to 17.1% in Fiscal 1993. The increase in SG&A as a percentage of sales was the result of several factors including the soft sales environment. Increases in expense were partially offset by cost savings programs instituted by Ralphs. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both Fiscal 1992 and Fiscal 1993 the UFCW multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During Fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans are to receive a pro rata share of the excess reserve in these health care benefit plans through a reduction in current maintenance payments. Ralphs' share of the excess reserve was approximately $24.5 million of which $11.8 million was recognized in Fiscal 1993 and the remainder will be recognized in the fiscal year ending January 29, 1995. The change in health and welfare plan expenses resulted from the $11.8 million credit associated with the collective bargaining agreement as well as a reduction in the current year plan expense due to the overfunded status of the plan. Since employers are required to make contributions to the benefit funds at whatever level is necessary to maintain plan benefits, there can be no assurance that plan maintenance payments will remain at current levels. Partially offsetting the reductions of health and welfare maintenance payments was a $6.0 million contract ratification bonus paid by Ralphs at the conclusion of contract negotiations with the UFCW in Fiscal 1993. The $6.0 million contract ratification payment was an item separate from either of these plans. Operating Income Operating income in Fiscal 1993 increased to $152.1 million from $138.5 million in Fiscal 1992, a 9.8% increase. Operating margin increased in Fiscal 1993 to 5.6% from 4.9% in Fiscal 1992. This increase was primarily the result of the aforementioned improvements in Ralphs' cost of sales percentage. EBITDA, defined as net earnings before interest expense, income tax expense (benefit), depreciation and amortization expenses, post-retirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses and loss on disposal of assets, improved to $230.2 million or 8.4% of sales in Fiscal 1993 from $227.3 million or 8.0% of sales in Fiscal 1992. Net Interest Expense Net interest expense for Fiscal 1993 was $108.8 million, compared to $125.6 million for Fiscal 1992. The reduction in net interest expense was attributable to the refinancing and defeasance of Ralphs 14% Senior Subordinated Debentures due 2000 (the "14% Debentures") with the proceeds from the issuance of the Old RGC 9% Notes as the final step in a recapitalization plan initiated on July 30, 1992. Cash interest expense 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. 49 59 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. COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 31, 1993 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED FEBRUARY 2, 1992. Sales Fiscal 1992 sales were $2,843.8 million, a decrease of $45.4 million or 1.6% compared to Fiscal 1991. During Fiscal 1992, Ralphs opened six new stores, three in Los Angeles County, one in Riverside County, one in San Bernardino County and one in San Diego County, closed five stores and remodeled 23 stores. Comparable stores sales decreased 3.5%, which included an increase of 0.6% for replacement stores, from $2,859.4 million to $2,759.1 million in Fiscal 1992. Cost of Sales Cost of sales decreased $58.0 million or 2.5% from $2,275.2 million in Fiscal 1991 to $2,217.2 million in Fiscal 1992. As a percentage of sales, cost of sales declined to 78.0% in Fiscal 1992 from 78.8% in Fiscal 1991. The decrease in cost of sales as a percentage of sales was the result of the pass-through of increased operating costs, an increase in the mix of above average gross margin products and increases in relative margins where allowed by competitive conditions. The Company believes that through achieving cost savings and applying effective pricing policies, both cost and gross margins can be improved. However, given the highly competitive nature of the Southern California grocery market, such cost and gross margin improvements cannot be assured. Selling, General and Administrative Expenses SG&A increased $10.1 million or 2.2% from $456.6 million in Fiscal 1991 to $466.7 million in Fiscal 1992. As a percentage of sales, SG&A increased from 15.8% in Fiscal 1991 to 16.4% in Fiscal 1992. The increase in SG&A as a percent of sales was the result of several factors including the continuing soft sales 50 60 environment. Other factors impacting SG&A during Fiscal 1992 were increases in union wage rates. These expense increases were partially offset by significant cost savings programs instituted by Ralphs. These programs were intensified in the third quarter of Fiscal 1992 due to the prolonged period of soft sales experienced in Southern California. Operating Income Operating income in Fiscal 1992 increased to $138.5 million from $115.5 million in Fiscal 1991, a 19.9% increase. Operating margin increased in Fiscal 1992 to 4.9% from 4.0% in Fiscal 1991. This increase was primarily the result of the aforementioned improvements in Ralphs' cost of sales percentage and the vesting of then outstanding rights under Ralphs' 1988 Equity Appreciation Rights Plan. EBITDA, defined as net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provision for Equity Appreciation Rights, provision for tax indemnification payments to Federated, provision for post-retirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring and gains and losses on disposal of assets, improved to $227.3 million or 8.0% of sales in Fiscal 1992 from $225.8 million or 7.8% of sales in Fiscal 1991. Net Interest Expense Net interest expense for Fiscal 1992 was $125.6 million, including an adjustment of $2.3 million related to additional interest on self-insurance, compared to $130.2 million for Fiscal 1991. On July 30, 1992 Ralphs initiated its recapitalization plan, which was designed to reduce interest expense and improve financial flexibility. The first part of the recapitalization plan consisted of a tender offer for its 14% Debentures (of which $301.9 million were tendered), the issuance of $300 million Old RGC 10 1/4% Notes, and the new $470.0 million 1992 Credit Agreement. The 1992 Credit Agreement replaced the 1988 credit agreements (the "1988 Credit Agreements"), which were paid in full, including termination of existing interest rate swap agreements. Included as interest expenses during Fiscal 1992 was $105.5 million of cash interest as compared to $115.8 million for Fiscal 1991. Also included in interest expense for Fiscal 1992 was $20.1 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 $14.4 million for Fiscal 1991. Investment income, which is immaterial, has been offset against interest expenses. Recapitalization Charges In Fiscal 1992 Ralphs incurred a non-recurring after-tax charge of $70.6 million (net of a tax benefit of $4.2 million) in connection with the retirement of $400.0 million aggregate principal amount of the 14% Debentures and the write-off of deferred financing costs related to the $400.0 million principal amount of the 14% Debentures and the 1988 Credit Agreements, charges incurred to terminate interest rate swap agreements and costs related to a prospective equity offering. Incurrence of the non-recurring charge resulted in a substantial reduction in income taxes payable in Fiscal 1992. Net Loss In Fiscal 1992, Ralphs reported a net loss of $76.1 million compared to a loss of $41.2 million for Fiscal 1991. This increase in the loss was primarily the result of the consummation of the recapitalization plan, which resulted in an extraordinary charge, net of a tax benefit, of $70.6 million. In addition, a provision of $7.1 million was made for expenses related to the closing of the central bakery operation and a provision of $7.5 million was made for the maximum loss under a judgment rendered against Ralphs in December 1992. 51 61 RESULTS OF OPERATIONS OF FOOD 4 LESS The following table sets forth the historical operating results of Food 4 Less for the 52 weeks ended June 27, 1992 ("Fiscal 1992"), June 26, 1993 ("Fiscal 1993") and June 25, 1994 ("Fiscal 1994"), and for the 12 weeks ended September 18, 1993 and September 17, 1994:
52 WEEKS ENDED 12 WEEKS ENDED ---------------------------------------------------------- ------------------------------------- JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17, 1992 1993 1994 1993 1994 ---------------- ---------------- ---------------- ---------------- ---------------- (IN MILLIONS) (UNAUDITED) Sales...................... $2,913.5 100.0% $2,742.0 100.0% $2,585.2 100.0% $616.6 100.0% $598.7 100.0% Gross profit............... 520.8 17.9 484.2 17.7 469.3 18.1 112.4 18.2 103.0 17.2 Selling, general, administrative and other, net...................... 469.7 16.1 434.9 15.9 388.8 15.0 95.7 15.5 88.1 14.7 Amortization of excess costs over net assets acquired................. 7.8 0.3 7.6 0.3 7.7 0.3 1.8 0.3 1.8 0.3 Operating income........... 43.3 1.5 41.7 1.5 72.8 2.8 14.9 2.4 13.1 2.2 Interest expense........... 70.2 2.4 69.8 2.5 68.3 2.6 15.7 2.6 16.0 2.7 Loss (gain) on disposal of assets .................. (1.3) -- (2.1) (0.1) -- -- -- -- (0.5) (0.1) Provision for earthquake losses................... -- -- -- -- 4.5 0.2 -- -- -- -- Provision for income taxes.................... 3.4 0.1 1.4 0.1 2.7 0.1 0.3 -- 0.9 0.2 Loss before extraordinary charge................... (29.0) (1.0) (27.4) (1.0) (2.7) (0.1) (1.1) (0.2) (3.3) (0.6) Extraordinary charges...... 4.8 0.2 -- -- -- -- -- -- -- -- Net loss................... (33.8) (1.2) (27.4) (1.0) (2.7) (0.1) (1.1) (0.2) (3.3) (0.6)
COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED SEPTEMBER 17, 1994 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED SEPTEMBER 18, 1993 Sales Sales decreased $17.9 million, or 2.9%, from $616.6 million in the 12 weeks ended September 18, 1993, to $598.7 million in the 12 weeks ended September 17, 1994, primarily as a result of a 5.8% decline in comparable store sales partially offset by sales from 18 new stores opened since September 18, 1993. Management believes that the decline in comparable store sales is attributable to the continuing softness of the economy in Southern California and, to a lesser extent, in Food 4 Less' other operating areas, and increased competitive store openings and remodels in Southern California. Gross Profit Gross profit decreased as a percentage of sales from 18.2% in the 12 weeks ended September 18, 1993, to 17.2% in the 12 weeks ended September 17, 1994. The decrease in gross profit margin resulted primarily from pricing and promotional activities related to Food 4 Less' "Total Value Pricing" program, an increase in the number of warehouse format stores (which have lower gross margins resulting from prices that are generally 5-12% below the prices in the Food 4 Less' conventional stores) from 46 at September 18, 1993, to 69 at September 17, 1994, and the effect of the fixed cost component of gross profit as compared to a lower sales base. The decrease in gross profit was partially offset by improvements in product procurement and an increase in vendors' participation in Food 4 Less' promotional costs. Selling, General, Administrative and Other Expenses, Net Selling, general, administrative and other expenses ("SG&A") were $95.7 million and $88.1 million for the 12 weeks ended September 18, 1993 and September 17, 1994, respectively. SG&A decreased as a percentage of sales from 15.5% to 14.7% for the same periods. Food 4 Less experienced a reduction of workers' compensation and general liability self-insurance costs of $3.5 million due to continued improvement in the cost and frequency of claims. The improved experience was due primarily to cost control programs implemented by Food 4 Less, including awards for stores with the best loss experience, specific achievable goals for each store, and increased monitoring of third-party administrators, and, to a lesser extent, a lower 52 62 sales base which reduced Food 4 Less' exposure. In addition, Food 4 Less maintained tight control of administrative expenses and store level expenses, including advertising, payroll (due primarily to increased productivity), and other controllable store expenses. Because Food 4 Less' warehouse stores have lower SG&A than conventional stores, the increase in the number of warehouse stores, from 46 at September 18, 1993, to 69 at September 17, 1994, also contributed to decreased SG&A as a percentage of sales. The reduction in SG&A as a percentage of sales was partially offset by the effect of the fixed cost component of SG&A as compared to a lower sales base. Food 4 Less participates in multi-employer health and welfare plans for its store employees who are members of the UFCW. As part of the renewal of the Southern California UFCW contract in October 1993, employers contributing to UFCW health and welfare plans are to receive a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. Food 4 Less' share of the excess reserves was $24.2 million, of which Food 4 Less recognized $8.1 million in Fiscal 1994 and $4.7 million in the 12 weeks ended September 17, 1994. The remainder of the excess reserves will be recognized as the credits are taken in the future. On August 28, 1994, the Teamsters and Food 4 Less ratified a new contract which, among other things, provided for the vesting of sick pay benefits resulting in a one-time charge of $2.1 million. Interest Expense Interest expense (including amortization of deferred financing costs) increased $0.3 million from $15.7 million to $16.0 million for the 12 weeks ended September 18, 1993 and September 17, 1994, respectively. The increase in interest expense was due primarily to increasing interest rates on the revolving credit facility and the term loan portions of the Old F4L Credit Agreement. These increases were partially offset by the reduction of indebtedness under such term loan and such revolving credit facility as a result of amortization payments. As a result of the higher capital expenditures subsequent to the end of its first quarter, Food 4 Less has increased its borrowing under the Old F4L Credit Agreement, which, coupled with increased rates, has increased its interest expense and net loss during such period. Net Loss Primarily as a result of the factors discussed above, Food 4 Less' net loss increased from $1.1 million in the 12 weeks ended September 18, 1993, to $3.3 million in the 12 weeks ended September 17, 1994. COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 25, 1994 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26, 1993. Sales Sales decreased $156.8 million or 5.7% from $2,742.0 million in Fiscal 1993 to $2,585.2 million in Fiscal 1994. The decrease in sales resulted primarily from a 6.9% decline in comparable store sales. The decline in comparable store sales primarily reflects (i) the continuing softness of the economy in Southern California, (ii) lower levels of price inflation in certain key food product categories, and (iii) competitive factors, including new stores, remodeling and recent pricing and promotional activity. This decrease in sales was partially offset by sales from 13 stores opened or acquired during Fiscal 1994. Gross Profit Gross profit increased as a percent of sales from 17.7% in Fiscal 1993 to 18.1% in Fiscal 1994. The increase in gross profit margin was attributable to improvements in product procurement and an increase in vendors' participation in Food 4 Less' promotional costs. These improvements were partially offset by an increase in the number of warehouse format stores (which have lower gross margins resulting from prices that are generally 5-12% below the prices in Food 4 Less' conventional stores) from 45 at June 26, 1993 to 66 at June 25, 1994, and the effect of the fixed cost component of gross profit as compared to a lower sales base. 53 63 Selling, General, Administrative and Other Expenses, Net SG&A was $434.9 million and $388.8 million in Fiscal 1993 and Fiscal 1994, respectively. SG&A decreased as a percent of sales from 15.9% to 15.0% for the same periods. Food 4 Less experienced a reduction of self-insurance costs of $18.2 million due to continued improvement in the cost and frequency of claims. The improved experience was due primarily to cost control programs implemented by Food 4 Less, including awards for stores with the best loss experience, specific achievable goals for each store, and increased monitoring of third-party administrators, and, to a lesser extent, a lower sales base which reduced Food 4 Less' exposure. In addition, Food 4 Less maintained tight control of administrative expenses and store level expenses, including payroll (due primarily to increased productivity), advertising, and other controllable store expenses. Because Food 4 Less' warehouse stores have lower SG&A than conventional stores, the increase in the number of warehouse stores, from 45 at June 26, 1993 to 66 at June 25, 1994, also contributed to decreased SG&A as a percentage of sales. The reduction in SG&A as a percentage of sales was partially offset by the effect of the fixed cost component of SG&A as compared to a lower sales base. Food 4 Less participates in multi-employer health and welfare plans for its store employees who are members of the UFCW. As part of the renewal of the Southern California UFCW contract in October 1993, employers contributing to UFCW health and welfare plans are to receive a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. Food 4 Less' share of the excess reserves was $24.2 million, of which Food 4 Less recognized $8.1 million in Fiscal 1994 and the remainder of which will be recognized as the credits are taken in the future. Offsetting the reduction in employer contributions was a $5.5 million contract ratification bonus and contractual wage increases. Interest Expense Interest expense (including amortization of deferred financing costs) decreased $1.5 million from $69.8 million to $68.3 million for Fiscal 1993 and Fiscal 1994, respectively. The decrease in interest expense is due primarily to reduced borrowings under Food 4 Less' credit agreement dated as of June 17, 1991, as amended (the "F4L Credit Agreement"). Provision for Earthquake Losses On January 17, 1994, Southern California was struck by a major earthquake which resulted in the temporary closing of 31 of Food 4 Less' stores. The closures were caused primarily by loss of electricity, water, inventory, or structural damage. All but one of the closed stores reopened within a week of the earthquake. The final closed store reopened on March 24, 1994. Food 4 Less is insured against earthquake losses (including business interruption), subject to certain deductibles. The pre-tax financial impact, net of expected insurance recovery, was approximately $4.5 million. Net Loss Primarily as a result of the factors discussed above, Food 4 Less' net loss decreased from $27.4 million in Fiscal 1993 to $2.7 million in Fiscal 1994. COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26, 1993 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 27, 1992. Sales Sales decreased $171.5 million or 5.9% from $2,913.5 million in Fiscal 1992 to $2,742.0 million in Fiscal 1993, primarily as a result of a 5.1% decline in comparable store sales and a net reduction in Food 4 Less' total store count of one store at June 26, 1993 compared to June 27, 1992. Management believes that the decline in comparable store sales was attributable to (i) the weak economy in Southern California, and, to a lesser extent, in Food 4 Less' other operating areas, (ii) lower levels of price inflation in certain key food categories, and (iii) increased competitive store openings in Southern California. 54 64 Gross Profit Gross profit decreased as a percent of sales from 17.9% in Fiscal 1992 to 17.7% in Fiscal 1993 primarily as a result of an increase in the number of Food 4 Less warehouse stores (which have lower gross margins resulting from prices that are generally 5-12% below the prices in Food 4 Less' conventional stores), from 34 stores in Fiscal 1992 to 45 stores in Fiscal 1993, and as a result of the fixed cost component of gross profit being compared to a lower sales base, partially offset by increases in relative margins allowed by competitive conditions, improvements in the procurement function, and cost savings and operating efficiencies associated with Food 4 Less' warehousing and manufacturing facilities. Selling, General, Administrative and Other Expenses, Net SG&A was $469.7 million and $434.9 million in Fiscal 1992 and Fiscal 1993, respectively. SG&A decreased as a percent of sales from 16.1% to 15.9% for the same periods as a result of tight control of direct store expenses, primarily payroll costs, the impact in Fiscal 1992 of the $12.8 million non-cash self-insurance reserve adjustment partially offset by market-wide contractual increases in union wages, current year increases in workers' compensation costs primarily associated with the new law which took effect in 1990, and the fixed cost component of SG&A being compared to a lower sales base. Interest Expense Interest expense (including amortization of deferred financing fees) was $70.2 million for Fiscal 1992 and $69.8 million for Fiscal 1993, respectively. The decrease in interest expense is due to the reduction of indebtedness as a result of amortization payments combined with decreasing interest rates on the term loan under the F4L Credit Agreement, partially offset by higher interest expense incurred in connection with the Old F4L Senior Notes which replaced lower cost debt under the F4L Credit Agreement. Loss Before Extraordinary Charge Primarily as a result of the factors discussed above, Food 4 Less' loss before extraordinary charge decreased from $29.0 million in Fiscal 1992 to $27.4 million in Fiscal 1993. Food 4 Less recorded a net extraordinary charge of $4.8 million in Fiscal 1992, reflecting the write-off of certain deferred financing costs which were partially offset by a gain on the replacement of partially depreciated assets following the civil unrest in Los Angeles. LIQUIDITY AND CAPITAL RESOURCES In order to consummate the Merger, Holdings and Food 4 Less expect to utilize total new financing proceeds in the amount of approximately $1.3 billion. Pursuant to the New Equity Investment, New Holdings (as the successor to Holdings) will issue capital stock for total cash proceeds of approximately $150 million (excluding a $5.0 million commitment fee). In addition, Food 4 Less will enter into the New Credit Facility pursuant to which it will have available up to $750 million of New Term Loans, all of which is anticipated to be drawn at the Closing Date and will have available a $325 million New Revolving Facility, of which $18.4 million is anticipated to be drawn at the Closing Date. Food 4 Less will also issue up to $400 million principal amount of New F4L Senior Notes pursuant to the Public Offering. The proceeds from the New Credit Facility and the Public Offering, together with the $150 million proceeds of the New Equity Investment and $100 million principal amount of the Seller Debentures, will provide the sources of financing required to consummate the Merger and to repay existing bank debt of approximately $165.7 million at Food 4 Less and $291.0 million at Ralphs and existing mortgage debt of $174.4 million (excluding prepayment fees) at Ralphs. Proceeds from the New Term Loans and the Public Offering will also be used to pay the cash portion of the Exchange Offers, the RGC Exchange Offers and the Holdings Consent Solicitation, as well as the Change of Control Offer, and accrued interest on all exchanged debt securities in the amount of $20.7 million (as of March 1, 1995), to pay $22.8 million to the holders of Ralphs Equity Appreciation Rights and to pay up to $115.6 million of fees and expenses of the Merger and the Financing. The Company will also assume certain existing indebtedness of Food 4 Less and Ralphs. Pursuant to the Exchange Offers described hereunder and the RGC Exchange Offers, Food 4 Less will seek the exchange of at least 80% of the Old RGC 55 65 Notes for the New RGC Notes and the exchange of at least 80% of the Old F4L Notes for New F4L Senior Notes and New F4L Senior Subordinated Notes, as the case may be. The primary purpose of the Exchange Offers described hereunder and the RGC Exchange Offers is to refinance Food 4 Less' and RGC's existing public debt securities with longer term public debt securities, to obtain all necessary consents to consummate the Merger and to eliminate substantially all of the restrictive covenants in the Old RGC Indentures and Old F4L Indentures. After the Merger the Company's principal sources of liquidity are expected to be cash flow from operations, borrowings under the New Revolving Facility and capital and operating leases. It is anticipated that the Company's principal uses of liquidity will be to provide working capital, finance capital expenditures, including the costs associated with the integration of Food 4 Less and Ralphs, and to meet debt service requirements. The New Revolving Facility will be a $325 million line of credit which will be available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support standby letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the New Credit Facility. The Company anticipates that letters of credit for approximately $101 million will be drawn under the New Revolving Facility at closing, in replacement of existing letters of credit, primarily to satisfy the State of California's requirements relating to workers compensation self-insurance. The New Revolving Facility will be non-amortizing and will have a six-year term. The Company will be required to reduce loans outstanding under the New Revolving Facility to $75 million for a period of not less than 30 consecutive days during each consecutive 12-month period. Assuming that the Merger closes on March 1, 1995, giving effect to currently anticipated borrowings and letter of credit issuances, the Company's remaining borrowing availability under the New Revolving Facility would have been approximately $205.6 million. Pursuant to the New Credit Facility, the New Term Loans will be issued in four tranches: (i) Tranche A, in the amount of $375 million, will have a six-year term; (ii) Tranche B, in the amount of $125 million, will have a seven-year term; (iii) Tranche C, in the amount of $125 million, will have an eight-year term; and, (iv) Tranche D, in the amount of $125 million, will have a nine-year term. The New Term Loans will require quarterly amortization payments aggregating $3.8 million in the first year, $48.8 million in the second year and increasing thereafter. The New Credit Facility will be guaranteed by New Holdings and each of the Company's subsidiaries and secured by liens on substantially all of the unencumbered assets of the Company and its subsidiaries and by a pledge of New Holdings' stock in the Company. The New Credit Facility will contain financial covenants which are expected to require, among other things, the maintenance of specified levels of cash flow and stockholder's equity. See "Description of the New Credit Facility." Standard & Poor's has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline under the Old RGC Indentures. The consummation of the Merger (which is conditioned on, among other things, successful consummation of the Other Debt Financing Transactions and the Bank Financing, which itself is conditioned upon at least 80% of the aggregate principal amount of Old RGC Notes being tendered into the RGC Exchange Offers) and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline would constitute a Change of Control Triggering Event under the Old RGC Indentures. Upon such a Change of Control Triggering Event the Company would be obligated to make the Change of Control Offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof ($90.9 million, assuming $90 million of Old RGC Notes are outstanding following the Merger) plus accrued and unpaid interest to the date of repurchase. A portion of the proceeds from the Public Offering will be available to fund the purchase of Old RGC Notes tendered pursuant to the Change of Control Offer. Management anticipates that significant capital expenditures will be required following the Merger in connection with the integration of Ralphs and Food 4 Less. In order to implement the Company's store format strategy, up to 122 conventional stores currently operated by Food 4 Less will be converted to the Ralphs format and 16 conventional stores (primarily Boys and Viva) and 23 Ralphs will be converted to the Food 4 Less warehouse format. An additional 18 Ralphs and Food 4 Less warehouse stores are scheduled to be opened during calendar 1995. Other anticipated Merger-related capital expenditures are expected to include 56 66 the expansion of Ralphs' ASRS and PSC facilities in order to support the additional volume of the Food 4 Less stores. It is estimated that the gross capital expenditures to be made by the Company in the first fiscal year following the closing will be approximately $159 million (or $110 million net of expected capital leases), of which approximately $98.0 million relate to ongoing expenditures for new stores, equipment and maintenance and approximately $61.0 million relate to store conversions and other Merger-related and non-recurring items. An additional $33 million of Merger-related and non-recurring capital expenditure items (or $22 million net of expected capital leases) are anticipated to be incurred in the second year following the consummation of the Merger. Management expects that these expenditures will be financed primarily through cash flow from operations and capital leases. Ralphs cash flow from operating activities was $43.5 million for the 36 weeks ended October 9, 1994 and $104.0 million for Fiscal 1993. Food 4 Less generated approximately $87.8 million of cash from operating activities during the 52-week period ended June 25, 1994 and $9.5 million of cash from operating activities during the 12 weeks ended September 17, 1994 (as compared to $29.1 million during the 12 weeks ended September 18, 1993). The decrease in cash from operating activities is due primarily to changes in operating assets and liabilities. The Company anticipates that one of the principal uses of cash in its operating activities will be inventory purchases. However, supermarket operators typically require small amounts of working capital since inventory is generally sold prior to the time that payments to suppliers are due. This reduces the need for short-term borrowings and allows cash from operations to be used for non-current purposes such as financing capital expenditures and other investing activities. Consistent with this pattern, Ralphs and Food 4 Less had working capital deficits of $118.3 million and $58.1 million at October 9, 1994 and September 17, 1994, respectively. Ralphs cash used in investing activities was $45.5 million during Fiscal 1993 and $38.2 million during the thirty-six weeks ended October 9, 1994. These amounts reflected increased capital expenditures related to store remodels and new store openings (including store acquisitions) and, to a lesser extent, expansion of other warehousing, distribution and manufacturing facilities and equipment, including data processing and computer systems. For the 52 weeks ended June 25, 1994, Food 4 Less' cash used in investing activities was $55.8 million. Investing activities consisted primarily of capital expenditures of $57.5 million, partially offset by $9.3 million of sale/leaseback transactions, and $11.1 million of costs in connection with the acquisition of ten former "Food Barn" stores. For the 12 weeks ended September 17, 1994, Food 4 Less' cash used in investing activities was $14.0 million. Investing activities consisted primarily of capital expenditures of $16.8 million, partially offset by $2.1 million of sale/leaseback transactions. The capital expenditures, net of the proceeds from sale/leaseback transactions, and the Food Barn acquisition costs were financed with cash provided by operating activities. Food 4 Less' capital expenditures in the current fiscal year include the costs associated with the conversion of 16 of its conventional format stores to the Food 4 Less warehouse format. See "Business -- The Merger -- Two Leading Complimentary Formats." In order to complete these conversions prior to the consummation of the Merger as contemplated, Food 4 Less accelerated its budgeted capital expenditures for the year. In January, 1995, Food 4 Less entered into an amendment to the Old F4L Credit Agreement to accommodate the revised capital expenditure program. Ralphs and FFL have significant net operating loss carryforwards for regular federal income tax purposes. As a result of the Merger and the New Equity Investment, the Company's ability to utilize such loss carryforwards in future periods will be limited to approximately $15.6 million per year with respect to FFL net operating loss carryforwards and approximately $15.0 million per year with respect to Ralphs' net operating loss carryforwards. The Company does not expect the Merger to materially adversely affect any of its other tax assets. The Company will be a party to a tax sharing agreement with New Holdings and the subsidiaries of the Company. Pursuant to the tax sharing agreement, payments by the Company will not exceed the amount it would be required to pay if its consolidated liability was calculated on a separate company basis. See "Certain Relationships and Related Transactions." The Company will continue to be a party to an indemnification agreement with Federated and certain other parties. See Note 1 of Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc. Pursuant to the terms of such agreement, Ralphs will make annual tax payments of $1.0 million in 1995 and 1996 and a final tax payment of $5.0 million in 1997. 57 67 Following the Merger, the Company will be a wholly-owned subsidiary of New Holdings. New Holdings will have outstanding $103.6 million aggregate principal amount of the Holdings Discount Notes (with an accreted value of $61.4 million) as of September 17, 1994 and following the Merger, New Holdings will have an additional $100.0 million principal amount of the Seller Debentures outstanding. New Holdings is a holding company which will have no assets other than the capital stock of the Company. New Holdings will be required to commence semi-annual cash payments of interest on the Holdings Discount Notes on June 15, 1998 in the amount of approximately $15.8 million per annum. New Holdings will also be required to commence semi-annual cash payments of interest on the Seller Debentures commencing five years from their date of issuance in the amount of $24.4 million per annum. Subject to the limitations contained in its debt instruments, the Company intends to make dividend payments to New Holdings in amounts which are sufficient to permit New Holdings to service its cash interest requirements. The Company may pay other dividends to New Holdings in connection with certain employee stock repurchases and for routine administrative expenses. Following the consummation of the Merger and the Financing, the Company will be highly leveraged. Based upon current levels of operations and anticipated cost savings and future growth, the Company believes that its cash flow from operations, together with available borrowings under the New Revolving Facility and its other sources of liquidity (including leases), will be adequate to meet its anticipated requirements for working capital, capital expenditures, integration costs and interest payments. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that future costs savings and growth can be achieved. See "Risk Factors -- Leverage and Debt Service." Interest Rate Protection Agreements Ralphs and Food 4 Less currently are parties to certain interest rate protection agreements required under the terms of their existing bank indebtedness. In connection with the New Credit Facility, these interest rate protection agreements will be replaced by a new agreement which will be finalized prior to the closing of the Merger. The Company will be exposed to credit loss in the event of nonperformance by the counterparty to the interest rate protection agreement. However, the Company does not anticipate nonperformance by such counterparty. The following details the impact of Ralphs' hedging activity on its weighted average interest rate for each of the last three fiscal years of Ralphs:
WITH WITHOUT HEDGE HEDGE -------- -------- 1991............................................ 11.87% 11.52% 1992............................................ 10.52% 10.22% 1993............................................ 8.96% 8.96%
The following details the impact of Food 4 Less' hedging activity on its weighted average interest rate for each of the last three fiscal years of Food 4 Less:
WITH WITHOUT HEDGE HEDGE -------- -------- 1992............................................ 10.28% 10.25% 1993............................................ 10.07% 10.03% 1994............................................ 10.10% 10.09%
Effects of Inflation The Company's primary costs, inventory and labor, are affected by a number of factors that are beyond its control, including inflation, availability and price of merchandise, the competitive climate and general and regional economic conditions. As is typical of the supermarket industry, Ralphs and Food 4 Less have generally been able to maintain margins by adjusting their retail prices, but competitive conditions may from time to time render the Company unable to do so while maintaining its market share. 58 68 BUSINESS THE MERGER The combination of Ralphs Grocery Company and Food 4 Less Supermarkets, Inc. will create the largest food retailer in Southern California. Pro forma for the Merger, the Company will operate approximately 332 Southern California stores with an estimated 26% market share among the area's supermarkets. The Company will operate the second largest conventional supermarket chain in the region under the "Ralphs" name and the largest warehouse supermarket chain in the region under the "Food 4 Less" name. In addition, the Company will operate approximately 24 conventional format stores and 39 warehouse format stores in Northern California and the Midwest. On a pro forma basis giving effect to the Merger, the Company would have had sales, operating income and EBITDA (as defined) of approximately $5.1 billion, $183 million and $343 million, respectively, for the twelve months ending June 25, 1994. TWO LEADING COMPLEMENTARY FORMATS In Southern California the Company plans to convert up to 122 conventional stores currently operated by Food 4 Less to the "Ralphs" name and format and 39 Ralphs and Food 4 Less conventional stores to the "Food 4 Less" name and warehouse format. As a result, and pro forma for the Merger, Ralphs will be the region's second largest conventional format supermarket chain, with 264 stores and Food 4 Less will be the region's largest warehouse format supermarket chain with 68 stores. The Ralphs stores will continue to emphasize a broad selection of merchandise, high quality fresh produce, meat and seafood and service departments, including bakery and delicatessen departments in most stores. The Company's conventional stores will also benefit from Ralphs' strong private label program and its strengths in merchandising, store operations and systems. Passing on format-related efficiencies, the Company's price impact warehouse format stores will continue to offer consumers the lowest overall prices while still providing product selections comparable to conventional supermarkets. Management believes the Food 4 Less warehouse format has demonstrated its appeal to a wide range of demographic groups in Southern California and offers a significant opportunity for future growth. The Company plans to open nine new Food 4 Less warehouse stores and 21 new Ralphs stores over the next two years. Management believes the consolidation of its formats will improve the Company's ability to adapt its stores' merchandising strategy to the local markets in which they operate while achieving cost savings and other efficiencies. These conversions will be effected in three phases which the Company believes will be completed within the first 18 months of combined operation. Phase 1. Food 4 Less is currently in the process of converting 16 of its conventional format stores operated under the names "Viva," "Alpha Beta" and "Boys" into Food 4 Less warehouse format supermarkets. These conversions have already begun at the rate of two stores per week. Management expects that each such conversion will take up to eight weeks to complete and may require the store to be closed for up to two weeks during such period. Management believes that these Phase 1 conversions, which were planned independently, will be completed prior to the consummation of the Merger at a cost of approximately $1 million per store. Phase 2. Following the Merger, the Company plans to begin converting up to 122 conventional format stores currently operated by Food 4 Less under the names "Viva," "Alpha Beta" and "Boys" into Ralphs conventional format stores. It is anticipated that these conversions will be completed at the rate of approximately 10 stores per week. Management expects that the Company will be able to substantially complete each conversion without closing the store. Management believes that these Phase 2 conversions will be completed within the first 12-16 weeks of the Company's combined operation at a cost of approximately $75,000 per store. Phase 3. Following the Merger, the Company also plans to convert 23 conventional Ralphs format stores into Food 4 Less warehouse format stores. Management expects that each such conversion will take up to eight weeks and may require the store to be closed for up to two weeks during such period. Management believes that these Phase 3 conversions will be completed within the first 18 months of the Company's combined operation at a cost of approximately $1 million per store. 59 69 The following table summarizes the store formats to be operated by the Company in Southern California both before and after giving effect to the conversion program:
PRO FORMA NUMBER OF ACTUAL STORES(1) ---------- ------------------------- OCTOBER 1, PRIOR TO FOLLOWING STORE FORMATS 1994 CONVERSION CONVERSION -------------------------------------------------- ---------- ---------- ---------- Ralphs Conventional............................... 168 165 264 Food 4 Less Warehouse............................. 30 29 68 Alpha Beta Conventional........................... 129 105 0 Viva Conventional................................. 15 13 0 Boys Conventional................................. 24 20 0 --- --- --- Total........................................... 366 332 332
- - --------------- (1) Pro forma store numbers give effect to the anticipated Merger-related divestiture or closing of 32 stores open at October 1, 1994 and the closure of two additional Food 4 Less conventional stores. Ralphs Conventional Format. Following completion of the store conversions described above, and pro forma for the Merger, the Company will operate 264 Ralphs stores in Southern California. Management believes these conversions will enhance Ralphs' market position and competitive advantages. Converted stores will benefit from Ralphs strengths in merchandising, store operations, systems and technology. Although all Ralphs stores use the Ralphs name and are operated under a single format, each store is merchandised to appeal to the local community it serves. Ralphs' substantial supermarket product selection is a significant aspect of its marketing efforts: Ralphs stocks between 20,000 and 30,000 merchandise items in its stores, including approximately 2,800 private label products, representing 17.3% of sales (excluding meat, service delicatessen and produce items) during Fiscal 1993. Ralphs stores offer name-brand grocery products; quality and freshness in its produce, meat, seafood, delicatessen and bakery products; and broad selection in all departments. Most existing Ralphs stores offer service delicatessen departments, on-premises bakery facilities and seafood departments. Ralphs emphasizes store ambiance and cleanliness, fast and friendly service, the convenience of debit and credit card payment (including in-store branch banks) and 24-hour operations in most stores. Food 4 Less' 168 conventional supermarkets, currently operated under the names "Alpha Beta," "Boys" and "Viva," are located throughout densely populated areas of Los Angeles and surrounding counties, including both suburban and urban neighborhoods. Food 4 Less' merchandising strategy for conventional stores has been tailored to the community each store services, but has emphasized customer service, quality of merchandise, and a large variety of product offerings in modern store environments. Of Food 4 Less' 168 conventional supermarkets, up to 122 are intended to be converted to the "Ralphs" name and format, 16 will be converted to the "Food 4 Less" warehouse format and the remainder are expected to be closed or sold. Food 4 Less Warehouse Format. Following completion of the store conversions described above, and pro forma for the Merger, the Company will operate 68 Food 4 Less warehouse stores in Southern California. The conversions will substantially accelerate the growth of the Food 4 Less format and will enhance the Company's position as the largest operator of warehouse supermarkets in Southern California. In addition to the conversions, the Company plans to continue its rapid growth of the Food 4 Less format by opening nine new warehouse format stores over the next two years, including five stores in San Diego, a new market for Food 4 Less. Management believes the expansion of warehouse format stores will create efficiencies in warehousing, distribution, and administrative functions. Food 4 Less' warehouse format stores target the price-conscious segment of the market, encompassing a wide range of demographic groups in both urban and suburban areas. Food 4 Less attempts to offer the lowest overall prices in its marketing areas by passing savings on to the consumer while providing the product selection associated with a conventional format. Savings are achieved through labor efficiencies and lower overhead and advertising costs associated with the warehouse format. In-store operations are designed to allow customers to perform certain labor-intensive services usually offered in conventional supermarkets. For example, merchandise is presented on warehouse style racks in full cartons, reducing labor intensive unpacking, and customers bag their own groceries. Labor costs are also reduced since the stores generally do 60 70 not have service departments such as delicatessens, bakeries and fresh seafood departments, although they do offer a complete line of fresh meat, fish, produce and baked goods. Additionally, labor rates are generally lower than in conventional supermarkets. The Food 4 Less format generally consists of large facilities constructed with high ceilings to accommodate warehouse racking with overhead pallet storage. Wide aisles accommodate forklifts and, compared to conventional supermarkets, a higher percentage of total store space is devoted to retail selling because the top of the warehouse-style grocery racks on sales floors are used to store inventory. This reduces the need for large backroom storage. The Food 4 Less warehouse format supermarkets have brightly painted walls and inexpensive signage in lieu of more expensive graphics. In addition, a "Wall of Values" located at the entrance of each store presents the customer with a selection of specially priced merchandise. SUBSTANTIAL COST SAVINGS OPPORTUNITIES Management believes that approximately $90 million of net annual cost savings will be achieved by the end of the fourth full year of combined operations. It is also anticipated that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over the same period. Although a portion of the anticipated cost savings is premised upon the completion of such capital expenditures, management believes that over 70% of the cost savings could be achieved without making any Merger-related capital expenditures. The following anticipated savings are based on estimates and assumptions made by the Company that are inherently uncertain, though considered reasonable by the Company, and are subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of management. There can be no assurance that such savings will be achieved. The sum of the components of the estimated cost savings exceeds $90 million; however, management has made an offsetting adjustment to reflect its expectation that a portion of the savings will be reinvested in the Company's operations. See "Risk Factors -- Ability to Achieve Anticipated Cost Savings." Reduced Advertising Expenses. As a result of the consolidation of conventional format stores in Southern California under the "Ralphs" name, the Company will eliminate advertising associated with Food 4 Less' existing Alpha Beta, Boys and Viva formats. Because Ralphs' current advertising program now covers the Southern California region, the Company will be able to expand the number of Ralphs stores without significantly increasing advertising costs. Management estimates that annual advertising cost savings of approximately $28 million will be achieved in the first full year of combined operations. Reduced Store Operations Expense. Management expects to reduce store operations costs as a result of both reduced labor and benefit costs and reduced non-labor expenses. Projected labor and benefit cost savings are based primarily on Ralphs' labor scheduling system, which has reduced Ralphs' labor costs relative to those of Food 4 Less. Other labor savings will result from the reduction of certain high-cost labor as a result of changed manufacturing, warehouse and distribution practices, and productivity enhancements resulting from the installation of Ralphs store level systems. Non-labor expense reductions are based primarily on the installation of Ralphs' computerized energy management equipment in Food 4 Less stores which will require significant capital expenditures. The expense savings associated with the use of this equipment is based on Ralphs' historical experience. Other significant non-labor expense reductions are projected to come from improved safety programs, increased cardboard baling revenues, changes to guard and shoplift agent programs and a reduction in supply and packaging costs. Total labor and non-labor operational savings estimated at approximately $21 million annually are anticipated to be achieved by the fourth full year of combined operation. Increased Volume Purchasing Efficiencies. Management has identified approximately $19 million of cost savings it believes can be achieved as a result of purchasing efficiencies. These efficiencies consist primarily of (i) savings from increased discounts and allowances as a result of the combined volume of the two companies; (ii) an improvement in the terms of vendor contracts for products carried in the Company's stores on an exclusive or promoted basis; and (iii) savings from the conversion of some less-than-truckload shipping 61 71 quantities to full truckload quantities. These savings are anticipated to be achieved by the second full year of combined operation. Warehousing and Distribution Efficiencies. The consolidation of the Company's warehousing and distribution facilities into Ralphs' two primary facilities located in Compton, California and in the Atwater district of Los Angeles and Food 4 Less' primary facility located in La Habra, California will result in lower outside storage, transportation and labor costs. The Company plans facility additions at one Ralphs facility to accommodate the additional volume as a result of such consolidation. Management anticipates improvements in the areas of automation, inventory management and handling, delivering, scheduling and route optimization and worker safety. In addition, the Company plans to close two existing facilities, which will result in lower occupancy expenses. Management believes that annual savings of approximately $16 million associated with warehousing and distribution will be achieved, before giving effect to capital expenditures in connection with facilities expansions and facility closing costs. Such savings are expected to be achieved by the third full year of combined operations. Consolidated Manufacturing. Ralphs and Food 4 Less operate manufacturing facilities that produce similar products or have excess capacity. Through the consolidation of meat, bakery, dairy and other manufacturing and processing operations, and the discontinuance of external purchases of certain goods that can be manufactured internally, management believes that annual cost savings of approximately $11 million can be achieved. In each instance, management has identified the facilities best suited to the needs of the combined company and has estimated the expense savings associated with each consolidation. The combined company will utilize a 316,000 square foot bakery and a 25,722 square foot milk processing plant, located at Food 4 Less' La Habra facility, and a 28,000 square foot milk processing plant, a 9,000 square foot ice cream processing plant, and a 23,000 square foot delicatessen kitchen located at Ralphs' Compton facilities. Previously, Ralphs purchased bakery products externally and Food 4 Less purchased ice cream and delicatessen items externally. Management also plans to utilize Ralphs' third party meat processors, which have historically provided Ralphs with a full line of prefabricated and retail cuts of beef, to produce meat for Food 4 Less stores. Management anticipates that manufacturing expense savings will be achieved by the second full year of combined operation. Consolidated Administrative Functions. The Company expects to achieve savings from the elimination of redundant administrative staff, the consolidation of management information systems and a decreased reliance on certain outside services and consultants. To reduce headcount, the Company plans to target several functions for consolidation, including accounting, marketing, management information systems, and administration and human resources. The Company plans to eliminate a data processing center, which is anticipated to result in savings in the areas of equipment, software, headcount and outside programmer fees. The Company also plans to eliminate the use of third party administrators to handle workers compensation and general liability claims. Management estimates that annual savings of approximately $15 million associated with consolidating administrative functions will be achieved by the second full year of combined operation. EXPERIENCED MANAGEMENT TEAM The executive officers of the Company have extensive experience in the supermarket industry. The strength of Ralphs management expertise is evidenced by Ralphs' reputation for quality and service, its technologically advanced systems, strong store operations and high historical EBITDA margins. The Food 4 Less management team will provide valuable experience in operating warehouse supermarkets and in effectively integrating companies into a combined operation. Following the acquisition of Alpha Beta in 1991, Food 4 Less management successfully integrated Alpha Beta with its existing Southern California operations and (within three years) achieved annual cost savings in excess of $40 million (compared to a pre-acquisition estimate of approximately $33 million). See "Management." WAREHOUSING AND DISTRIBUTION The combined Company will utilize Ralphs' technologically advanced warehousing and distribution systems, which include a 17 million cubic foot high-rise automated storage and retrieval system warehouse 62 72 (the "ASRS") for non-perishable items and a 5.4 million cubic foot perishable service center (the "PSC") designed for processing, storing and distributing all perishable items. These facilities and the Food 4 Less La Habra warehouse will provide the Company with substantial operating benefits, including: (i) enhanced turnover to further improve the freshness and quality of in-store products, (ii) additional opportunities in forward buying programs and (iii) an increase in the percentage of inventory supplied by the Company's own warehousing and distribution system. Management believes the consolidation of these operations will enable the Company to meet the combined inventory requirements of all stores with fewer employees and lower operating and occupancy-related expenses. In November 1987, Ralphs opened the 17 million cubic foot highrise ASRS warehouse for non-perishable items in the Atwater district of Los Angeles, at a cost of approximately $50 million. This facility significantly increased capacity and improved the efficiency of Ralphs' warehouse operations. The automated warehouse has a ground floor area of 170,000 square feet and capacity of approximately 50,000 pallets. Guided by computer software, ten-story high cranes move pallets from the receiving dock to programmed locations in the ASRS warehouse while recording the location and time of storage. Goods are retrieved and delivered by the cranes to conveyors leading to an adjacent "picking" warehouse where individual store orders are filled and shipped. The Company plans to utilize existing unused capacity to accommodate additional volume resulting from the consolidation. The ASRS facility can hold substantially more inventory and requires fewer employees to operate than a conventional warehouse of equal size. This facility has reduced Ralphs' warehousing costs of non-perishable items markedly, enabling it to take advantage of advance buying opportunities and minimize "out-of-stocks." The Company plans to close two existing Ralphs warehouse facilities in Los Angeles and Carson, California, each of which is currently operated on a short-term lease, pending expansion of Ralphs' ASRS warehouse. In mid-1992, Ralphs opened the 5.4 million cubic foot PSC facility in Compton, California, designed to process and store all perishable products. This facility cost approximately $35 million and has provided Ralphs with the ability to deliver perishable products to its stores on a daily basis, thereby improving the freshness and quality of these products. The facility contains an energy efficient refrigeration system and a computer system designed to document the location and anticipated delivery time of all inventory. The PSC has consolidated the operations of three existing facilities and holds more inventory than the facilities it replaced, thereby reducing Ralphs' warehouse distribution costs. The Company also plans to expand the PSC facility to accommodate additional volume resulting from the consolidation. Food 4 Less currently operates a centralized manufacturing, warehouse and office facility in La Habra, California which it leases from Alpha Beta's former parent corporation. The La Habra facility measures 1,378,083 total square feet over 75 acres and, in addition to serving warehousing, distribution and office functions, houses manufacturing operations which include a bakery and a creamery. The La Habra facility is operated pursuant to a long-term lease which expires in 2001. The La Habra facility is expected to be used as an additional distribution and warehouse facility. Most Ralphs stores and Food 4 Less Southern California stores are located within approximately a one-hour drive from Ralphs' distribution and warehousing facilities. This geographical concentration, combined with Ralphs' efficient order system, shortens the lead time between the placement of a merchandise order and its receipt. Food 4 Less is party to a joint venture with a subsidiary of Certified Grocers of California, Ltd. which operates a general merchandise warehouse in Fresno, California. Management is evaluating the role of such warehouse in the operation of the combined Company. MANUFACTURING Ralphs' manufacturing operations produce a variety of dairy and other products, including fluid milk, ice cream, yogurt and bottled waters and juices as well as packaged ice, cheese and salad preparations. Ralphs contracts with meat processors to provide a full line of prefabricated and retail cuts of beef. Ralphs ceased its bakery operations during the second quarter of Fiscal 1993 at its 102,000 square foot facility in Los Angeles. 63 73 Food 4 Less' La Habra facility includes a full-line bakery as well as a creamery and certain other manufacturing operations. The following table sets forth information concerning the principal manufacturing and processing facilities expected to be owned and operated by the Company:
FACILITY SQUARE FEET LOCATION -------- ----------- -------- Milk processing................................ 28,000 Compton Ice cream processing........................... 9,000 Compton Delicatessen kitchen........................... 23,000 Compton Bakery......................................... 316,000 La Habra Milk processing................................ 25,722 La Habra
Management believes that Ralphs' manufacturing facilities and the La Habra bakery can accommodate the volume requirements of the Company, after planned expenditures of approximately $3.0 million over the next year. PRIVATE LABEL PROGRAM Through its private label program, Ralphs offers approximately 2,800 items under the "Ralphs," "Private Selection," "Perfect Choice" and "Plain Wrap" brand names. These products provide quality comparable to that of national brands at prices 20-30% lower. Gross margins on private label goods are generally higher than on national brands. Management believes its private label program is one of the most successful programs in the supermarket industry, representing 17.3% of sales (excluding meats, service delicatessen and produce items) during the twelve months ended July 17, 1994. This figure has grown in the past few years, and management intends to continue the growth of its private label program in the future. Food 4 Less has entered into several private label licensing arrangements which allow it to exclusively utilize recognized brand names in connection with certain goods it manufactures or purchases from others, including "Carnation" and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked goods). In addition, Food 4 Less has entered into an agreement to distribute private label dry grocery and frozen products under the "Sunny Select" and "Grocers Pride" labels and has established its own private label, "Equality," for health and beauty aid products. Food 4 Less actively promoted its private label products during fiscal 1994, and management believes that the additional variety, superior quality and promotional program resulted in an overall increase in private label sales and corresponding gross margins. It is expected that the Company will continue the Carnation, Van de Kamps and certain of its other licensing agreements following the Merger. EXPANSION AND DEVELOPMENT As a result of Ralphs' 122-year history and Alpha Beta's 91-year history in Southern California, the Company will have valuable and well established store locations, many of which are in densely populated metropolitan areas. Additionally, the Company will have a technologically advanced store base. During the five years ended June 25, 1994, on a combined basis, Ralphs and Food 4 Less opened 74 new stores and remodeled 211 stores. Approximately 84% of the Company's stores have been opened or remodeled in the last five years. The Company plans to expand the Southern California Division by acquiring existing stores and constructing new ones. The Company intends to continue to focus its new store construction and store conversion efforts during calendar 1995 and future years primarily within existing marketing areas. Such efforts will encompass both of the Company's store formats, namely Food 4 Less and Ralphs. To this end, the Company plans to continue its store expansion program in Southern California by opening 17 new stores during calendar 1995 (including three Food 4 Less stores which will be located in San Diego, a new market for Food 4 Less), and additional stores in subsequent years. Moreover, in connection with the Merger, the Company plans to convert approximately 16 conventional stores currently managed by Food 4 Less and approximately 23 stores currently managed by RGC to the "Food 4 Less" name and warehouse format, as Food 4 Less stores have proven to have a strong appeal to value-conscious consumers across a wide range of 64 74 demographic groups. See "-- The Merger -- Two Leading Complementary Formats." Remodeling activity in Southern California will be focused on the conventional format stores, including 13 planned major remodels of such stores during calendar 1995. The Company's expansion, remodel and conversion efforts have required, and will continue to require, the funding of significant capital expenditures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." During the last five fiscal years, Ralphs has opened 46 new stores and remodeled 87 stores at a cost of approximately $283.6 million. A majority of these new and remodeled stores offer expanded produce and European-style seafood departments, service delicatessens, fresh bakeries and a broad selection of general merchandise. With enhanced decor reflecting contemporary interior design, these stores are designed to provide a quality shopping experience. At the end of Fiscal 1993, 133 of Ralphs' 165 total stores were newly built or remodeled within the past five fiscal years. While Ralphs has sold or closed 15 stores during the last five fiscal years, the number of Ralphs' stores has increased from 142 stores at January 28, 1990 to 165 stores at January 30, 1994. During the last five fiscal years, in Southern California Food 4 Less has acquired or opened 172 stores (which includes 142 stores acquired in connection with the acquisition of Alpha Beta) and remodeled 113 stores. Since its acquisition of Alpha Beta in 1991, Food 4 Less has undertaken an extensive program of store remodels, conversions and additions, which have resulted in a substantially improved store base. During Fiscal 1994, Food 4 Less spent approximately $50.7 million on capital improvements in Southern California. Additionally, since the Alpha Beta acquisition, Food 4 Less has converted 11 Southern California stores from conventional formats to the warehouse format. As Food 4 Less has remodeled existing stores, opened new larger stores and closed smaller, marginally performing stores, there has been a net reduction in store count, from 209 stores to 196 stores from the year ended June 29, 1991 ("Fiscal 1991") to the end of Fiscal 1994, but an increase in average store size. The average square feet per store has increased from 28,700 at the end of Fiscal 1991 to 30,500 at the end of Fiscal 1994. During the last five fiscal years, 29 stores have been closed or sold (including five stores which closed as a result of the April 1992 civil unrest in Los Angeles). The Company will select most new store sites from developers' proposals after such proposals have been researched and analyzed by the Company's personnel. Each site will be monitored for population shifts, zoning changes, traffic patterns, and nearby new construction and competitors' stores in an effort to determine sales potential. The Company will actively participate with developers in order to attain the Company's objectives for the site, including adequate parking and complementary co-tenant mix. Remodeling involves enhancing a store's decor through fixture replacement, upgrading of service departments and improvements to lighting systems. In order to minimize the disruptive effect on sales, most stores will be kept open during the remodeling period. The primary objectives of remodeling will be to improve the attractiveness of stores, increase sales of higher margin product categories and to increase selling area where feasible. Remodelings and openings, among other things, are subject to the availability of developers' financing, agreements with developers and landlords, local zoning regulations, construction schedules and other factors, including costs, often beyond the Company's control. Accordingly, there can be no assurance that the schedule will be met. Further, the Company expects increasing competition for new store sites, and it is possible that this competition might adversely affect the timing of its new store opening program. ADVERTISING AND PROMOTION Ralphs' marketing strategy is to provide a combination of wide product selection, quality and freshness of perishable products, competitive prices and double coupons supporting Ralphs' advertising theme "Everything You Need. Every Time You Shop." In February 1994, Ralphs launched the Ralphs Savings Plan, a new marketing campaign designed to enhance customer value. The Ralphs Savings Plan is comprised of six major components: Guaranteed Low Prices ("GLPs"), Price Breakers, Big Buys, Multi-Buys, Ralphs Brand 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. 65 75 In conjunction with this new campaign Ralphs' private label offering of approximately 2,800 products provides value to the customer. In the second quarter of 1994, Ralphs began more aggressively promoting perishables through weekly ad features and lower prices. In addition, Ralphs increased the number of storewide GLPs. Further, a mailer program was intensified to highlight the perishable pricing and increased GLPs. Ralphs stores promote sales through the use of product coupons, consisting of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a double coupon program in all stores with Ralphs matching the price reduction offered by the manufacturer. Ralphs also generates store traffic through weekly advertised specials, special sales promotions such as discounts on recreational activities, seasonal and holiday promotions, increased private label selection, club pack items and exclusive product offerings. Current advertising by Ralphs has substantially the same market coverage as Food 4 Less and it is expected that following the Merger duplicative advertising can be eliminated. The Food 4 Less warehouse stores utilize print and radio advertising which emphasizes Food 4 Less' low-price leadership, rather than promoting special prices on individual items. The Food 4 Less warehouse stores also utilize weekly advertising circulars, customized to local communities, which highlight the merchandise offered in each store. INFORMATION SYSTEMS AND TECHNOLOGY Ralphs' management utilizes technology and industrial engineering methods to enhance operating efficiency. Every checkout lane in every Ralphs store has a point of sale terminal. Information from these terminals is utilized to allocate shelf space, select merchandise based on the buying patterns of each store, reduce out-of-stocks and increase efficiency at the checkstand and in the warehouses. Industrial engineering methods are used to schedule labor thereby improving productivity at the store level and in warehousing and distribution operations. Ralphs was the first supermarket chain in the western United States to adopt scanning in all of its stores and has upgraded this equipment through the purchase of IBM 4680 point-of-sale computers. All Ralphs stores use laser scanning equipment, operating through an integrated computer system, to scan the Universal Product Code, which provides prices and descriptions for most products. Ralphs has a Uniform Communications Standard purchase order system that electronically links Ralphs to major suppliers via computer. This system has enabled the automated processing of purchase orders which management believes reduces the lead time required for product purchases. In Fiscal 1994, Ralphs completed installation of an industry standard, direct store delivery receiving system for goods delivered directly by vendors. This system allows the receipt of each order to be recorded electronically, thereby confirming product retail price and purchase authorization. This system has reduced the incidence of billing errors and unauthorized deliveries. Industrial engineering standards have been established for all major work functions in Ralphs stores, ranging from stocking to checkout. Performance of each major department in each store is measured weekly against these standards. Similar measurements are made in Ralphs' distribution, warehouse and manufacturing operations. Ralphs believes that its application of qualitative methods to the operation of the business has given it a competitive advantage and has better enabled management to run its business efficiently and to control costs. The Company plans to convert the Food 4 Less management information systems to the Ralphs management information systems. Ralphs stores that will be converted to the Food 4 Less format will continue to use the Ralphs programs. NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS The Northern California Division of Food 4 Less operates 19 conventional supermarkets in the greater San Francisco Bay Area under the names "Cala" and "Bell," and six warehouse format stores under the "Foods Co." name. Management believes that the Northern California Division has excellent store locations in the city of San Francisco that are very difficult to replicate. The Midwestern Division of Food 4 Less 66 76 operates 38 stores, of which 33, including ten former "Food Barn" stores which Food 4 Less acquired in March 1994, are warehouse format stores operated under the "Food 4 Less" name, and five of which are conventional supermarkets operated under the "Falley's" name. Of these 38 stores, 34 are located in Kansas and four are located in Missouri. Management believes the Food 4 Less warehouse format stores are the low-price leaders in each of the markets in which they compete. The Northern California Division's conventional store strategy is to attract customers through its convenient locations, broad product line and emphasis on quality and service and its advertising and promotion strategy highlights the reduced price specials offered in its stores. In contrast, the Company's warehouse format stores, operated under the Food 4 Less name in the Midwestern Division and the Foods Co. name in the Northern California Division, emphasize lowest overall prices rather than promoting special prices on individual items. The Northern California Division's conventional stores range in size from approximately 8,900 square feet to 32,800 square feet, and average approximately 19,400 square feet. The Northern California Division's warehouse stores range in size from approximately 30,000 square feet to 59,600 square feet, and average approximately 37,900 square feet. The Midwestern Division's warehouse format stores range in size from approximately 8,800 square feet to 60,200 square feet and average approximately 37,300 square feet. The Northern California Division purchases merchandise from a number of suppliers; however, approximately 40% of its purchases are made through Certified Grocers of California, Ltd. ("Certified"), a food distribution cooperative, pursuant to supply contracts. The Northern California Division does not operate its own warehouse facilities, relying instead on direct delivery to its stores by Certified and other vendors. Food 4 Less' Southern California warehouse facilities supply a portion of the merchandise sold in the Northern California Division stores, and it is expected that, following completion of the Merger, the Company's Southern California warehouses will continue to do so. The Midwestern Division's primary supplier is Associated Wholesale Grocers ("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The Midwestern Division does not operate a central warehouse, but purchases approximately 73% of the merchandise sold in its stores from AWG. Management believes that, as AWG's largest single customer, the Midwestern Division has significant buying power, allowing it to provide a broader product line more economically than it could if it maintained its own full-line warehouse. The Midwestern Division produces approximately 50% of all case-ready fresh meat items sold in its stores at its central meat plant located in Topeka, Kansas. In fiscal 1990, the Northern California Division initiated a remodeling program to upgrade its stores and to increase profitability. Food 4 Less remodeled 15 stores during the past five fiscal years, and opened five new stores during the past four fiscal years. During fiscal 1994, Food 4 Less opened one new warehouse store, converted three existing stores to the warehouse format and remodeled one conventional format store. The Company has closed 4 stores during the past five fiscal years and increased its number of stores from 22 at the end of the fiscal year ended June 30, 1990 to 24 at the end of the fiscal year ended June 25, 1994. The average square feet per store has increased from 20,000 at the end of fiscal 1990 to 23,300 at the end of fiscal 1994. The Company plans to open one additional warehouse format store and remodel two conventional format stores during fiscal 1995. Management plans to further expand the Northern California Division in the future by acquiring existing stores and constructing new stores, including warehouse stores. The Northern California Division Food 4 Less warehouse stores were renamed "Foods Co." in fiscal 1994 following the sale by Food 4 Less of exclusive rights to use the "Food 4 Less" name in Northern California to Fleming Companies, Inc. See "Licensing Operations." The Company intends to focus its Midwestern Division expansion primarily on its Food 4 Less operations. While Food 4 Less expects to construct new stores, it may also expand operations by purchasing existing Food 4 Less stores from unaffiliated licensees, or by acquiring existing supermarkets and converting them to the Food 4 Less warehouse format. The acquisition in March 1994 of ten warehouse stores formerly operated as "Food Barn" stores increased the Midwestern Division's Food 4 Less warehouse store count from 23 at June 26, 1993 to 33 at June 25, 1994. During the last five fiscal years, the Midwestern Division has opened 3 new stores, acquired 13 stores, closed one store and remodeled 10 stores. 67 77 COMPETITION The supermarket industry is highly competitive and characterized by narrow profit margins. The Company's competitors in each of its operating divisions include national and regional supermarket chains, independent and specialty grocers, drug and convenience stores, and the newer "alternative format" food stores, including warehouse club stores, deep discount drug stores and "super centers." Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. The Company regularly monitors its competitors' prices and adjusts its prices and marketing strategy as management deems appropriate in light of existing conditions. Some of the Company's competitors have greater financial resources than the Company and could use these resources to take steps which could adversely affect the Company's competitive position. The Southern California stores compete with several large national and regional chains, principally Albertsons, Hughes, Lucky, Smith's, Stater Bros., and Vons, and with smaller independent supermarkets and grocery stores as well as warehouse clubs and other "alternative format" food stores. The Northern California Division competes with large national and regional chains, principally Lucky and Safeway, and with independent supermarket and grocery store operators and other retailers, including "alternative format" stores. The Midwestern Division's supermarkets compete with several national and regional supermarket chains, principally Albertsons and Dillons, as well as independent and "alternative format" stores such as Hypermarket USA. Food 4 Less positions its Food 4 Less warehouse format supermarkets as the overall low-price leader in each marketing area in which they operate. In addition, management believes that Ralphs is a leading competitor in many of its marketing areas, based on its strong customer franchise, desirable store locations, technology and efficient distribution systems. EMPLOYEES RALPHS At July 17, 1994, Ralphs had 6,052 full-time and 8,755 part-time employees as follows:
EMPLOYEE TYPE UNION NON-UNION TOTAL ------------- ------ --------- ------ Hourly....................................... 13,487 250 13,737 Salaried..................................... -- 1,070 1,070 ------ ----- ------ Total employees.................... 13,487 1,320 14,807
Of Ralphs' 14,807 total employees at July 17, 1994, 13,487 were covered by union contracts principally with the UFCW. The table below sets forth information regarding Ralphs' union contracts which cover more than 100 employees.
UNION NUMBER OF EMPLOYEES COVERED DATE OF EXPIRATION - - ---------------------------------- -------------------------------- ------------------- UFCW 10,506 clerks and meatcutters October 6, 1996 International Brotherhood of Teamsters 1,607 drivers and warehousemen September 13, 1998 Hotel Employees and Restaurant Employees 906 September 10, 1995 Hospital and Service Employees 323 Los Angeles January 19, 1997 66 San Diego April 20, 1997
68 78 FOOD 4 LESS At June 25, 1994, Food 4 Less had a total of 5,728 full-time and 8,959 part-time employees as follows:
EMPLOYEE TYPE UNION NON-UNION TOTAL ------------- ------ --------- ------ Hourly......................................... 11,882 1,907 13,789 Salaried....................................... -- 898 898 ------ ----- ------ Total employees...................... 11,882 2,805 14,687
Of Food 4 Less' 14,687 total employees at June 25, 1994, 11,882 were covered by union contracts, principally with UFCW. The table below sets forth information regarding Food 4 Less' union contracts which cover more than 100 employees.
NUMBER OF DATE OF UNION EMPLOYEES COVERED EXPIRATION - - ---------------------------------------------- -------------------------- --------------------- UFCW.......................................... 7,908 Southern California October 6, 1996 clerks and meatcutters Hospital and Service Employees................ 299 Southern California January 19, 1997 store porters International Brotherhood of Teamsters........ 886 Southern California September 13, 1998 produce drivers and warehousemen UFCW.......................................... 971 Northern California February 28, 1995(a) clerks and meatcutters UFCW.......................................... 1,532 Southern California February 25, 1996 clerks and meatcutters Bakery and Confectionery Workers.............. 192 Southern California July 8, 1995 bakers
- - --------------- (a) Certain of such employees are covered by contracts expiring on March 4, 1995 or June 2, 1996. Pursuant to their collective bargaining agreements, both Ralphs and Food 4 Less contribute to various union-sponsored, multi-employer pension plans. The terms of most collective bargaining agreements that cover employees of conventional stores operated by Food 4 Less are substantially identical to the terms of the corresponding collective bargaining agreements of Ralphs. The terms of each company's collective bargaining agreements generally will remain in effect following the Merger, although it is expected that, as a result of current negotiations, Ralphs' collective bargaining agreements will apply to all Company stores converted to the Ralphs name and format, and the collective bargaining agreements that cover employees of Food 4 Less warehouse format stores will apply to all Company stores converted to the Food 4 Less name and warehouse format. Management believes that both Ralphs and Food 4 Less have good relations with their employees. LICENSING OPERATIONS Food 4 Less owns the "Food 4 Less" trademark and service mark and licenses the "Food 4 Less" name for use by others. In Fiscal 1994, earnings from licensing operations were approximately $270,000. An exclusive license with the right to sublicense the "Food 4 Less" name in all areas of the United States except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas, Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"), a major food wholesaler and retailer. In August of 1993, Food 4 Less amended (the "Amendment") its licensing agreement with Fleming to give Fleming exclusive use of the Food 4 Less name in Northern California and Food 4 Less exclusive use in Southern California. Fleming paid Food 4 Less a fee of $1.9 million for the Amendment. With the exception of Northern California, and subject to the Amendment and certain proximity restrictions, Food 4 Less retains the right to open and operate its own "Food 4 Less" warehouse supermarkets throughout the United States. As of June 25, 1994, there were 158 Food 4 Less warehouse supermarkets in 20 states, including the 61 stores owned or leased and operated by 69 79 Food 4 Less. Of the remaining 97 stores, Fleming operates three under license, 67 are operated under sublicenses from Fleming and 27 are operated by other licensees. PROPERTIES At October 1, 1994, Ralphs and Food 4 Less operated a total of 429 stores, as set forth in the table below:
NUMBER OF SUPERMARKETS -------------- TOTAL SELLING OWNED LEASED SQUARE FEET SQUARE FEET ----- ------ ----------- ----------- (IN THOUSANDS) Southern California..................... 49 317(a) 12,929 9,174 Northern California..................... -- 25 610 424 Midwestern.............................. 2(b) 36 1,357 1,025 -- --- ------ ------ Total......................... 51 378(c) 14,896 10,623 == === ====== ======
- - --------------- (a) Includes 17 stores located on real property subject to a ground lease. (b) Includes one store that is partially owned and partially leased. (c) The average remaining term (including renewal options) of Ralphs' and Food 4 Less' supermarket leases is 27 years. The number of Ralphs and Food 4 Less stores by size classification as of October 1, 1994 is as follows:
AVERAGE GROSS SQUARE FEET AVERAGE SELLING SQUARE FEET NUMBER OF STORES TOTAL SQUARE --------------------------- --------------------------- ----------------------------------- FEET RALPHS FOOD 4 LESS RALPHS FOOD 4 LESS RALPHS FOOD 4 LESS TOTAL - - ---------------- ---------- ----------- ---------- ----------- -------- ----------- ----- 8,800 - 15,599 -- 13,175 -- 9,478 -- 8 8 15,600 - 25,000 21,867 21,740 16,709 14,880 3 92 95 25,001 - 30,000 27,926 26,966 19,725 18,633 15 37 52 30,001 - 35,000 32,993 32,574 24,204 23,247 31 51 82 35,001 - 40,000 37,254 36,804 27,053 26,272 32 27 59 40,001 - 45,000 43,264 42,329 31,422 30,038 59 12 71 45,001 - 50,000 46,356 48,037 33,185 34,572 15 11 26 50,001 - 84,280 68,400 55,056 48,466 37,814 13 23 36
At October 1, 1994, the Company also operated 20 distribution, warehouse and administrative facilities and five manufacturing and processing facilities, 14 of which are owned and 11 of which are leased. Certain of the facilities are expected to be sold, closed or subleased following completion of the Merger. See "-- Warehousing and Distribution." Ralphs' distribution and warehouse facilities include the 17 million cubic foot ASRS warehouse for nonperishable items that Ralphs opened in November 1987 and the 5.4 million cubic foot PSC facility for the processing and storage of perishable products opened in mid-1992. Food 4 Less operates two warehouse facilities: The largest of such facilities is Food 4 Less' central office, manufacturing and warehouse complex in La Habra, California, which occupies approximately 1.4 million total square feet over 75 acres. Food 4 Less has entered into a lease of the La Habra property which expires in 2001 (and which may be extended for up to 15 years at the election of Food 4 Less), with American Food and Drug, Inc. ("AFDI"), a subsidiary of American Stores Company, and has an option to purchase such property. Rent on the La Habra property was $6.3 million in Fiscal 1994. Four of Food 4 Less' supermarkets are also leased from AFDI. In addition to the La Habra facility, Food 4 Less leases a 321,000 square foot warehouse in Los Angeles. This warehouse, which was formerly owned by Food 4 Less, was the subject of a sale leaseback arrangement entered into by Food 4 Less in August 1990. For information regarding the Company's plan to consolidate its warehouse facilities following completion of the Merger, see "-- The Merger -- Substantial Cost Savings Opportunities -- Warehousing and Distribution Efficiencies." LEGAL PROCEEDINGS In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against RGC and Food 4 Less and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in the retail market for fluid milk and to fix the retail price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane 70 80 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. RGC had reached an agreement in principle to settle these cases, however no settlement agreement was signed. Food 4 Less is continuing to actively defend these suits and Ralphs has elected to defer any further settlement discussions until after the consummation of the Merger. The Company does not believe that the resolution of these cases will have a material adverse effect on its future financial condition. Any settlement would be subject to court approval. On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates") commenced an action in San Diego Superior Court alleging that RGC breached an alleged utility rate consulting agreement. In December 1992, a jury returned a verdict of approximately $4.9 million in favor of Koteen Associates and in March 1993, attorney's fees and certain other costs were awarded to the plaintiff. RGC has appealed the judgment and fully reserved in Fiscal 1992 against an adverse judgment. In April 1994, RGC was served with a complaint filed by over 240 former employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery Plaintiffs"). The action was commenced in the United States District Court for the Central District of California, and, among other claims, the Bakery Plaintiffs alleged that RGC breached its collective bargaining agreement and violated the Workers Adjustment Retraining Notification Act (the "WARN Act") when it downsized and subsequently closed the bakery. In their complaint, the Bakery Plaintiffs are seeking damages for lost wages and benefits as well as punitive damages. The Bakery Plaintiffs also named RGC and two of its management employees in fraud, conspiracy and emotional distress causes of action. In addition, the Bakery Plaintiffs sued their union local for breach of its duty of fair representation and other alleged misconduct, including fraud and conspiracy. The defendants have answered the complaint and discovery is ongoing. Trial is set for February, 1996, and RGC is vigorously defending this suit. Management believes, based on its assessment of the facts, that the resolution of this case will not have a material effect on the Company's financial position or results of operations. In addition, Food 4 Less and Ralphs are defendants in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on Food 4 Less' or Ralphs' financial position or results of operations. CALIFORNIA SETTLEMENT AGREEMENT On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement Agreement (the "Settlement Agreement") with the State of California to settle potential antitrust and unfair competition claims the State of California asserted against Ralphs and Food 4 Less relating to the effects of the Merger on supermarket competition in Southern California (the "State Claims"). Without admitting any liability in connection with the State Claims, Food 4 Less and Ralphs agreed in the Settlement Agreement to divest 27 specific stores in Southern California. Under the Settlement Agreement, the Company must divest 14 stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. The Company also agreed not to acquire new stores from third parties in the six Southern California areas specified in the Settlement Agreement for five years following the date of the Settlement Agreement. If the Company fails to divest the required stores by the two dates set forth in the Settlement Agreement, the Company has agreed not to object to the appointment of a trustee to effect the required sales. The Settlement Agreement also requires the Company to pay the reasonable fees and costs of the attorneys and experts of the State of California associated with its review. GOVERNMENT REGULATION Ralphs and Food 4 Less are subject to regulation by a variety of governmental agencies, including, but not limited to, the California Department of Alcoholic Beverage Control, the California Department of Agriculture, the U.S. Food and Drug Administration, the U.S. Department of Agriculture and state and local health departments. In addition, the Merger and the New Equity Investment are subject to the review of the Federal Trade Commission and may not be consummated prior to the expiration of the applicable waiting period imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976. 71 81 ENVIRONMENTAL MATTERS In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a subsurface characterization of Ralphs' Atwater property. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where Ralphs' Atwater property is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, because of regional groundwater contamination. On June 18, 1991, the EPA made its own request for information concerning the Atwater property. Since that time, the Regional Board has requested further investigations by Ralphs. Ralphs has conducted the requested investigations and has reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Atwater property. Ralphs is not a party to that Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on Ralphs' property. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. Ralphs has removed several underground storage tanks and remediated soil contamination at the Atwater property. Although the possibility of other localized 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 Ralphs' facilities and Food 4 Less' 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 the mandated conversion of refrigerants during 1994. Food 4 Less may incur some additional capital expenditures for such conversion. Other than these expenditures, neither Ralphs nor Food 4 Less has incurred material capital expenditures for environmental controls during the previous three years, nor does management anticipate incurring such expenditures during the current fiscal year or the succeeding fiscal year. At the time that Food 4 Less acquired Alpha Beta in 1991, it learned that certain underground storage tanks located on the site of the La Habra facility may have released hydrocarbons. In connection with the acquisition of Alpha Beta the seller (who is also the lessor of the La Habra facility) agreed to retain responsibility, subject to certain limitations, for remediation of the release. Ralphs and Food 4 Less are subject to a variety of environmental laws, rules, regulations and investigative or enforcement activities, as are other companies in the same or similar business. The Company believes it is in substantial compliance with such laws, rules and regulations. These laws, rules, regulations and agency activities change from time to time, and such changes may affect the ongoing business and operations of the Company. 72 82 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information regarding the persons who are expected to serve as the executive officers and directors of the Company and New Holdings following the consummation of the Merger, the FFL Merger and the Reincorporation Merger.
YEARS OF SUPERMARKET INDUSTRY SERVICE ---------------------------- NAME AGE POSITION MANAGERIAL POSITIONS TOTAL - - ------------------------- --- ----------------------------------- -------------------- ----- Ronald W. Burkle 42 Director and Chairman of the Board 19 24 of New Holdings and the Company Byron E. Allumbaugh 63 Director and Chief Executive 36 36 Officer of New Holdings and the Company George G. Golleher 46 Director and Vice Chairman of New 21 21 Holdings and the Company Alfred A. Marasca 53 Director of the Company and 29 37 President and Chief Operating Officer of New Holdings and the Company Joe S. Burkle 71 Director and Executive Vice 44 48 President of New Holdings and the Company Greg Mays 48 Executive Vice President of New 21 21 Holdings and the Company Terry Peets 50 Executive Vice President of New 17 17 Holdings and the Company Jan Charles Gray 47 Senior Vice President, General 19 31 Counsel and Secretary of New Holdings and the Company Alan J. Reed 48 Senior Vice President and Chief 21 21 Financial Officer of New Holdings and the Company Patrick L. Graham 45 Director of New Holdings and the -- -- Company Mark A. Resnik 47 Director of New Holdings and the -- -- Company
Ronald W. Burkle has been a Director and the Chairman of the Board and Chief Executive Officer of Food 4 Less since its inception in 1989. Mr. Burkle co-founded Yucaipa in 1986 and has served as Director, Chairman of the Board, President and Chief Executive Officer of FFL since 1987 and of Holdings since 1992. From 1986 to 1988, Mr. Burkle was Chairman and Chief Executive Officer of Jurgensen's, a Southern California gourmet food retailer. Before joining Jurgensen's, Mr. Burkle was a private investor in Southern California. Mr. Burkle is the son of Joe S. Burkle. Byron E. Allumbaugh has been Chairman of the Board and Chief Executive Officer of Ralphs since 1976 and a Director since 1988. He also is a Director of the H.F. Ahmanson Company, El Paso Natural Gas Company and Ultramar, Inc. George G. Golleher has been a Director of Food 4 Less since its inception in 1989 and has been the President and Chief Operating Officer of Food 4 Less since January 1990. From 1986 through 1989 Mr. Golleher served as Senior Vice President, Finance and Administration, of The Boys Markets, Inc. Prior to joining The Boys Markets, Inc. in 1984, Mr. Golleher served as Vice President and Chief Financial Officer of Mayfair Markets, Inc. from 1983 to 1984. Alfred A. Marasca has been President, Chief Operating Officer and a Director of Ralphs since February 1994 and he was President from February 1993 to February 1994, Executive Vice President, Retail from 1991 until 1993 and Executive Vice President, Marketing from 1985 to 1991. 73 83 Joe S. Burkle has been a Director and Executive Vice President of Food 4 Less since its inception in 1989 and has been Chief Executive Officer of Falley's, Inc. since 1987. Mr. Burkle began his career in the supermarket industry in 1946, and served as President and Chief Executive Officer of Stater Bros. Markets, a Southern California supermarket chain. Prior to 1987, Mr. Burkle was a private investor in Southern California. Mr. Burkle is the father of Ronald W. Burkle. Greg Mays has been Executive Vice President -- Finance and Administration, and Chief Financial Officer of Food 4 Less and of Holdings since December 1992. From 1989 until 1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. and, from 1991 to December 1992, President and Chief Financial Officer of Almac's. From April 1988 to June 1989, Mr. Mays was Chief Financial Officer of Food 4 Less of Modesto, Inc. and Cala Foods, Inc. Terry Peets has been Executive Vice President of Ralphs since February 1994. He was Senior Vice President, Marketing from 1991 to February 1994, Senior Vice President, Merchandising from 1990 to 1991, Group Vice President, Merchandising from 1988 to 1990 and Group Vice President, Store Operations from 1987 to 1988. Jan Charles Gray has been Senior Vice President, General Counsel and Secretary of Ralphs since 1988. He was Senior Vice President and General Counsel from 1985 to 1988 and Vice President and General Counsel from 1978 to 1985. Alan J. Reed has been Senior Vice President and Chief Financial Officer of Ralphs since 1988. He was Senior Vice President, Finance from 1985 to 1988 and Vice President, Finance from 1983 to 1985. Patrick L. Graham joined Yucaipa as a general partner in January 1993. Prior to that time he was a Managing Director in the corporate finance department of Libra Investments, Inc. from 1992 to 1993 and PaineWebber Inc. from 1990 to 1992. From 1982 to 1990, he was a Managing Director of the corporate finance department of Drexel Burnham Lambert Incorporated and an Associate Director in the corporate finance department of Bear Stearns & Co., Inc. Mark A. Resnik has been a Director and the Vice President and Secretary of Food 4 Less since its inception in 1989, co-founded Yucaipa in 1986 and has been a Director, Vice President and Secretary of FFL since 1987. From 1986 until 1988, Mr. Resnik served as a Director, Vice President and Secretary for Jurgensen's. From 1983 through 1986, Mr. Resnik served as a Director, Vice President and General Counsel of Stater Bros. Markets. In addition to the directors named above, two members will be nominated to the Board of Directors of each of the Company and New Holdings by Apollo, and one member will be nominated to the Board of Directors of each of the Company and New Holdings by the other New Equity Investors, pursuant to the terms of the 1995 Stockholders Agreement. See "Description of Capital Stock -- 1995 Stockholders Agreement." All directors of the Company will hold office until the election and qualification of their successors. Executive officers of the Company will be chosen by the Board of Directors of the Company will serve at its discretion. It is anticipated that the Company will not pay any fees or remuneration to its directors for service on the board or any board committee, but that the Company will reimburse directors for their ordinary out-of-pocket expenses incurred in connection with attending meetings of the Board of Directors. 74 84 EXECUTIVE COMPENSATION EMPLOYMENT AGREEMENTS Concurrently with the consummation of the Merger, the Company will enter into employment agreements with certain of the current executive officers of Ralphs and Food 4 Less. It is expected that Byron E. Allumbaugh, George G. Golleher, Alfred A. Marasca, as well as other executive officers of the Company, will enter into three-year employment contracts with the Company and that the existing employment contracts, if any, of such officers will be cancelled. New Allumbaugh Agreement. The employment agreement between the Company and Byron Allumbaugh, 63, is expected to provide for a salary of $1 million for the first year and $1.25 million for the second year. If Mr. Allumbaugh continues as the Chief Executive Officer during the third year following the Merger, he would be entitled to a salary of $2 million and if he is employed in another capacity then he would be entitled to a salary of $1.25 million for the third year. Mr. Allumbaugh will be entitled to a bonus equal to his salary in each year if certain prescribed earnings targets (the "Earnings Targets") for the year are reached. If the Company completes an initial public offering of capital stock during the first two years of Mr. Allumbaugh's employment, Mr. Allumbaugh will remain Chief Executive Officer for one year after the public offering. If the public offering is anticipated to occur during the third year of Mr. Allumbaugh's employment agreement, Mr. Allumbaugh will resign as Chief Executive Officer six months prior to the intended date of the public offering but will continue to be employed at the lesser compensation level provided in his employment agreement until its termination. New Golleher Agreement. Food 4 Less is currently a party to a five-year employment agreement with George G. Golleher providing for annual base compensation of $350,000, plus employee benefits and an incentive bonus calculated in accordance with a formula based on Food 4 Less' earnings. Under the employment agreement, Mr. Golleher may terminate his employment agreement in the event of a change of control of Food 4 Less, in which case he is entitled to receive all of the salary and benefits provided under the agreement for the remaining term thereof, notwithstanding the termination of his employment. In connection with the consummation of the Merger the Food 4 Less board of directors has authorized the payment of a special bonus to George Golleher in a lump sum amount equal to the base salary due him under the remaining term of his employment agreement. As a condition of the payment of such bonus, Mr. Golleher's existing employment agreement will be cancelled, and he will enter into a new agreement containing terms to be mutually agreed upon between Food 4 Less and Mr. Golleher. The new employment agreement is expected to provide for an annual salary of $500,000 plus a bonus equal to his salary in each year if the Earnings Targets are reached. New Marasca Agreement. The employment agreement between the Company and Alfred Marasca is expected to provide for a salary of $500,000 per annum and an annual bonus equal to his salary if the Earnings Targets for the year are reached. General Provisions of the New Employment Agreements. The new employment agreements are expected to provide generally that the Company may terminate the agreement for cause or upon the failure of the employee to render services to the Company for a continuous period to be agreed upon by the Company and the employee because of the employee's disability. In addition, the employee's services may be suspended upon notice by the Company and in such event the employee will continue to be compensated by the Company during the remainder of the term of the agreement subject to certain offsets if the employee becomes engaged in another business. Existing Food 4 Less Employment Agreements. Food 4 Less entered into employment agreements with 24 officers providing for their employment for a one-year term commencing on the date of a change of control of Food 4 Less. These agreements provide for the payment of an incentive bonus calculated in accordance with Food 4 Less policies, and certain of the agreements provide for the payment of a special bonus payable upon a change of control (provided certain financial performance targets have been met). These agreements will become effective upon the consummation of the Merger. Greg Mays, who will be an Executive Vice President of the Company, will be entitled to receive a base salary of not less than $250,000 and a special 75 85 bonus of $150,000 (provided certain financial performance targets have been met). It is anticipated that some, but not all, of these employment agreements will be replaced by new employment agreements with the Company. Joe Burkle Consulting Agreement. Food 4 Less has a consulting agreement with Joe S. Burkle providing for compensation of $3,000 per week, pursuant to which Mr. Burkle provides the management and consulting services of an executive vice president. The agreement has a five-year term, which is automatically renewed on January 1 of each year for a five-year term unless sixty days' notice is given by either party; provided that if Food 4 Less terminates Mr. Burkle's services for reasons other than for good cause, the payments due under the agreement continue for the balance of the term. It is expected that the Company will assume Mr. Burkle's consulting agreement upon the consummation of the Merger. EQUITY APPRECIATION RIGHTS PLAN RGC has 1,500,000 EARs outstanding that were granted under the RGC 1988 Equity Appreciation Rights Plan, as amended (the "EAR Plan"). The outstanding EARs are held by 36 officers and former officers of Ralphs, including Byron Allumbaugh, Alfred Marasca, Alan Reed, Jan Charles Gray and Terry Peets. All outstanding EARs are vested in full and not subject to forfeiture by the holders, except in the event a holder's employment is terminated for cause within the meaning of the EAR Plan. The outstanding EARs represent the right to receive, in the aggregate, 15% of the increase of the appraised value of RGC's equity at the time of exercise over a base value of $120 million. Concurrently with the consummation of the Merger, the outstanding EARs will be redeemed for $22.8 million in cash. An additional $10 million of EAR payments that would otherwise be payable upon consummation of the Merger will be cancelled in exchange for the issuance of the Reinvestment Options (as defined). No future compensation expense will be recorded as the cancellation of certain EAR liabilities ($10.0 million) in consideration for the Reinvestment Options is deemed by management to reflect fair and equal value. See "-- New Management Stock Option Plan and Management Investment" and "Description of Capital Stock -- New Equity Investment." The price to redeem the EARs is based on a $517 million valuation (the maximum valuation possible under the EAR Plan) of RGC's equity. NEW MANAGEMENT STOCK OPTION PLAN AND MANAGEMENT INVESTMENT Upon the consummation of the Merger, certain members of Ralphs' management and Food 4 Less' management will be entitled to receive options to purchase common stock of New Holdings (the "New Options"). The New Options will have a term of ten years and the exercise price with respect to each New Option will be $10 per share, which is equal to the price paid by the New Equity Investors for the New Equity Investment. The New Options will represent 7.5% of the total equity of New Holdings, and will be allocated as follows: New Options representing 1.5%, 0.5% and 0.5% of the total equity of New Holdings will be granted to Byron Allumbaugh, George Golleher and Alfred Marasca, respectively (the "Tier One Options"). The Tier One Options will be fully vested upon issuance and will be immediately exercisable. New Options for an additional 2.5% of the total equity of New Holdings will be granted to certain other management employees of the Company (the "Tier Two Options"). Fifty percent (50%) of the Tier Two Options granted to each holder will vest immediately upon issuance and 10% will vest each year thereafter. In addition, New Options representing an aggregate of 2.5% of the total equity of New Holdings will be issued to holders of EARs in exchange for the cancellation of $10 million of the EAR payments which would otherwise be payable upon consummation of the Merger (the "Reinvestment Options"). The value of the EAR payments cancelled will be credited against the exercise price for each Reinvestment Option. The Reinvestment Options will be fully vested upon issuance and will be immediately exercisable. Certain of Ralphs' officers, including Messrs. Allumbaugh, Marasca, Reed, Gray and Peets, currently hold options to purchase common stock of RSI. These options will be cancelled for cash payments aggregating $880,000 in connection with the Merger. Each holder of New Options (collectively, the "Management Shareholders") will also execute a management shareholder agreement with New Holdings (collectively, the "Management Shareholder 76 86 Agreements"). The Management Shareholder Agreements generally will provide New Holdings with a right of first refusal in the event of proposed sales of New Holdings stock acquired by the Management Shareholders upon the exercise of New Options and have an option, exercisable following any termination for cause of a Management Shareholder's employment or if the Management Shareholder commences employment with a competitor, to repurchase at Fair Market Value (as defined in the Management Shareholder Agreements) any New Holdings stock acquired by such Management Shareholder upon the exercise of New Options. Each Management Shareholder Agreement will contain certain rights of the Management Shareholders to participate in sales by Yucaipa of New Holdings stock and certain obligations of the Management Shareholders to sell their New Holdings stock in the case of a sale for cash of all of the outstanding capital stock of New Holdings. Finally, the Management Shareholders will be required to vote their New Holdings stock to elect to the New Holdings Board of Directors the directors nominated by Yucaipa, Apollo and the other New Equity Investors under New Holdings' 1995 Stockholders Agreement. See "Description of Capital Stock -- 1995 Stockholders Agreement." The Management Shareholders Agreements, and all rights and obligations of the Management Shareholders thereunder described above, will terminate upon an initial public offering of New Holdings common stock meeting certain criteria. SUMMARY COMPENSATION TABLE -- RALPHS The following Summary Compensation Table sets forth information concerning the compensation of the Chief Executive Officer and the other four most highly compensated executive officers of Ralphs who are expected to serve as executive officers of the Company, whose total annual salary and bonus exceeded $100,000 for the year ended January 30, 1994.
LONG TERM COMPENSATION AWARDS ------------------- ANNUAL COMPENSATION SECURITIES -------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)(1) - - --------------------------- ----- -------- -------- ------------------- ------------------ Byron E. Allumbaugh, 1993 645,000 387,000 N/A 38,575 Chairman and 1992 620,000 372,000 587,753 31,886 Chief Executive Officer 1991 580,000 348,000 N/A N/A Alfred A. Marasca, 1993 340,000 204,000 N/A 18,177 President 1992 296,260 148,125 308,812 11,485 1991 280,500 140,000 N/A N/A Alan J. Reed, 1993 222,500 111,250 N/A 12,904 Senior Vice President, 1992 211,250 105,625 154,406 9,569 Finance and 1991 196,260 98,125 N/A N/A Chief Financial Officer Jan Charles Gray, 1993 207,500 103,750 N/A 13,584 Senior Vice President, 1992 196,250 98,125 154,406 13,593 General Counsel and 1991 181,250 90,625 N/A N/A Secretary Terry Peets, 1993 192,500 96,250 N/A 10,337 Senior Vice President, 1992 182,500 91,250 154,406 10,237 Marketing 1991 171,250 85,625 N/A N/A
- - --------------- (1) Represents (i) insurance premiums and the dollar value of the remainder of premiums paid under the Senior Executive Supplemental Benefit Plan and (ii) RGC's contributions under the Ralphs Thrift Incentive Plan. The respective amounts paid for Messrs. Allumbaugh, Marasca, Reed, Gray and Peets are as follows: (A) insurance premiums: $18,500, $8,890, $6,662, $7,250 and $4,210; (B) dollar value of the remainder of premiums: $18,500, $6,600, $4,025, $4,500 and $4,210; (C) incentive plan contributions: $1,575, $2,687, $2,217, $1,834 and $1,917. 77 87 AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION/SAR VALUES -- RALPHS
NUMBER OF VALUE OF SECURITIES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($) ACQUIRED --------------------- -------------------- ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/ NAME (#)(1) REALIZED($) UNEXERCISABLE(2) UNEXERCISABLE(3)(4) - - -------------------------------- ----------- ----------- --------------------- -------------------- Byron E. Allumbaugh............. 70,000 1,961,646 235,102/ 0/ 562,651 5,884,935 Alfred A. Marasca............... 9,000 252,212 61,762/ 0/ 319,050 2,017,692 Alan J. Reed.................... 7,000 196,165 30,882/ 0/ 179,524 1,569,316 Jan Charles Gray................ 5,000 140,118 30,882/ 0/ 163,524 1,120,939 Terry Peets..................... 5,000 140,118 30,882/ 0/ 163,524 1,120,939
- - --------------- (1) Represents EARs exercised under the EAR Plan. (2) Each number represents the aggregate number of options and EARs outstanding, as currently exercisable/unexercisable. Options and EARs were granted under different plans, not in tandem. All EARs are free standing. (3) Represents value of EARs, based on a value of $28.0235 per EAR at the time of exercise. Outstanding options are not currently in-the-money, based on current estimates of the fair market value of the Common Stock. (4) A portion of the EARs will be redeemed in connection with the Merger and the remaining EARs will be cancelled in exchange for the issuance of the Reinvestment Options by New Holdings, based upon their maximum possible valuation of $39.70 per EAR (or $517 for the total equity of RGC). For purposes of such redemptions and cancellations, the value of outstanding EARs held by Messrs. Allumbaugh, Marasca, Reed, Gray and Peets is expected to equal approximately $8.0 million, $2.7 million, $2.1 million, $1.7 million and $1.5 million, respectively. RALPHS' RETIREMENT PLANS Retirement Plan. The Ralphs Grocery Company Retirement Plan (the "Retirement Plan") is a defined benefit pension plan for salaried and hourly nonunion employees with at least one year of credited service (1,000 hours). Ralphs makes annual contributions to the Retirement Plan in such amounts as are actuarially required to fund the benefits payable to participants in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Supplemental Executive Retirement Plan. To allow Ralphs' retirement program to provide benefits based upon a participant's total compensation and without regard to other ERISA or tax code pension plan limitations, eligible executive employees of Ralphs participate in the Ralphs Grocery Company Supplemental Executive Retirement Plan and, after December 31, 1993, the Ralphs Grocery Company Retirement Supplement Plan (collectively, the "Supplemental Plan"). The Supplemental Plan also modifies the benefit formula under the Retirement Plan in other respects. Benefits provided under the Supplemental Plan were improved effective April 9, 1994. 78 88 The following table sets forth the combined estimated annual benefits payable in the form of a (single) life annuity under both the Retirement Plan and the Supplemental Plan (unreduced by the cash surrender value of any life insurance policies) to a participant in both plans who is retiring at a normal retirement date of January 1, 1994 for the specified final average salaries and years of credited service.
YEARS OF CREDITED SERVICE ------------------------------------------------------------ FINAL AVERAGE SALARY 15 20 25 30 35 - - -------------------- -------- -------- -------- -------- -------- $ 100,000 $ 19,484 $ 25,978 $ 32,473 $ 38,967 $ 45,462 200,000 41,984 55,978 69,973 83,967 97,962 300,000 84,763 113,017 141,271 169,526 169,526 400,000 114,763 153,017 191,271 229,526 229,526 600,000 174,763 233,017 291,271 349,526 349,526 800,000 234,763 313,017 391,271 469,526 469,526 1,000,000 294,763 393,017 491,271 589,526 589,526 1,200,000 354,763 473,017 591,271 709,526 709,526
Messrs. Allumbaugh, Marasca, Reed, Gray and Peets have completed 36, 37, 21, 31 and 17 years of credited service, respectively. Compensation covered by the Supplemental Plan includes both salary and bonus. The calculation of retirement benefits generally is based on average compensation for the highest three years of the ten years preceding retirement. The benefits earned by a participant under the Supplemental Plan are reduced by any benefits which the participant has earned under the Retirement Plan and may be offset under certain circumstances by the cash surrender value of life insurance policies maintained by Ralphs pursuant to the split dollar life insurance agreements entered into by Ralphs and the executive. Benefits are not subject to any deduction for social security offset. It is currently anticipated, although there can be no assurance, that Ralphs and Food 4 Less salaried employees will participate in the Retirement Plan and other existing Ralphs benefit plans following the Merger. These plans are currently being evaluated to determine the feasibility of such participation. SUMMARY COMPENSATION TABLE -- FOOD 4 LESS The following Summary Compensation Table sets forth information concerning the compensation of the Chief Executive Officer and the other three most highly compensated executive officers of Food 4 Less who are expected to serve as executive officers of the Company, whose total annual salary and bonus exceeded $100,000 for services rendered in all capacities to Food 4 Less and its subsidiaries for Fiscal 1994.
ANNUAL COMPENSATION ---------------------- ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(4)($) - - ---------------------------------------------- ---- --------- -------- ------------------ Ronald W. Burkle, Chairman and................ 1994 -- -- -- Chief Executive Officer(1) 1993 -- -- -- 1992 -- -- -- George G. Golleher,........................... 1994 500,000 500,000 3,937 President 1993 500,000 500,000 -- 1992 500,000 235,000 5,300 Greg Mays, Executive Vice-President........... 1994 250,000 150,000 -- Finance/Administration and 1993 108,000 75,000 -- Chief Financial Officer(2) 1992 -- -- -- Joe Burkle,................................... 1994 196,000 50,000 -- Executive Vice President(3) 1993 156,000 -- -- 1992 156,000 -- --
- - --------------- (1) Ronald W. Burkle and Mark A. Resnik, Vice President and Secretary of Food 4 Less, provide services to Food 4 Less pursuant to a management agreement between Yucaipa and Food 4 Less. See "Certain Relationships and Related Transactions." Pursuant to this management agreement, Food 4 Less paid Yucaipa and an affiliate of Yucaipa $2.4 million in the fiscal year ended June 25, 1994 for the services of Messrs. Ronald Burkle and Resnik and other Yucaipa personnel. Such payments to Yucaipa and its affiliate are not reflected in the table set forth above. (2) During fiscal 1993, Greg Mays became Executive Vice President-Finance/Administration and Chief Financial Officer. (3) Mr. Joe Burkle provides services to Food 4 Less pursuant to a consulting agreement. See " -- Employment Agreements." (4) The amounts shown in this column represent annual payments by Food 4 Less to the Employee Profit Sharing and Retirement Program of Food 4 Less for the benefit of Mr. Golleher. 79 89 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION -- FOOD 4 LESS Food 4 Less does not have a board committee performing the functions of a compensation committee. Ronald W. Burkle, Chief Executive Officer of Food 4 Less, and George G. Golleher, President of Food 4 Less, made decisions with regard to Food 4 Less' executive officer compensation for Fiscal 1994. FOOD 4 LESS STOCK PLAN As of June 25, 1994, certain employees of Food 4 Less (the "Management Stockholders") collectively owned approximately 4.5% of Holdings' outstanding common stock which they acquired under the management stock plan of Food 4 Less. Pursuant to this plan, the Board of Directors of Holdings from time to time has offered common stock of Holdings for sale to selected employees at a price and for consideration (which may include a promissory note) determined at the discretion of the Board. Management Stockholders who have purchased shares are party to a Management Stockholders Agreement (the "Stockholders Agreement") with Holdings, a Stockholder Voting Agreement and Proxy (the "Voting Agreement"), and such other documents as Holdings may require. The Stockholders Agreement prohibits the transfer of any of the Management Stockholder's common stock for a period of four years from the date of its original issuance (although such date may, in the case of certain Management Stockholders who were shareholders of BHC, relate back to the date that shares were issued to them by BHC) other than transfers to certain family members and heirs or pursuant to a registration statement. The Management Stockholder's shares may be purchased by Holdings if, (a) prior to the fourth anniversary of their issuance, the Management Stockholder's employment terminates for any reason, or (b) after such fourth anniversary, the Management Stockholder wishes to sell his/her common stock to a third party. In the event of the death or permanent disability of the Management Stockholder, each Management Stockholder has an irrevocable option for one year to require Holdings to purchase all (or a portion) of his common stock in the manner and on the terms set forth in the Stockholders Agreement; provided, however, that the Management Stockholder may exercise such option in the event of death or disability only to the extent that Holdings or Food 4 Less has insurance, under which Holdings or Food 4 Less is the named beneficiary, with respect to such event. Additionally, if shareholders holding at least fifty percent (50%) of the issued and outstanding common stock of Holdings agree to sell to a third party more than eighty percent (80%) of the shares of common stock then held by them, then upon the demand of such selling stockholders, each Management Stockholder must sell to such third party the same percentage of his common stock as is proposed to be sold by the selling stockholders. Under the Voting Agreement, Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors, Inc. have sole voting control over the shares of common stock owned by the other Management Stockholders until December 31, 2001 (unless extended by such Management Stockholders). Messrs. Burkle and Golleher also have rights which vary in certain respects from the rights of the other Management Stockholders under the Stockholders Agreement. Among other differences, Messrs. Burkle and Golleher have (i) rights to subscribe to offerings of additional shares of the common stock of Holdings, (ii) "piggyback" registration rights in the event of a public offering of common stock (if and to the extent permitted by Holdings' underwriter) and (iii) "tag-along" rights to participate in certain sales of common stock of Holdings. In addition, Mr. Golleher has the right to be elected to the Board of Directors of Holdings so long as he beneficially owns shares of common stock of Holdings. The Stockholders Agreement terminates automatically, in the case of Messrs. Burkle and Golleher, upon a change of control of Holdings or upon an underwritten public offering of Holdings' common stock (subject to certain exceptions). In the case of the other Management Stockholders, the Stockholders Agreement terminates on the tenth anniversary of the original share issuance. As of July 25, 1994, there was outstanding $0.6 million principal amount of notes receivable from certain Management Stockholders, representing loans for the purchase of Holdings' common stock. The notes are due over various periods, bear interest at the bank "prime" lending rate, and are secured by such common stock. Pursuant to the Reincorporation Merger, New Holdings will succeed to the rights and obligations of Holdings under the Food 4 Less stock plan. It is expected that following the Merger, equity issuances to management will cease to be made under the Food 4 Less stock plan and instead will be made under the New Holdings option plan. See "-- New Management Stock Option Plan and Management Investment." 80 90 PRINCIPAL STOCKHOLDERS The information in the following table gives effect to (i) the Merger and the Financing and (ii) the FFL Merger and the Reincorporation Merger. The information in the following table assumes that the outstanding stock options of RSI have been cancelled, that certain new stock options of New Holdings have been granted to management and that certain warrants to purchase New Holdings common stock have been issued to institutional investors who currently hold warrants to purchase common stock of Holdings. Based on such assumption and giving effect to the foregoing events, the following table sets forth the ownership of common stock and Series A Preferred Stock and Series B Preferred Stock of New Holdings by each person who to the knowledge of Food 4 Less will own 5% or more of New Holdings' outstanding voting stock, by each person who will be a director or named executive officer of the Company, and by all executive officers and directors of the Company as a group. Share amounts and percentage ownership information set forth for the Series A Preferred Stock and Series B Preferred Stock are subject to change pending finalization of the Financing.
SERIES A SERIES B COMMON PREFERRED PREFERRED STOCK(1)(2) STOCK(1) STOCK(1) ------------------ ----------------- ----------------- PERCENTAGE PERCENTAGE NUMBER NUMBER NUMBER OF TOTAL OF ALL OF OF OF VOTING OUTSTANDING BENEFICIAL OWNER(3) SHARES % SHARES % SHARES % POWER STOCK - - --------------------------- ---------- ----- ---------- ---- --------- ---- ---------- ----------- Yucaipa and affiliates: The Yucaipa Companies(4)(5)........ 14,567,622 57.8% -- -- -- -- 34.0% 31.7% Ronald W. Burkle(4)(6)... 2,046,392 10.1% -- -- -- -- 5.4% 5.0% George G. Golleher (2)(6)................. 462,525 2.3% -- -- -- -- 1.2% 1.1% 10000 Santa Monica Boulevard, Los Angeles, California 90067 ---------- ----- ---------- ----------- Total................ 17,076,539 67.7% -- -- -- -- 39.8% 37.1% Byron E. Allumbaugh(2)..... 600,000 3.0% -- -- -- -- 1.6% 1.5% Alfred A. Marasca(2)....... 200,000 1.0% -- -- -- -- 0.5% 0.5% Greg Mays(7)............... -- -- -- -- -- -- -- -- Apollo Advisors, L.P.(8) 2 Manhattanville Road Purchase, NY 10577....... 1,285,165 6.4% 12,283,244 69.5% -- -- 35.8% 33.1% BT Investment Partners, Inc.(9) 130 Liberty Street New York, NY 10006....... 509,812 2.5% 900,000 5.1% 3,100,000 100% 3.7% 11.0% Other New Equity Investors as a group(10)........... 4,500,000 25.4% -- -- 11.9% 11.0% All directors and executive officers as a group (15 persons)(2)(4)(5)(6)..... 17,876,539 70.9% -- -- -- -- 41.7% 38.9%
- - --------------- (1) Gives effect to (i) a stock split to be effected with respect to the outstanding common stock of Holdings prior to the Merger, (ii) the conversion (in connection with the FFL Merger) of the outstanding common stock of FFL into newly-issued common stock of Holdings in an amount which will preserve the proportionate ownership interests of FFL's stockholders, and of the equity holders of Holdings, in the combined Company, (iii) the conversion (in connection with the Reincorporation Merger) of the outstanding common stock, and warrants to acquire common stock, of Holdings into New Holdings common stock and warrants, (iv) the issuance by New Holdings of 17,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock in connection with the New Equity Investment and the concurrent exchange of outstanding shares of common stock acquired by the New Equity Investors from an existing stockholder, and (v) the assumed exercise of the outstanding warrants to acquire New Holdings common stock issued to the former Holdings warrantholders in connection with the Reincorporation Merger. (2) Gives effect to the exercise of Tier One Options to be issued to Byron E. Allumbaugh, George G. Golleher and Alfred A. Marasca under a new management stock option plan to be adopted prior to completion of the Merger, covering 600,000, 200,000 and 200,000 shares, respectively. Does not give effect to the exercise of (a) Tier Two Options to purchase up to 1,000,000 shares of New Holdings common stock to be issued at the discretion of the Board of Directors to certain management employees of the Company, under such stock option plan, concurrently with or following completion of the Merger or (b) Reinvestment Options to purchase up to 1,000,000 shares of New Holdings common stock to be issued to holders of EARs in exchange for the cancellation of $10 million of the EAR payments which would otherwise be payable upon consummation of the Merger. See "Executive Compensation -- New Management Stock Option Plan and Management Investment." 81 91 (3) Except as otherwise indicated, each beneficial owner has the sole power to vote, as applicable, and to dispose of all shares of Common Stock or Series A Preferred Stock or Series B Preferred Stock owned by such beneficial owner. (4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners, L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These entities are affiliated partnerships which are controlled, directly or indirectly, by Ronald W. Burkle. Following completion of the Merger, the foregoing entities will be parties to a stockholders agreement with other New Holdings investors which will give to Yucaipa the right to elect a majority of the directors of New Holdings. See "Description of Capital Stock -- 1995 Stockholders Agreement." (5) Share amount and percentages shown for Yucaipa include a warrant to purchase 5,000,000 shares of New Holdings Common Stock, exercisable at $31.25 per share, to be issued to Yucaipa concurrently with the completion of the Merger and the Financing. See "Description of Capital Stock -- Yucaipa Warrant." (6) Certain management stockholders who own in the aggregate 852,326 shares of Common Stock (pro forma for the events and assumptions described above) have entered into a Stockholder Voting Agreement and Proxy pursuant to which Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors, Inc. have sole voting control over the shares currently owned by such management stockholders until December 31, 2002 (unless extended by such stockholders). See "Executive Compensation -- Food 4 Less Stock Plan." The 852,326 shares have been included, solely for purposes of the above table, in the share amounts shown for Mr. Burkle but not for Mr. Golleher. Neither Messrs. Burkle and Golleher nor Yucaipa Capital Advisors, Inc. have the power to dispose of, or any other form of investment power with respect to, such shares. Messrs. Burkle and Golleher have sole voting and investment power with respect to 1,194,066 and 462,525 shares of Common Stock they respectively own (including, in the case of Mr. Golleher, 200,000 shares issuable upon the exercise of Tier One Options). (7) Mr. Mays owns 8,890 of the 852,326 shares of Common Stock which are subject to the Stockholder Voting Agreement and Proxy described in note (6) above. (8) Represents shares owned by one or more entities managed by or affiliated with Apollo Advisors, L.P., together with certain affiliates or designees of Apollo. (9) 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. (10) Includes certain institutional investors, other than Apollo and BTIP, which will purchase Series A Preferred Stock of New Holdings in connection with the Financing. Pursuant to the 1995 Stockholders Agreement, certain corporate actions by New Holdings and its subsidiaries will require the consent of a majority of the directors whom the New Equity Investors, including Apollo and BTIP, are entitled to elect to the New Holdings Board of Directors. See "Description of Capital Stock -- 1995 Stockholders Agreement." Such investors do not affirm the existence of a "group" within the meaning of Rule 13d-5 under the Exchange Act, and expressly disclaim beneficial ownership of all New Holdings shares except for those shares held of record by each such investor or its nominees. DESCRIPTION OF CAPITAL STOCK Following is a description of the capital stock of the Company and New Holdings to be authorized and outstanding upon completion of the Merger, the FFL Merger and the Reincorporation Merger, including the terms of the New Equity Investment to be made in New Holdings in connection with the closing of the Merger. THE COMPANY Upon completion of the Merger, the authorized capital stock of the Company will consist of 1,600,000 shares of common stock, $.01 par value per share, of which 1,513,938 shares will be outstanding. All of such outstanding shares will be owned by New Holdings. There will be no public trading market for the common stock of the Company. The indentures that will govern outstanding debt securities of the Company will contain certain restrictions on the payment of cash dividends with respect to the Company's common stock. In addition, it is expected that the New Credit Facility will also restrict such payments. Subject to the limitations contained in the New Credit Facility and such indentures, holders of common stock of the Company will be entitled to dividends when and as declared by the Board of Directors from funds legally available therefor, and upon liquidation, will be entitled to share ratably in any distribution to holders of common stock. All holders of common stock will be entitled to one vote per share on any matter coming before the stockholders for a vote. NEW HOLDINGS Following completion of the FFL Merger, the Reincorporation Merger, the Merger and the New Equity Investment, (i) the authorized capital stock of New Holdings will consist of 60,000,000 shares of common 82 92 stock, $.01 par value, 25,000,000 shares of Series A Preferred Stock, $.01 par value, and 25,000,000 shares of Series B Preferred Stock, $.01 par value, (ii) 17,207,882 shares of common stock, 17,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock will be outstanding and held by approximately 100 holders of record, (iii) 2,008,874 shares of common stock will be reserved for issuance upon the exercise of outstanding warrants held by institutional investors, and (iv) 3,000,000 shares of common stock will be reserved for issuance upon the exercise of the New Options. See "Executive Compensation -- New Management Stock Option Plan and Management Investment." An additional 5,000,000 shares of common stock will be reserved for issuance upon the exercise of an outstanding warrant to be issued upon closing of the Merger to an affiliate of Yucaipa. See "Yucaipa Warrant" below. There is no public trading market for the capital stock of New Holdings, nor will any such market exist following completion of the Merger. New Holdings does not expect in the foreseeable future to pay any dividends on its capital stock. Holders of common stock of New Holdings are entitled to dividends when and as declared by the Board of Directors of New Holdings from funds legally available therefor, and upon liquidation, are entitled to share ratably in any distribution to holders of common stock. All holders of New Holdings common stock are entitled to one vote per share on any matter coming before the stockholders for a vote. The Series A Preferred Stock initially will have an aggregate liquidation preference of $176,832,440, or $10 per share, which will accrete at the rate of 7.5% per annum until the fifth anniversary of the date of issuance, and thereafter will remain constant. The accretion of the liquidation preference will not affect the conversion ratio of the Series A Preferred Stock or otherwise have any effect on the economic interest of the preferred stockholders other than in the event New Holdings is liquidated or dissolved. Aside from priority in respect of liquidation, the holders of the Series A Preferred Stock will have in all respects the same rights, including with respect to voting and dividends, as the holders of New Holdings common stock have, and will vote together with the common stock as a single class on all matters submitted for stockholder vote. Each share of Series A Preferred Stock initially will be convertible at the option of the holder thereof into one share of New Holdings common stock. Upon consummation of an initial public offering of New Holdings equity securities which meets certain criteria, each share of Series A Preferred Stock will automatically convert into one share of common stock of New Holdings. The Series B Preferred Stock initially will have an aggregate liquidation preference of $31,000,000, or $10 per share, which will accrete at the rate of 7.5% per annum until the fifth anniversary of the date of issuance, and thereafter will remain constant. The accretion of the liquidation preference will not affect the conversion ratio of the Series B Preferred Stock or otherwise have any effect on the economic interest of the preferred stockholders other than in the event New Holdings is liquidated or dissolved. The holders of Series B Preferred Stock generally will not be entitled to vote on any matters, except as required by the Delaware General Corporation Law. Each share of Series B Preferred Stock initially will be convertible at the option of the holder thereof into one share of New Holdings common stock upon the occurrence of a Change of Control (as defined in the New F4L Indentures). See "Description of the New F4L Notes." Upon consummation of an initial public offering of New Holdings equity securities which meets certain criteria, each share of Series B Preferred Stock will automatically convert into one share of common stock of New Holdings. The initial aggregate liquidation preference of the Series A Preferred Stock and the Series B Preferred Stock may increase from the amounts set forth above depending on whether New Holdings determines to increase the number of shares it may sell pursuant to the New Equity Investment, and depending on whether certain existing equity holders of FFL and Holdings exercise preemptive rights to participate in the New Equity Investment. Upon any transfer or sale of shares of either Series A Preferred Stock or Series B Preferred Stock, such shares may be converted (subject to certain conditions) at the option of the holder into shares of the other series. Each share of Series A Preferred Stock and Series B Preferred Stock will have identical rights with respect to dividends and distributions, provided that if dividends are declared which are payable in voting securities of New Holdings, New Holdings will make available to each holder of Series A Preferred Stock and Series B Preferred Stock, at such holder's request, dividends consisting of non-voting securities of New 83 93 Holdings which are otherwise identical to the voting securities and which are convertible into or exchangeable for such voting securities on the same terms as those by which the Series B Preferred Stock is convertible into New Holdings common stock. NEW EQUITY INVESTMENT Concurrently with the issuance of the New Notes and the closing of the Merger, certain existing stockholders of New Holdings, including affiliates of George Soros, will sell 5,783,244 outstanding shares of common stock of New Holdings to CLH, which in turn will sell such shares to the New Equity Investors for an aggregate purchase price of $57.8 million. New Holdings will then issue 17,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock in a private placement to a group of investors led by Apollo and including affiliates of BT Securities, CS First Boston and DLJ and other institutional investors (the "New Equity Investors") for an aggregate consideration of $150 million plus the contribution to New Holdings of the shares of common stock purchased from CLH in the secondary sale transaction. The shares of Series A Preferred Stock and Series B Preferred Stock acquired by the New Equity Investors will represent approximately 43% in the aggregate of the fully diluted common equity of New Holdings. See "Principal Stockholders." The $150 million cash proceeds from the issuance of Series A Preferred Stock and Series B Preferred Stock will be applied by New Holdings as set forth under "The Merger and the Financing." Food 4 Less has accepted a commitment letter (the "Equity Commitment") from Apollo pursuant to which Apollo has agreed (subject to certain conditions) to purchase up to $150 million of the Series A Preferred Stock to be offered by New Holdings as part of the New Equity Investment. In consideration of its Equity Commitment, Apollo will receive a fee of $5 million from the Company upon the closing of the Merger. The Company anticipates that the remainder of the Series A Preferred Stock and Series B Preferred Stock so offered will be purchased by affiliates of lenders and other financial institutions which have provided financing to the Company, including BTIP, which is an affiliate of Bankers Trust, by affiliates of CS First Boston and DLJ and by certain other investors. The amounts of New Holdings stock expected to be held by Apollo, affiliates of Bankers Trust and all other holders of 5% or more of New Holdings' outstanding stock following completion of the Merger and the Financing are set forth above under "Principal Stockholders." 1995 STOCKHOLDERS AGREEMENT Under the terms of the 1995 Stockholders Agreement (which is expected to be entered into by New Holdings, Yucaipa and its affiliates, the New Equity Investors and other stockholders), the New Equity Investors will be entitled to nominate three directors to the Board of Directors of each of New Holdings and the Company (the "Series A Directors"), of which two directors will be nominees of Apollo and one director will be a nominee of the other New Equity Investors. The 1995 Stockholders Agreement will give to Yucaipa the right to nominate six directors of New Holdings and seven directors of the Company, and the boards of New Holdings and the Company will consist of a total of nine and ten directors, respectively. The numbers of directors which may be nominated by the foregoing stockholders will be reduced if such stockholders cease to own certain specified percentages of their initial holdings. Unless and until New Holdings has effected an initial public offering of its equity securities meeting certain criteria, New Holdings and its subsidiaries may not take certain actions without the approval of a majority of the Series A Directors, including but not limited to certain mergers, sale transactions, transactions with affiliates, issuances of capital stock and payments of dividends on or repurchases of capital stock. In addition, the New Equity Investors will have certain "demand" and "piggyback" registration rights with respect to their Series A Preferred Stock and Series B Preferred Stock, as well as the right to participate, on a pro rata basis, in sales by Yucaipa of the New Holdings stock it holds. In certain circumstances, Yucaipa will have the right to compel the participation of the New Equity Investors and other stockholders in sales of all the outstanding shares of New Holdings stock. The Company intends to seek the agreement of the current stockholders of FFL and warrantholders of Holdings to become party to the 1995 Stockholders Agreement, which would grant to such holders certain rights thereunder in replacement of two existing stockholders agreements among FFL and its stockholders 84 94 entered into in 1987 and 1991, respectively, and an agreement among Holdings and its warrantholders executed in 1992. YUCAIPA WARRANT Upon closing of the Merger, New Holdings has agreed to issue to Yucaipa a warrant to purchase up to 5,000,000 shares of New Holdings common stock. The initial exercise price of such warrant will be $31.25 per share. Such warrant will be exercisable on a cashless basis at the election of Yucaipa in the event New Holdings completes an initial public offering of equity securities meeting certain criteria, or in connection with certain sale transactions involving New Holdings, in either case effected on or prior to the fifth anniversary of the Closing Date. The expiration date of such warrant, and the deadline for such triggering transactions, may be extended from the fifth to the seventh anniversary of the Closing Date if New Holdings meets certain financial performance goals prior to such fifth anniversary. The cashless exercise provisions of such warrant allow the holder to exercise it without the payment of cash consideration, provided that New Holdings will withhold from the shares otherwise issuable upon exercise thereof a number of shares having a fair market value as of the exercise date equal to the exercise price. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RALPHS In connection with the acquisition of a majority of RSI's common stock in February 1992, EJDC agreed to guarantee RGC's obligations as a self-insurer of worker's compensation liabilities in the State of California (the "EJDC Guaranty"). In consideration of the EJDC Guaranty, RGC unconditionally agreed to reimburse EJDC for any payments made under the EJDC Guaranty and for the cost of insurance up to $200,000 to cover liabilities incurred pursuant to the EJDC Guaranty. Further, RGC agreed to pay EJDC a guarantee fee of $33,500 for each month the EJDC Guaranty was in effect ($402,000 was paid in Fiscal 1993). Concurrently with the completion of the Merger, the EJDC Guaranty will be terminated, and RGC will cease to pay any guarantee fee to EJDC or to reimburse it for the cost of insurance. However, RGC will continue to be obligated to reimburse EJDC for any payments which EJDC could in the future be required to make under the EJDC Guaranty in respect of prior claims. Moreover, FFL has undertaken for the benefit of EJDC to maintain, until the fifth anniversary of the closing of the Merger, bank letters of credit, insurance or other security for the workers' compensation claims for which EJDC could have liability under the EJDC Guaranty. In connection with the bankruptcy reorganization of Federated and its affiliates, Federated agreed to pay certain potential tax liabilities relating to RGC as a member of the affiliated group of companies comprising Federated and its subsidiaries. In consideration thereof, RSI and RGC agreed to pay Federated a total of $10 million, payable $1 million on each of February 3, 1992, 1993, 1994, 1995 and 1996 and $5 million on February 3, 1997. The five $1 million installments are to be paid by RGC and the $5 million payment is the joint obligation of RSI and RGC. In the event Federated is required to pay certain tax liabilities, RSI and RGC have agreed to reimburse Federated up to an additional $10 million, subject to certain adjustments. This additional obligation, if any, is the joint and several obligation of RSI and RGC. Pursuant to the terms of the Merger Agreement, the $5 million payment and the potential $10 million payment will be paid in cash. See Note 1 of Notes to Ralphs Consolidated Financial Statements. In addition, EJDC and the other current holders of Common Stock of RSI are parties to an agreement providing for various aspects of corporate governance (the "Ralphs Registration Rights and Governance Agreement") relating to Ralphs. Pursuant to the Ralphs Registration Rights and Governance Agreement, RGC is obligated to provide RSI, by dividend, pursuant to a services agreement or otherwise, with funds sufficient to enable RSI to perform its duties as the holding company of RGC's stock and to perform its obligations set forth in the Ralphs Registration Rights and Governance Agreement. The Ralphs Registration Rights and Governance Agreement will be cancelled concurrently with the closing of the Merger. FOOD 4 LESS Yucaipa provides certain management and financial services to Food 4 Less and its subsidiaries pursuant to a consulting agreement. The services of Ronald Burkle, Mark Resnik and Patrick Graham, acting in their 85 95 capacities as directors and officers, and the services of other Yucaipa personnel are provided to Food 4 Less pursuant to this agreement. All of such individuals are partners of Yucaipa. Yucaipa's consulting agreement provides for annual management fees currently equal to $2 million plus an additional amount based on Food 4 Less' performance. Upon completion of the Merger, the consulting agreement will be amended to provide for an annual management fee payable by the Company to Yucaipa in the amount of $4 million, with no additional amounts payable based on performance. In addition, the Company may retain Yucaipa in an advisory capacity in connection with certain acquisitions or sale transactions, in which case the Company will pay Yucaipa an advisory fee. The agreement has a five-year term, which is automatically renewed on January 1 of each year 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 remainder of the five-year period commencing on the closing of the Merger. Pursuant to the agreement, Food 4 Less paid Yucaipa a total of $2.4 million, $3.8 million and $2 million in management and advisory fees for the fiscal years ended June 25, 1994, June 26, 1993 and June 27, 1992 respectively. The Yucaipa consulting agreement also provides that upon closing of the Merger, Yucaipa will be entitled to receive an advisory fee from the Company in the amount of $24 million, plus reimbursement of expenses in connection with the Merger and the related transactions. At the option of Yucaipa, up to $5 million of such fee may be paid in the form of common stock of New Holdings. See "Description of Capital Stock." In consideration of its commitment to purchase Series A Preferred Stock of New Holdings, Apollo will receive a fee of $5 million from the Company upon the closing of the Merger. See "Description of Capital Stock--New Equity Investment." In addition, upon closing of the Merger, Yucaipa anticipates that it will pay a fee of approximately $3.5 million to Soros Fund Management in consideration of advisory services which Soros Fund Management has rendered since 1991. The Company has no responsibility for such payment by Yucaipa. In connection with the execution of the Merger Agreement, Yucaipa entered into the Put Agreement with EJDC, pursuant to which EJDC will be entitled to put up to $10 million aggregate principal amount of Seller Debentures to Yucaipa on the Closing Date. The Yucaipa consulting agreement will provide that the Company will reimburse Yucaipa for any loss and expenses incurred by Yucaipa upon the resale of such Seller Debentures to any unaffiliated third party. Yucaipa has advised the Company that it intends to resell the Seller Debentures on the Closing Date or as soon thereafter as practicable. The agreement will also require Yucaipa to contribute any profit realized upon the resale of such Seller Debentures within such period to the capital of the Company. FFL files a consolidated federal income tax return, under which the federal income tax liability of FFL and its subsidiaries (which since June 23, 1989 includes Food 4 Less) is determined on a consolidated basis. FFL has entered into a federal income tax sharing agreement with Food 4 Less and certain of its subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides that in any year in which Food 4 Less is included in any consolidated tax liability of FFL and has taxable income, Food 4 Less will pay to FFL the amount of the tax liability that Food 4 Less would have had on such due date if it had been filing a separate return. Conversely, if Food 4 Less generates losses or credits which actually reduce the consolidated tax liability of FFL and its other subsidiaries, FFL will credit to Food 4 Less the amount of such reduction in the consolidated tax liability. In the event any state and local income taxes are determinable on a combined or consolidated basis, the Tax Sharing Agreement provides for a similar allocation between FFL and Food 4 Less of such state and local taxes. By operation of the FFL Merger and the Reincorporation Merger, New Holdings will succeed to the rights and obligations of FFL under the Tax Sharing Agreement. Management believes that the terms of the transactions described above are or were fair to Food 4 Less and are or were on terms at least as favorable to Food 4 Less as those which could be obtained from unaffiliated parties (assuming that such transactions could be effected with such parties). 86 96 THE EXCHANGE OFFERS AND SOLICITATION BACKGROUND AND PURPOSES OF THE EXCHANGE OFFERS AND SOLICITATION The Exchange Offers and the Solicitation, together with the financing and solicitation transactions described under "The Merger and the Financing," are part of the transactions required to consummate the Merger of Food 4 Less with and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned subsidiary of RSI, will merge into RSI and RSI will change its name to Ralphs Grocery Company. As a result of the Merger, the New F4L Notes, any Old F4L Notes not tendered for exchange pursuant to the Exchange Offers, the New RGC Notes, any Old RGC Notes not tendered pursuant to the RGC Exchange Offer, and the indebtedness incurred pursuant to the New Credit Facility will be the obligations of the Company. In connection with the consummation of the Merger, Food 4 Less is making the Exchange Offers and the RGC Exchange Offers to (i) extend the maturities of the existing long-term debt securities of Food 4 Less and RGC by exchanging such securities for new longer-term securities and (ii) establish uniform covenants in the New F4L Notes and the New RGC Notes in order to simplify the capital structure of the Company. The Exchange Offers afford Old F4L Noteholders an opportunity to elect to participate in the long-term capitalization of the Company. Food 4 Less is also seeking Consents to the Proposed Amendments in the Solicitation. The primary purpose of the Proposed Amendments is to permit the consummation of the Merger and to eliminate substantially all of the restrictive covenants in the Old F4L Indentures. See "The Proposed Amendments." If adopted by the holders of a majority in aggregate principal amount of each of the outstanding Old F4L Senior Notes and the outstanding Old F4L Senior Subordinated Notes, the Proposed Amendments will become effective immediately prior to the consummation of the Merger, upon Food 4 Less' acceptance of properly tendered Old F4L Notes for exchange pursuant to the Exchange Offers. TERMS OF THE EXCHANGE OFFERS Upon the terms and subject to the conditions set forth herein and in the accompanying applicable Letter of Transmittal, Food 4 Less is hereby offering (A) to holders of the Old F4L Senior Notes to exchange for each $1,000 principal amount of Old F4L Senior Notes exchanged, $1,000 principal amount of New F4L Senior Notes plus $5.00 in cash, and (B) to holders of the Old F4L Senior Subordinated Notes to exchange for each $1,000 principal amount of Old F4L Senior Subordinated Notes exchanged, $1,000 principal amount of New F4L Senior Subordinated Notes plus $20.00 in cash, in each case plus accrued and unpaid interest to the date of exchange. The offers by Food 4 Less to exchange Old F4L Senior Notes and Old F4L Senior Subordinated Notes are referred to herein as the "F4L Senior Note Exchange Offer" and the "F4L Senior Subordinated Note Exchange Offer," respectively, and are referred to herein individually as the applicable "Exchange Offer" and collectively as the "Exchange Offers." Each Exchange Offer constitutes a separate exchange offer by Food 4 Less. Food 4 Less reserves the right to extend, delay, accept, amend or terminate either or both of the Exchange Offers, and any extension, delay, acceptance, amendment, termination or expiration of an Exchange Offer shall apply only to such Exchange Offer to which such extension, delay, acceptance, amendment, termination or expiration relates. Satisfaction of the conditions to the Exchange Offer shall be determined separately with respect to each Exchange Offer. Consummation of each Exchange Offer is subject to consummation of the other Exchange Offer. All references herein to the Exchange Offers shall be deemed to include the Solicitation. Noteholders who wish to tender their Old F4L Notes pursuant to the applicable Exchange Offer and consent to the Proposed Amendments must complete the Letter of Transmittal and the table therein entitled "Description of Old F4L Notes." Nominees or other record holders of Old F4L Notes that hold Old F4L Notes for more than one beneficial owner are entitled to make multiple elections pursuant to the Letter of Transmittal that reflect the election of each of the beneficial owners for whom they are exchanging Old F4L Notes. In order to make such multiple elections, nominees or other record holders should properly complete the table under the box entitled "Election on Behalf of Multiple Beneficial Owners." See "-- Procedures for Tendering and Consenting." 87 97 Holders of Old F4L Notes who desire to tender Old F4L Notes in an Exchange Offer will be required to consent to the Proposed Amendments. See "-- The Consent Solicitation," "-- Conditions," "The Proposed Amendments," "Comparison of Old F4L Senior Notes and New F4L Senior Notes" set forth in Appendix A hereto and "Comparison of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes" set forth in Appendix B hereto. THE TENDER OF OLD F4L NOTES BY THE HOLDER THEREOF PURSUANT TO THE APPLICABLE EXCHANGE OFFER WILL CONSTITUTE THE CONSENT OF SUCH TENDERING HOLDER TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH OLD F4L NOTES. Old F4L Notes may be tendered and will be accepted for exchange only in denominations of $1,000 principal amount and integral multiples thereof. Holders must tender all of their Old F4L Senior Notes or Old F4L Senior Subordinated Notes, as the case may be, if any are tendered pursuant to the applicable Exchange Offer. Food 4 Less shall be deemed to have accepted validly tendered Old F4L Notes in the Exchange Offers and validly delivered Consents in the Solicitation when, as and if Food 4 Less has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Old F4L Notes for the purposes of receiving the New F4L Notes and the Exchange Payment from the Company. In the event Food 4 Less increases the consideration offered for the Old F4L Notes in the Exchange Offer, such increased consideration will be paid with regard to all Old F4L Notes accepted in the Exchange Offer, including those accepted before the announcement of such increase. The New F4L Notes will be delivered (and payments in cash of accrued and unpaid interest thereon and the accompanying Exchange Payment will be made) in exchange for Old F4L Notes accepted in the Exchange Offers promptly after acceptance on the applicable Expiration Date. As of January 1, 1995, (i) $175 million aggregate principal amount of the Old F4L Senior Notes was outstanding and (ii) $145 million aggregate principal amount of the Old F4L Senior Subordinated Notes was outstanding. Concurrently with the Exchange Offers and the Solicitation, Food 4 Less is offering up to $400 million of New F4L Senior Notes pursuant to the Public Offering. The Public Offering is expected to price ten Business Days preceding the Expiration Date. CONSUMMATION OF EACH EXCHANGE OFFER IS CONDITIONED ON, AMONG OTHER THINGS, THE CONSUMMATION OF THE PUBLIC OFFERING. There can be no assurance that such condition or the other conditions to the Exchange Offers will be satisfied. See "-- Conditions." As a result of the Merger, the New F4L Notes will become the obligations of the Company. Although it has no obligation to do so, the Company reserves the right in the future to seek to acquire Old F4L Notes not tendered in the Exchange Offers by means of open market purchases, privately negotiated acquisitions, subsequent exchange or tender offers, redemptions or otherwise, at prices or on terms which may be higher or lower or more or less favorable than those in the Exchange Offers. The terms or any such purchases or offers could differ from the terms of the Exchange Offers. Holders of Old F4L Notes who tender in the Exchange Offers will not be required to pay brokerage commissions or fees or, subject to the instructions in the Consent and Letter of Transmittal, transfer taxes with respect to the exchange of Old F4L Notes pursuant to the Exchange Offers. Food 4 Less will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offers. See "-- Fees and Expenses." No appraisal rights are available to Old F4L Noteholders in connection with the Exchange Offers. THE CONSENT SOLICITATION Concurrently with the Exchange Offers, Food 4 Less is soliciting Consents in the Solicitation from holders of each of the Old F4L Senior Notes and the Old F4L Senior Subordinated Notes with respect to the Proposed Amendments to the Old F4L Indentures. The Exchange Offers are subject to, among other things, the condition that the Requisite Consents (i.e., Consents of holders representing at least a majority in aggregate principal amount of each of the outstanding Old F4L Senior Notes and Old F4L Senior 88 98 Subordinated Notes held by persons other than Food 4 Less and its affiliates) shall have been received and not revoked on or prior to the Expiration Date. HOLDERS OF OLD F4L NOTES WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. The Proposed Amendments will only become operative upon consummation of the Exchange Offers. The primary purpose of the Proposed Amendments is to permit the Merger and to eliminate substantially all of the restrictive covenants in the Old F4L Indentures. The Proposed Amendments for each of the Old F4L Senior Notes and the Old F4L Senior Subordinated Notes require the consent of holders of at least a majority in aggregate principal amount of each of the Old F4L Senior Notes and the Old F4L Senior Subordinated Notes, in each case not owned by Food 4 Less or its affiliates. In addition, in order for any of the Proposed Amendments to become effective, a Supplemental Indenture amending each of the Old F4L Senior Note Indenture and the Old F4L Senior Subordinated Note Indenture must be executed by the Company and the applicable Old Trustee. See "The Proposed Amendments," "Comparison of Old F4L Senior Notes and New F4L Senior Notes" set forth in Appendix A hereto and "Comparison of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes" set forth in Appendix B hereto. Upon receipt of the Requisite Consents from holders of Old F4L Senior Notes or holders of Old F4L Senior Subordinated Notes, Food 4 Less will certify in writing to the Old F4L Senior Note Trustee or the Old F4L Senior Subordinated Note Trustee (together, the "Old Trustees"), as the case may be, that the Requisite Consents to the adoption of the Proposed Amendments have been received with respect to such issue of Old F4L Notes. Upon receipt of such certification, all Consents to the Proposed Amendments theretofore received with respect to such issue of Old F4L Notes will be irrevocable. Except as set forth under "-- Guaranteed Delivery Procedure," Consents from tendering holders of Old F4L Notes will not be counted towards determining whether Food 4 Less has received the Requisite Consents unless Food 4 Less is prepared to accept the tender of Old F4L Notes to which such Consents relate. In addition, Consents with respect to any Old F4L Notes will not be counted if the tender of such holders' Old F4L Notes is defective, unless Food 4 Less waives such defect. After receipt by the Old F4L Senior Note Trustee or the Old F4L Senior Subordinated Note Trustee of, among other things, certification by Food 4 Less that the Requisite Consents with respect to the Old F4L Senior Notes or the Old F4L Senior Subordinated Notes, as the case may be, have been received, Food 4 Less and the applicable Old Trustee will execute a supplemental indenture to evidence the adoption of the Proposed Amendments relating to the applicable indenture under which such Old F4L Notes were issued (each a "Supplemental Indenture"). Upon the acceptance by Food 4 Less of the Requisite Consents from holders of Old F4L Senior Notes or Old F4L Senior Subordinated Notes and the execution of the applicable Supplemental Indenture, such Supplemental Indenture will immediately become effective. Although the Proposed Amendments relating to an issue of Old F4L Notes will become effective upon certification that the Requisite Consents from holders of the applicable Old F4L Notes have been received, such Proposed Amendments will not be operative until Food 4 Less has accepted for exchange all Old F4L Notes validly tendered and not withdrawn. The Company will not be obligated to issue the New F4L Senior Notes or the New F4L Senior Subordinated Notes pursuant to the Exchange Offers unless, among other things, the Requisite Consents to the adoption of the Proposed Amendments have been received from both the Old F4L Senior Noteholders and the Old F4L Senior Subordinated Noteholders. See "-- Conditions." If the Proposed Amendments become effective, (i) the Exchange Agent, as soon as practicable, will transmit a copy of the applicable Supplemental Indenture to all registered holders of Old F4L Notes which remain outstanding, and (ii) non-tendering holders will hold their Old F4L Notes under the applicable Old F4L Indenture as amended by the Proposed Amendments, whether or not that holder consented to the Proposed Amendments. Consents given by holders of Old F4L Notes tendered but rejected by Food 4 Less pursuant to an Exchange Offer will not be counted for the purpose of determining whether the Requisite Consents have been obtained. Only a registered holder of Old F4L Notes (the "Registered Holder") can effectively deliver a Consent to the Proposed Amendments. Pursuant to the terms of the Old F4L Indentures, subsequent transfers of Old F4L Notes on the applicable security register for such Old F4L Notes will not have the effect of revoking any 89 99 Consent theretofore given by the Registered Holder of such Old F4L Notes, and such Consents will remain valid unless revoked by the transferee holder in accordance with the procedures described under the heading "-- Withdrawal of Tenders and Revocation of Consents." EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS Each Exchange Offer and the Solicitation will expire at 12:00 Midnight, New York City time, on February 22, 1995 (the "Expiration Date"), unless extended by Food 4 Less. Food 4 Less reserves the right to extend either Exchange Offer or the Solicitation, at its discretion, in which event the term "Expiration Date" shall mean the latest time and date at which such Exchange Offer or the Solicitation, as the case may be, as so extended by Food 4 Less, shall expire. Food 4 Less expects to extend the Expiration Date to a date that is ten Business Days following the pricing of the Public Offering. Food 4 Less shall notify the Exchange Agent of any extension by oral or written notice and shall make a public announcement thereof, each prior to 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date. Such announcement may state that Food 4 Less is extending such Exchange Offer or the Solicitation, as the case may be, for a specified period or on a daily basis. Food 4 Less also expressly reserves the right, at any time or from time to time, to extend the period of time during which an Exchange Offer or the Solicitation, as the case may be, is open. There can be no assurance that Food 4 Less will exercise its right to extend either Exchange Offer or the Solicitation. During any extension of an Exchange Offer all Old F4L Notes previously tendered pursuant thereto and not withdrawn will remain subject to such Exchange Offer and may be accepted for exchange by Food 4 Less at the expiration of such Exchange Offer subject to the right, if any, of a tendering holder to withdraw its Old F4L Notes. See "-- Withdrawal of Tenders and Revocation of Consents." Each of the Company and Food 4 Less, as the case may be, also expressly reserve the right, subject to applicable law and the terms of the Exchange Offers and to the extent not inconsistent with the terms of the Merger, the Other Debt Financing Transactions, the Bank Financing or the New Equity Investment, (i) to delay the acceptance for exchange of any Old F4L Notes or, regardless of whether such Old F4L Notes were theretofore accepted for exchange, to delay the exchange of any Old F4L Notes pursuant to an Exchange Offer and to terminate such Exchange Offer and not accept for exchange any Old F4L Notes not theretofore accepted for exchange, upon the failure of any of the conditions to such Exchange Offer specified herein to be satisfied, by giving oral or written notice of such delay or termination to the Exchange Agent and (ii) at any time, or from time to time, to amend either of the Exchange Offers in any respect. Except as otherwise provided herein, withdrawal rights with respect to Old F4L Notes tendered pursuant to an Exchange Offer will not be extended or reinstated as a result of an extension or amendment of such Exchange Offer, as applicable. See "-- Withdrawal of Tenders and Revocation of Consents." The reservation by Food 4 Less of the right to delay acceptance for exchange of Old F4L Notes is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires that Food 4 Less (or the Company as successor by Merger) pay the consideration offered or return the Old F4L Notes deposited by or on behalf of holders thereof promptly after the termination or withdrawal of an Exchange Offer. Any extension, delay, termination or amendment of either Exchange Offer will be followed as promptly as practicable by a public announcement thereof. Without limiting the manner in which Food 4 Less may choose to make a public announcement of any extension, delay, termination or amendment of an Exchange Offer, Food 4 Less shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by issuing a release to the Dow Jones News Service, except in the case of an announcement of an extension of an Exchange Offer, in which case Food 4 Less shall have no obligation to publish, advertise or otherwise communicate such announcement other than by issuing a notice of such extension by press release or other public announcement, which notice shall be issued no later than 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date. If Food 4 Less shall decide to decrease the amount of Old F4L Notes being sought in either Exchange Offer or to increase or decrease the consideration offered to holders of Old F4L Notes, and if, at the time that notice of such increase or decrease is first published, sent or given to holders of Old F4L Notes in the manner 90 100 specified above, such Exchange Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth Business Day from and including the date that such notice is first so published, sent or given, then such Exchange Offer will be extended for such purposes until the expiration of such period of ten Business Days. As used in this Prospectus and Solicitation Statement, "Business Day" has the meaning set forth in Rule 14d-1 (and applicable to Regulation 14E) under the Exchange Act. If Food 4 Less makes a material change in the terms of either Exchange Offer or the information concerning either Exchange Offer, or waives any condition to either Exchange Offer that results in a material change to the circumstances of such Exchange Offer, then Food 4 Less will disseminate additional exchange offer or tender offer materials to the extent required under the Exchange Act and will extend such Exchange Offer to the extent required in order to permit holders of Old F4L Notes adequate time to consider such materials. The minimum period during which a tender offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or percentage of securities sought, will depend upon the specific facts and circumstances, including the relative materiality of the terms or information. CONDITIONS Food 4 Less will not be required to accept any Old F4L Notes for exchange, and may terminate or amend either or both of the Exchange Offers, as provided herein, before the acceptance of any Old F4L Notes, if either of the Exchange Offers has not been consummated. In addition, notwithstanding any other provision of the Exchange Offers or the Solicitation, Food 4 Less shall not be required to accept any Old F4L Notes for exchange or any Consents, and may terminate, extend or amend either or both Exchange Offers or the Solicitation and may postpone, subject to Rule 14e-1 under the Exchange Act, the acceptance of Old F4L Notes so tendered and Consents so delivered, whether or not any other Old F4L Notes or Consents have theretofore been accepted for exchange pursuant to the applicable Exchange Offer, if, on or prior to the Expiration Date, any of the following conditions exist: (i) the Minimum Tender shall not have been validly tendered for exchange (or shall have been withdrawn); (ii) the Requisite Consents shall not have been validly delivered (or shall have been revoked); (iii) all conditions precedent to the Merger shall not have been satisfied or waived, in Food 4 Less' sole discretion; (iv) any of the Other Debt Financing Transactions (including the Public Offering) shall not have been consummated; (v) either the Bank Financing or the New Equity Investment shall not have been consummated; (vi) either of the Supplemental Indentures containing the Proposed Amendments shall not have been executed; (vii) there shall have been any action taken or threatened, or any statute, rule, regulation, judgment, order, stay, decree or injunction proposed, sought, promulgated, enacted, entered, enforced or deemed applicable to either Exchange Offer by or before any local, state, federal or foreign government or governmental regulatory or administrative agency or authority or by any court or tribunal, domestic or foreign, which (a) challenges or seeks to restrain or prohibit the making or consummation of either Exchange Offer or the exchange of Old F4L Notes pursuant to the Exchange Offers, (b) in the sole judgment of Food 4 Less, might directly or indirectly prohibit, prevent, restrict or delay consummation of either Exchange Offer or otherwise relates in any manner to either Exchange Offer, (c) seeks to make illegal the acceptance of Old F4L Notes for exchange pursuant to either Exchange Offer, (d) makes the Solicitation illegal, (e) might, in the sole judgment of Food 4 Less, adversely affect the financing of either Exchange Offer, the Merger, the Other Debt Financing Transactions, the Bank Financing or the New Equity Investment or the transactions contemplated thereby, or (f) in the sole judgment of Food 4 Less, could materially adversely affect the business, condition (financial or otherwise), income, operations, 91 101 properties, assets, liabilities or prospects of Food 4 Less (or the Company, after giving effect to the Merger) and its subsidiaries, taken as a whole, or materially impair the contemplated benefits of the Exchange Offers and the Solicitation to Food 4 Less (or the Company, after giving effect to the Merger); (viii) there shall have occurred or be likely to occur any event affecting the business or financial affairs of Food 4 Less (or the Company, after giving effect to the Merger) that, in the sole judgment of Food 4 Less, (a) would or might prohibit, prevent, restrict or delay consummation of either Exchange Offer, or (b) will, or is reasonably likely to, materially impair the contemplated benefits to Food 4 Less (or the Company, after giving effect to the Merger) of the Exchange Offers and the Solicitation or otherwise result in the consummation of either Exchange Offer not being in the best interests of Food 4 Less or (c) might be material to holders of Old F4L Notes in deciding whether to accept either Exchange Offer or the Solicitation; (ix) there shall have occurred: (a) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange or in the over-the-counter market (whether or not mandatory); (b) any significant adverse change in the price of either of the Old F4L Senior Notes or the Old F4L Senior Subordinated Notes; (c) a material impairment in the trading market for debt securities generally; (d) a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States (whether or not mandatory); (e) a declaration of a national emergency or commencement of a war, armed hostilities or other national or international crisis directly or indirectly involving the United States; (f) any limitation (whether or not mandatory) by any governmental or regulatory authority on, or any other event that in the sole judgment of Food 4 Less might affect, the nature or extension of credit by banks or other financial institutions; (g) any significant change in United States currency exchange rates or a suspension of, or limitation on, the markets therefor (whether or not mandatory); (h) any significant adverse change in United States securities or financial markets; or (i) in the case of any of the foregoing existing at the time of the commencement of the Exchange Offers, in the sole judgment of Food 4 Less, a material acceleration, escalation or worsening thereof; (x) either of the Old F4L Trustees shall have objected in any respect to, or taken any action that could, in the sole judgment of Food 4 Less, adversely affect the consummation of either Exchange Offer or the Solicitation or Food 4 Less' ability to obtain the Consents or to effect any of the Proposed Amendments, or shall have taken any action that challenges the validity or effectiveness of the procedures used by Food 4 Less in soliciting the Consents (including the form thereof) or in the making of either Exchange Offer or the acceptance for exchange of any of the Old F4L Notes; or (xi) the Registration Statement has not been declared effective or a stop order has been issued in connection therewith. The foregoing conditions are for the sole benefit of Food 4 Less and may be asserted by Food 4 Less in its sole discretion regardless of the circumstances giving rise to any such condition (including any action or inaction by Food 4 Less) and may be waived by Food 4 Less, in whole or in part, at any time and from time to time in its sole discretion. If any of the foregoing events shall have occurred, Food 4 Less may, subject to applicable law, (i) terminate the applicable Exchange Offer or the Solicitation and return all Old F4L Notes tendered pursuant to such Exchange Offer or the Solicitation to the tendering holders, (ii) extend the applicable Exchange Offer or the Solicitation and retain all tendered Old F4L Notes until the extended Expiration Date, (iii) amend the terms of the applicable Exchange Offer or the Solicitation or modify the consideration to be paid by Food 4 Less (or the Company as successor by merger) pursuant to such Exchange Offer or the Solicitation or (iv) waive the unsatisfied condition or conditions with respect to such Exchange Offer or the Solicitation and accept all validly tendered Old F4L Notes. See "-- Expiration Date; Extensions; Termination; Amendments" and "-- Procedures for Tendering and Consenting." The failure by Food 4 Less at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by Food 4 Less concerning the events described in this section shall be final and binding upon all persons. 92 102 PROCEDURES FOR TENDERING AND CONSENTING The tender by a holder of Old F4L Notes pursuant to one of the procedures set forth below will constitute an agreement between such holder and Food 4 Less in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Old F4L Notes may be tendered and will be accepted for exchange only in denominations of $1,000 principal amount and integral multiples thereof. To be tendered effectively pursuant to the Exchange Offers, (i) the properly completed Letter of Transmittal, including a valid and unrevoked Consent (or facsimile(s) thereof), duly executed by the registered holder thereof with any required signature guarantee(s), together with the certificates for tendered Old F4L Notes in proper form for transfer, or any book-entry transfer into the Exchange Agent's account at DTC, MSTC or PDTC (each as defined) of Old F4L Notes tendered electronically, and any other documents required by the Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth below prior to 12:00 Midnight, New York City time, on the Expiration Date, or (ii) the tendering holder must comply with the guaranteed delivery procedure set forth under the heading "-- Guaranteed Delivery Procedure." THE BLUE CONSENT AND LETTER OF TRANSMITTAL SHOULD BE USED TO TENDER ALL OLD F4L NOTES. LETTERS OF TRANSMITTAL AND OLD F4L NOTES SHOULD BE SENT TO THE EXCHANGE AGENT AND NOT TO FOOD 4 LESS, RGC OR THE DEALER MANAGERS NOR TO EITHER OF THE TRUSTEES UNDER THE INDENTURES RELATING TO THE OLD F4L NOTES. A HOLDER OF OLD F4L NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE EXCHANGE OFFER WITH RESPECT TO ANY OLD F4L SENIOR NOTES OR OLD F4L SENIOR SUBORDINATED NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD F4L SENIOR NOTES OR OLD F4L SENIOR SUBORDINATED NOTES, AS THE CASE MAY BE. Holders of Old F4L Notes will not be able to validly tender in the Exchange Offers unless they consent to the Proposed Amendments. Tendering holders who sign the Letter of Transmittal shall be deemed to have consented to the Proposed Amendments. All signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Old F4L Notes tendered or withdrawn, as the case may be, pursuant thereto are tendered (i) by a registered holder of Old F4L Notes (which term, for purposes of the Letter of Transmittal, shall include any participant in DTC, MSTC or PDTC whose name appears on a security position listing as the owner of Old F4L Notes) who has not completed the box entitled "Special Issuance and Payment Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If Old F4L Notes are registered in the name of a person other than the signer of a Letter of Transmittal or a notice of withdrawal, as the case may be, or if payment is to be made or certificates for unexchanged Old F4L Notes are to be issued or returned to a person other than the registered holder, then the Old F4L Notes must be endorsed by the registered holder, or be accompanied by a written instrument or instruments of transfer or exchange in form satisfactory to Food 4 Less duly executed by the registered holder, with such signatures guaranteed by an Eligible Institution. In the event that signatures on a Letter of Transmittal (or other document) are required to be guaranteed, such guarantee must be by a firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. (the "NASD") or by a commercial bank or trust company having an office in the United States (each of the foregoing being an "Eligible Institution"). THE METHOD OF DELIVERY OF OLD F4L NOTES AND OTHER DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS OTHERWISE PROVIDED PURSUANT TO "-- GUARANTEED DELIVERY," DELIVERY WILL BE DEEMED MADE WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. Instead of effecting delivery by mail it is recommended that tendering Old F4L Noteholders use an overnight or hand delivery service. If such delivery is by mail, it is recommended that holders use registered mail, properly 93 103 insured, with return receipt requested. In all cases, sufficient time should be allowed to ensure delivery to the Exchange Agent prior to 12:00 Midnight, New York City time, on the Expiration Date. Tendering holders should indicate in the applicable box in the Letter of Transmittal the name and address to which payments (including accrued and unpaid interest in cash on the Old F4L Notes and the Exchange Payment), certificates evidencing New F4L Notes and/or certificates evidencing Old F4L Notes for amounts not accepted for tender, each as appropriate, are to be issued or sent, if different from the name and address of the person signing the Letter of Transmittal. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated and a substitute Form W-9 for such recipient must be completed. If no such instructions are given, such payments (including accrued and unpaid interest in cash on the Old F4L Notes and the Exchange Payment), New F4L Notes or Old F4L Notes not accepted for tender, as the case may be, will be made or returned, as the case may be, to the registered holder of Old F4L Notes tendered. Holders of Old F4L Notes who are not registered holders of, and who seek to tender, Old F4L Notes should (i) obtain a properly completed Letter of Transmittal for such Old F4L Notes from the registered holder with signatures guaranteed by an Eligible Institution and obtain and include with such Letter of Transmittal Old F4L Notes properly endorsed for transfer by the registered holder thereof or accompanied by a written instrument or instruments of transfer or exchange from the registered holder with signatures on the endorsement or written instrument or instruments of transfer or exchange guaranteed by an Eligible Institution or (ii) effect a record transfer of such Old F4L Notes and comply with the requirements applicable to registered holders for tendering Old F4L Notes prior to 12:00 Midnight, New York City time, on the Expiration Date. Any Old F4L Notes properly tendered prior to 12:00 Midnight, New York City time, on the Expiration Date accompanied by a properly completed Letter of Transmittal for such Old F4L Notes will be transferred of record by the registrar either prior to or as of the Expiration Date at the discretion of Food 4 Less. Food 4 Less has no obligation to transfer any Old F4L Notes from the name of the registered holder thereof if the Company does not accept for exchange and payment such Old F4L Notes. Issuance of New F4L Notes and payment of the Exchange Payment in exchange for Old F4L Notes will be made only against deposit of the tendered Old F4L Notes. Under the federal income tax laws, the Exchange Agent will be required to withhold and will remit to the United States Treasury 31% of the amount of any cash payments made to certain holders of Old F4L Notes pursuant to the Exchange Offers and the Solicitation, and 31% of the interest payments due to certain holders of New F4L Notes. In order to avoid such backup withholding, each tendering holder of Old F4L Notes electing to exchange Old F4L Notes pursuant to an Exchange Offer, and, if applicable, each other payee, must provide the Exchange Agent with such holder's or payee's correct taxpayer identification number and certify that such holder or payee is not subject to such backup withholding by completing the Substitute Form W-9 accompanying the Letter of Transmittal. In general, if a holder or payee is an individual, the taxpayer identification number is the Social Security number of such individual. If the Exchange Agent is not provided with the correct taxpayer identification number, the holder or payee may be subject to a $50 penalty imposed by the Internal Revenue Service. Certain holders or payees (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Exchange Agent that a foreign individual qualifies as an exempt recipient, such holder or payee must submit a statement, signed under penalty of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Old F4L Notes are held in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause Old F4L Notes tendered pursuant to the Exchange Offers to be deemed invalidly tendered, but may require the Exchange Agent to withhold 31% of the amount of any payments made. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is furnished to the Internal Revenue Service. 94 104 All questions as to the form of all documents and the validity (including the time of receipt), eligibility, acceptance and withdrawal of tendered Old F4L Notes will be determined by Food 4 Less, in its sole discretion, which determination shall be final and binding. Food 4 Less expressly reserves the absolute right to reject any and all tenders not in proper form and to determine whether the acceptance of or payment by it for such tenders would be unlawful. Food 4 Less also reserves the absolute right, subject to applicable law, to waive or amend any of the conditions to either Exchange Offer or the Solicitation or to waive any defect or irregularity in the tender of any of the Old F4L Notes. None of Food 4 Less, the Company, the Exchange Agent, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. No tender of Old F4L Notes will be deemed to have been validly made until all defects and irregularities with respect to such Old F4L Notes have been cured or waived. Any Old F4L Notes received by the Exchange Agent that are not properly tendered and as to which irregularities have not been cured or waived will be returned by the Exchange Agent to the appropriate tendering holder as soon as practicable. Food 4 Less' interpretation of the terms and conditions of the Exchange Offers and the Solicitation (including the Letter of Transmittal and the Instructions thereto) will be final and binding on all parties. The Exchange Agent will seek to establish accounts with respect to the Old F4L Notes at The Depository Trust Company ("DTC"), the Midwest Securities Transfer Company ("MSTC"), and the Philadelphia Depository Trust Company ("PDTC" and, together with DTC and MSTC, collectively referred to herein as the "Book-Entry Transfer Facilities") for the purpose of the Exchange Offers within two New York Stock Exchange Inc. ("NYSE") trading days. Any financial institution that is a participant in any of the Book-Entry Transfer Facilities' systems may make book-entry delivery of Old F4L Notes by causing DTC, MSTC or PDTC to transfer such Old F4L Notes into the Exchange Agent's account in accordance with such Book-Entry Transfer Facility's procedure for such transfer. However, although delivery of Old F4L Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, MSTC or PDTC, the Letter of Transmittal (or facsimile thereof), together with any required signature guarantees and any other required documents, must, in any case, be transmitted to, and received or confirmed by, the Exchange Agent at one of its addresses set forth on the back cover of this Prospectus and Solicitation Statement prior to 12:00 Midnight, New York City time, on the Expiration Date, except as otherwise provided below under the heading "Guarantee Delivery Procedure." Old F4L Notes will not be deemed surrendered for exchange until such documents are received by the Exchange Agent and delivery of such documents to a Book-Entry Transfer Facility will not constitute valid delivery to the Exchange Agent. FOOD 4 LESS UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL MAKE ARRANGEMENTS FOR EXECUTION OF LETTERS OF TRANSMITTAL TO ACCOMMODATE BENEFICIAL OWNERS THAT DESIRE TO TENDER OLD F4L NOTES IN THE EXCHANGE OFFERS. HOWEVER, FOOD 4 LESS UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL NOT ARRANGE FOR THE EXECUTION OF LETTERS OF TRANSMITTAL WITH RESPECT TO THE SOLICITATION, UNLESS THE OLD F4L NOTES ARE ALSO TENDERED IN THE EXCHANGE OFFERS. HOLDERS MAY CONTACT THE EXCHANGE AGENT AT ANY OF THE ADDRESSES SET FORTH ON THE BACK COVER PAGE HEREOF FOR INFORMATION REGARDING WITHDRAWAL OF OLD F4L NOTES FROM A BOOK-ENTRY TRANSFER FACILITY. GUARANTEED DELIVERY PROCEDURE If a registered holder of Old F4L Notes desires to tender such Old F4L Notes and consent to the Proposed Amendments, and the Old F4L Notes are not immediately available, or if time will not permit such holder's Old F4L Notes or any other required documents to be delivered to the Exchange Agent prior to 12:00 Midnight, New York City time, on the Expiration Date, then such Old F4L Notes may nevertheless be tendered for exchange and Consents may be effected if all of the following guaranteed delivery procedure conditions are met: (i) the tender for exchange and Consent is made by or through an Eligible Institution; (ii) prior to 12:00 Midnight, New York City time, on the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or hand delivery) substantially in the form provided by Food 4 Less, that contains a signature guaranteed by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery, unless such tender is for the account of an Eligible 95 105 Institution (in which case no signature guarantee shall be required), and sets forth the name and address of the holder of Old F4L Notes and the principal amount of Old F4L Notes tendered for exchange, states that the tender is being made thereby and guarantees that, within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, together with the Old F4L Notes and any required signature guarantees and any other documents required by such Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (iii) all tendered Old F4L Notes, or a confirmation of a book-entry transfer of such Old F4L Notes into the Exchange Agent's applicable account at a Book-Entry Transfer Facility as described above, as well as the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and all other documents required by such Letter of Transmittal, shall be received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. THE YELLOW NOTICE OF GUARANTEED DELIVERY SHOULD BE USED IN CONNECTION WITH TENDERS OF ALL OLD F4L NOTES. Notwithstanding any other provision hereof, the exchange of Old F4L Notes pursuant to an Exchange Offer will in all cases be made only after timely receipt by the Exchange Agent of certificates for such Old F4L Notes and the Letter of Transmittal (or facsimile thereof) in respect thereof, properly completed and duly executed, together with any required signature guarantees and any other documents required by such Letter of Transmittal. ACCEPTANCE OF OLD F4L NOTES FOR EXCHANGE; DELIVERY OF NEW F4L NOTES AND PAYMENT OF THE EXCHANGE PAYMENT Upon the terms and subject to the conditions of the Exchange Offers and the Solicitation, Food 4 Less will accept all Old F4L Notes validly tendered prior to 12:00 Midnight, New York City time, on the Expiration Date and not validly withdrawn. The acceptance for exchange of Old F4L Notes validly tendered and not validly withdrawn and the delivery of New F4L Notes and the payment of the Exchange Payment (and any accrued and unpaid interest on the Old F4L Notes) will be made as promptly as practicable after the Expiration Date. Subject to rules promulgated pursuant to the Exchange Act, Food 4 Less expressly reserves the right to delay acceptance of any of the Old F4L Notes or to terminate either of the Exchange Offers or the Solicitation and not accept for exchange any Old F4L Notes not theretofore accepted if any of the conditions set forth under the heading "-- Conditions" shall not have been satisfied or waived by Food 4 Less. The Company will deliver New F4L Notes and make payments in cash (including accrued and unpaid interest on the Old F4L Notes and the Exchange Payment) in exchange for Old F4L Notes pursuant to the Exchange Offers promptly following acceptance of the Old F4L Notes. In all cases, exchange for Old F4L Notes accepted for exchange pursuant to the applicable Exchange Offer will be made only after timely receipt by the Exchange Agent of Old F4L Notes (or confirmation of book-entry transfer thereof) and a properly completed and validly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other documents required thereby. New F4L Notes will be issued in denominations of $1,000 principal amount and integral multiples thereof. For purposes of the Exchange Offers and the Solicitation, Food 4 Less shall be deemed to have accepted validly tendered and not properly withdrawn Old F4L Notes when, as and if Food 4 Less gives oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Old F4L Notes for the purposes of receiving the cash and New F4L Notes from the Company and transmitting the cash and New F4L Notes to the tendering holders. Under no circumstances will any additional amount be paid by the Company or the Exchange Agent by reason of any delay in making such payment or delivery. All questions as to the validity, form, eligibility (including the time of receipt), acceptance and withdrawal of tendered Old F4L Notes will be resolved by Food 4 Less, whose determination will be final and 96 106 binding. Food 4 Less reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which would, in the opinion of counsel for Food 4 Less, be unlawful. Food 4 Less also reserves the right to waive any irregularities or conditions of tender as to particular Old F4L Notes. Food 4 Less' interpretation of the terms and conditions of the Exchange Offers and the Solicitation (including the instructions in the Letter of Transmittal) will be final and binding. Unless waived, any irregularities or defects in connection with tenders of Old F4L Notes must be cured within such time as Food 4 Less determines. Neither Food 4 Less, the Company nor the Exchange Agent shall be under any duty to give notification of irregularities or defects in such tenders or shall incur any liability for failure to give such notification. Tenders of Old F4L Notes will not be deemed to have been made until such irregularities have been cured or waived. If, for any reason whatsoever, acceptance for exchange of any Old F4L Notes tendered pursuant to the Exchange Offers is delayed, or Food 4 Less is unable to accept or exchange Old F4L Notes tendered pursuant to the Exchange Offers, then, without prejudice to Food 4 Less' and the Company's rights set forth herein, the Exchange Agent may nevertheless, on behalf of Food 4 Less and subject to rules promulgated pursuant to the Exchange Act, retain tendered Old F4L Notes, and such Old F4L Notes may not be withdrawn except to the extent that the tendering holder of such Old F4L Notes is entitled to withdrawal rights as described herein. See "-- Withdrawal of Tenders and Revocation of Consents." If any tendered Old F4L Notes are not accepted for exchange because of an invalid tender, the occurrence or non-occurrence of certain other events set forth herein or otherwise, then such unaccepted Old F4L Notes will be returned, at Food 4 Less' expense, to the tendering holder thereof as promptly as practicable after the Expiration Date or the termination of the applicable Exchange Offer therefor. No alternative, conditional or contingent tenders will be accepted. A tendering holder, by execution of a Letter of Transmittal, or facsimile thereof, waives all rights to receive notice of acceptance of such holder's Old F4L Notes for purchase or exchange. WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS Tenders of Old F4L Notes pursuant to an Exchange Offer may be withdrawn and Consents may be revoked at any time until the "Consent Date," which shall be the later of (a) such time as the Requisite Consents (Consents of holders representing at least a majority in aggregate principal amount of the outstanding Old F4L Senior Notes or Old F4L Senior Subordinated Notes, as the case may be, held by persons other than Food 4 Less and its affiliates) have been delivered by Food 4 Less to the applicable Old Trustee and the Supplemental Indenture for such issue has been executed and (b) 12:00 Midnight, New York City time, on February 22, 1995. Thereafter, such tenders may be withdrawn and Consents may be revoked if the Exchange Offer with respect to such issue of Old F4L Notes is terminated without any Old F4L Notes being accepted for exchange thereunder. Tendering holders will receive in cash accrued and unpaid interest on Old F4L Notes accepted for exchange up to, but not including, the date of such exchange. Interest on the New F4L Notes will accrue from, and including, the date of such exchange which will be the date of issuance of the New F4L Notes. A different Consent Date may be established with respect to the Old F4L Senior Notes and the Old F4L Senior Subordinated Notes. The withdrawal of Old F4L Notes prior to the applicable Consent Date in accordance with the procedures set forth hereunder will effect a revocation of the related Consent. Any valid revocation of Consents will automatically render the prior tender of the Old F4L Notes to which such Consents relate defective and Food 4 Less will have the right, which it may waive, to reject such tender as invalid and ineffective. Any holder of Old F4L Notes who has tendered Old F4L Notes or who succeeds to the record ownership of Old F4L Notes in respect of which such tenders or Consents previously have been given may withdraw such Old F4L Notes or revoke such Consents prior to the applicable Consent Date by delivery of a written notice of withdrawal or revocation, subject to the limitations described herein. To be effective, a written telegraphic, 97 107 telex or facsimile transmission (or delivered by hand or by mail) notice of withdrawal of a tender or revocation of a Consent must (i) be timely received by the Exchange Agent at one of its addresses set forth on the back cover hereof or prior to the applicable time provided herein with respect to the applicable class of Old F4L Notes, (ii) specify the name of the person having tendered the Old F4L Notes to be withdrawn or as to which Consents are revoked, the principal amount of such Old F4L Notes to be withdrawn and, if certificates for Old F4L Notes have been tendered, the name of the registered holder(s) of such Old F4L Notes as set forth in such certificates, if different from that of the person who tendered such Old F4L Notes, (iii) identify the Old F4L Notes to be withdrawn or to which the notice of revocation relates and (iv)(a) be signed by the holder in the same manner as the original signature on the Letter of Transmittal or Notice of Guaranteed Delivery (as the case may be) by which such Old F4L Notes were tendered (including any required signature guarantees) or (b) be accompanied by evidence satisfactory to Food 4 Less and the Exchange Agent that the holder withdrawing such tender or revoking such Consents has succeeded to beneficial ownership of such Old F4L Notes. If certificates representing Old F4L Notes to be withdrawn or Consents to be revoked have been delivered or otherwise identified to the Exchange Agent, then the name of the registered holder and the serial numbers of the particular certificate evidencing the Old F4L Notes to be withdrawn or Consents to be revoked and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, except in the case of Old F4L Notes tendered by an Eligible Institution (in which case no signature guarantee shall be required), must also be so furnished to the Exchange Agent as aforesaid prior to the physical release of the certificates for the withdrawn Old F4L Notes. If Old F4L Notes have been tendered or if Consents have been delivered pursuant to the procedures for book-entry transfer as set forth herein, any notice of withdrawal or revocation of Consent must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Old F4L Notes. Food 4 Less reserves the right to contest the validity of any revocation. A purported notice of revocation which is not received by the Exchange Agent in a timely fashion will not be effective to revoke a Consent previously given. Any permitted withdrawals of tenders of Old F4L Notes and revocation of Consents may not be rescinded, and any Old F4L Notes properly withdrawn will thereafter be deemed not validly tendered and any Consents revoked will be deemed not validly delivered for purposes of either Exchange Offer; provided, however, that withdrawn Old F4L Notes may be retendered and revoked Consents may be redelivered by again following one of the appropriate procedures described herein at any time prior to 12:00 Midnight, New York City time, on the Expiration Date. If Food 4 Less extends an Exchange Offer or is delayed in its acceptance for exchange of Old F4L Notes or is unable to exchange Old F4L Notes pursuant to either Exchange Offer for any reason, then, without prejudice to Food 4 Less' rights under such Exchange Offer, the Exchange Agent may, subject to applicable law, retain tendered Old F4L Notes on behalf of Food 4 Less, and such Old F4L Notes may not be withdrawn (subject to Rule 14e-1 under the Exchange Act, which requires that Food 4 Less deliver the consideration offered or return the Old F4L Notes deposited by or on behalf of the Old F4L Noteholders promptly after the termination or withdrawal of an Exchange Offer), except to the extent that tendering holders are entitled to withdrawal rights as described herein. All questions as to the validity, form and eligibility (including the time of receipt) of notices of withdrawal or revocations of Consents will be determined by Food 4 Less, whose determination will be final and binding on all parties. None of Food 4 Less, the Exchange Agent, the Dealer Managers or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or revocation of Consent or incur any liability for failure to give any such notification. LOST OR MISSING CERTIFICATES If a holder of Old F4L Notes desires to tender an Old F4L Note pursuant to an Exchange Offer, but the Old F4L Note has been mutilated, lost, stolen or destroyed, such holder should write to or telephone the appropriate Old Trustee under the Old F4L Note Indentures at the address listed below, concerning the 98 108 procedures for obtaining replacement certificates for such Old F4L Notes, arranging for indemnification or any other matter that requires handling by such Old F4L Trustee: Old F4L Senior Notes Trustee: Norwest Bank Minnesota, N.A. Sixth and Marquette Minneapolis, Minnesota 55479-0113 Attn: Corporate Trust Department Old F4L Senior Subordinated Notes United States Trust Company of New York Trustee: 114 West 47th Street New York, New York 10036-1532 Attn: Corporate Trust Division
DEALER MANAGERS Subject to the terms and conditions set forth in the Dealer Manager Agreement (the "Dealer Manager Agreement") dated January 25, 1995, among FFL, Holdings, Food 4 Less and the Subsidiary Guarantors (together, the "Issuers") and BT Securities, CS First Boston and DLJ, as dealer managers and solicitation agents (the "Dealer Managers"), the Issuers have engaged BT Securities, CS First Boston and DLJ to act as Dealer Managers and Solicitation Agents in connection with the Exchange Offers, the Solicitation, the RGC Exchange Offers and the Holdings Consent Solicitation. The Issuers will pay the Dealer Managers, as compensation for their services as Dealer Managers, a fee equal to (i) 1.0% of the aggregate principal amount of Old F4L Notes accepted for exchange in the Exchange Offers, (ii) 1.0% of the aggregate principal amount of Old RGC Notes accepted for exchange in the RGC Exchange Offers and (iii) 0.5% of the aggregate principal amount of Old F4L Notes, Old RGC Notes and Holdings Discount Notes in respect of which a consent is accepted in the Solicitation, the RGC Exchange Offers and the Holdings Consent Solicitation (other than Old RGC Notes and Old F4L Notes accepted for exchange in the RGC Exchange Offer and the Exchange Offer). In addition, the Issuers have agreed to reimburse each of the Dealer Managers for all of its respective reasonable out-of-pocket expenses, including the reasonable fees and expenses of its legal counsel, incurred in connection with the Exchange Offers, the Solicitation, the RGC Exchange Offers and the Holdings Consent Solicitation. The Issuers have agreed to indemnify each of the Dealer Managers against certain liabilities in connection with Exchange Offers, the Solicitation, the RGC Exchange Offers and the Holdings Consent Solicitation, including liabilities under the federal securities laws, and will contribute to payments the Dealer Managers may be required to make in respect thereof. Bankers Trust, an affiliate of BT Securities, has been a co-agent and a lender under the existing credit agreements of each of RGC and Food 4 Less and will be administrative agent and a lender under the New Credit Facility. See "Description of the New Credit Facility." DLJ has provided financial advisory services to Food 4 Less in connection with the Merger and will receive customary fees for such services. The Dealer Managers will also serve as underwriters for the Public Offering and will receive customary fees for such services. In addition, affiliates of the Dealer Managers are investing in the capital stock of New Holdings pursuant to the New Equity Investment. After giving effect to the Merger, BTIP will own approximately 900,000 shares of Series A Preferred Stock and approximately 3,100,000 shares of Series B Preferred Stock, affiliates of CS First Boston will own approximately 1,000,000 shares of Series A Preferred Stock and affiliates of DLJ will own approximately 1,000,000 shares of Series A Preferred Stock. Affiliates of BTIP additionally own 509,812 shares of FFL common stock which they had previously acquired and which will be converted to New Holdings capital stock following the FFL Merger and the Reincorporation Merger. See "Principal Stockholders" and "Description of Capital Stock." Each of BT Securities, CS First Boston and DLJ has from time to time provided investment banking and financial advisory services to one or more of Food 4 Less, Holdings and RGC and/or their respective affiliates and may continue to do so in the future. BT Securities, CS First Boston and DLJ have received customary fees for such services. 99 109 No fees or commission have been or will be paid to any broker, dealer or other person, other than the Dealer Managers, in connection with the Exchange Offers, the Solicitation, the RGC Exchange Offers or the Holdings Consent Solicitation. EXCHANGE AGENT Bankers Trust has been appointed as Exchange Agent for the Exchange Offers and the Solicitation. Questions and requests for assistance, and all correspondence in connection with the Exchange Offers, the Solicitation, or requests for additional Letters of Transmittal and any other required documents, may be directed to the Exchange Agent at one of its addresses and telephone numbers set forth on the back cover of this Prospectus and Solicitation Statement. INFORMATION AGENT D.F. King & Co., Inc. is serving as Information Agent in connection with the Exchange Offer and the Solicitation. The Information Agent will assist with the mailing of this Prospectus and Solicitation Statement and related materials to holders of Old F4L Notes, respond to inquiries of and provide information to holders of Old F4L Notes in connection with the Exchange Offers and the Solicitation and provide other similar advisory services as Food 4 Less may request from time to time. Requests for additional copies of this Prospectus and Solicitation Statement, Letters of Transmittal and any other required documents should be directed to the Dealer Managers or to the Information Agent at one of its addresses and telephone numbers set forth on the back cover of this Prospectus and Solicitation Statement. FEES AND EXPENSES In addition to the fees and expenses payable to the Dealer Managers, Food 4 Less will pay the Exchange Agent and the Information Agent reasonable and customary fees for their services (and will reimburse them for their reasonable out-of-pocket expenses in connection therewith), will pay the reasonable expenses of holders in delivering their Old F4L Notes to the Exchange Agent and will pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus and Solicitation Statement and related documents to the beneficial owners of the Old F4L Notes and in handling or forwarding tenders for exchange and payment. In addition, Food 4 Less will indemnify the Exchange Agent and the Information Agent against certain liabilities in connection with their services, including liabilities under the federal securities laws. Food 4 Less will pay all transfer taxes, if any, applicable to the exchange of Old F4L Notes pursuant to the Exchange Offers. If, however, New F4L Notes or Old F4L Notes for principal amounts not accepted for tender, or both, are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old F4L Notes, or if tendered Old F4L Notes are to be registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old F4L Notes pursuant to an Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such tax or exemption therefrom is not submitted, then the amount of such transfer tax will be deducted from the Exchange Payment otherwise payable to such tendering holder. Any remaining amount will be billed directly to such tendering holder. The total cash expenditures for printing, accounting and legal fees, and the fees and expenses of the Exchange Agent, the Information Agent and the trustees under the old and new indentures, to be incurred by Food 4 Less in connection with the Exchange Offers, the RGC Exchange Offers and the Holdings Consent Solicitation are estimated to be approximately $7 million. MISCELLANEOUS The Exchange Offers are not subject to Section 13(e) of, or Rules 13e-3 or 13e-4 or Regulation 14D promulgated under, the Exchange Act. The Exchange Offers are being made in compliance with Regulation 14E under the Exchange Act. 100 110 Other than with respect to the Exchange Agent, the Information Agent and the Dealer Managers, neither Food 4 Less nor any of its affiliates has engaged, or made any arrangements for, and has no contract, arrangement or understanding with, any broker, dealer, agent or other person regarding the exchange of Old F4L Notes hereunder, and no person has been authorized by Food 4 Less, or any of its affiliates to provide any information or to make any representations in connection with the Exchange Offers and the Solicitation, other than those expressly set forth in this Prospectus and Solicitation Statement, and, if so provided or made, such other information or representations must not be relied upon as having been authorized by Food 4 Less or any of its affiliates. The delivery of this Prospectus and Solicitation Statement shall not, under any circumstances, create any implication that the information set forth herein is correct as of any time subsequent to the date hereof. 101 111 DESCRIPTION OF THE NEW F4L NOTES GENERAL The New F4L Senior Notes will be issued under an indenture (the "New Senior Note Indenture"), to be dated as of March 1, 1995, by and among the Company, the Subsidiary Guarantors and Norwest Bank Minnesota, N.A., as Trustee (the "New Senior Note Trustee"). The New F4L Senior Subordinated Notes will be issued under an Indenture (the "New Senior Subordinated Note Indenture", and together with the New Senior Note Indenture, the "New Indentures") to be dated as of March 1, 1995, by and among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as Trustee (the "New Senior Subordinated Note Trustee," and together with the New Senior Note Trustee, the "New Trustees"). The following summary of certain provisions of the New F4L Notes and the New Indentures does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the New F4L Notes and the New Indentures, including the definitions of certain terms therein and those terms made a part of the New Indentures by reference to the TIA. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." A copy of the forms of the New Indentures may be obtained from the Company. The New F4L Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the New Senior Note Trustee will act as Paying Agent and Registrar for the New F4L Senior Notes and the New Senior Subordinated Note Trustee will act as Paying Agent and Registrar for the New F4L Senior Subordinated Notes. The New F4L Senior Notes and the New F4L Senior Subordinated Notes may be presented for registration or transfer and exchange at the offices of their respective Registrar, which for the New F4L Senior Notes initially will be the New Senior Note Trustee's corporate trust office and for the New F4L Senior Subordinated Notes initially will be the New Senior Subordinated Note Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of either the New F4L Senior Notes (the "Senior Note Holders") or of the New F4L Senior Subordinated Notes (the "Senior Subordinated Note Holders," and together with the Senior Note Holders, the "Holders"). The Company will pay principal (and premium, if any) on the New F4L Senior Notes at the Senior Note Trustee's corporate office, and will pay principal (and premium, if any) on the New F4L Senior Subordinated Notes at the New Senior Subordinated Note Trustee's corporate office, each such office located in New York, New York. At the Company's option, interest may be paid at the New Senior Note Trustee's corporate trust office (in the case of interest payments on the New F4L Senior Notes) or the New Senior Subordinated Note Trustee's corporate trust office (in the case of interest payments on the New F4L Senior Subordinated Notes) or by check mailed to the registered address of the relevant Holders. As used below in this "Description of the New F4L Notes," the "Company" means Food 4 Less Supermarkets, Inc. (and Ralphs Grocery Company, as survivor of the Merger), but not any of its subsidiaries. PRINCIPAL AND MATURITY OF AND INTEREST ON THE NEW F4L SENIOR NOTES The New F4L Senior Notes will mature on March 1, 2004. The up to $175 million principal amount of New F4L Senior Notes offered hereby will be part of an issue of up to $575 million aggregate principal amount of New F4L Senior Notes, up to $400 million aggregate principal amount of which will be issued pursuant to the Public Offering. Concurrently with the Exchange Offers and the other financing transactions described herein, Food 4 Less is offering up to $400 million principal amount of New F4L Senior Notes in the Public Offering. The Public Offering is expected to price ten Business Days preceding the Expiration Date. The New F4L Senior Notes offered pursuant to the F4L Senior Notes Exchange Offer will bear interest at a fixed rate per annum equal to the greater of (a) 11% and (b) the Applicable Treasury Rate (as hereinafter defined) plus 375 basis points (3.75 percentage points); provided, however, that in no event will the New F4L Senior Notes offered for exchange hereby bear interest at a rate per annum that is less than the interest rate on the New F4L Senior Notes offered pursuant to the Public Offering. The "Applicable Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity 102 112 (as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the average life to stated maturity of the New F4L Senior Notes; provided, that if the average life to stated maturity of the New F4L Senior Notes is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Applicable Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of the year) from the weekly average yields of the United States Treasury securities for which such yields are given. Interest on the New F4L Senior Notes will be payable semi-annually on each March 1 and September 1, commencing on September 1, 1995, to the New F4L Senior Note holders of record on the immediately preceding February 15 and August 15. Interest on the New F4L Senior Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. PRINCIPAL AND MATURITY OF AND INTEREST ON THE NEW F4L SENIOR SUBORDINATED NOTES The New F4L Senior Subordinated Notes are limited in aggregate principal amount to $145 million and will mature on March 1, 2005. Interest on the New F4L Senior Subordinated Notes will accrue at the rate of 13.75% per annum and will be payable semi-annually on each March 1 and September 1, commencing on September 1, 1995, to the Senior Subordinated Note Holders of record on the immediately preceding February 15 and August 15. Interest on the New F4L Senior Subordinated Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. OPTIONAL REDEMPTION OF THE NEW F4L SENIOR NOTES The New F4L Senior Notes will be redeemable, at the option of the Company, in whole at any time or in part from time to time, on and after March 1, 2000, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on March 1 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption:
REDEMPTION YEAR PRICE -------------------------------------------------- ---------- 2000.............................................. 104.125% 2001.............................................. 102.750% 2002.............................................. 101.375% 2003 and thereafter............................... 100.000%
In the event that the interest rate on the New F4L Senior Notes is greater than 11%, the above redemption prices will be correspondingly adjusted. In addition, on or prior to March 1, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the New F4L Senior Notes originally issued, at a redemption price equal to 111% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1996 and 108.25% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 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. OPTIONAL REDEMPTION OF THE NEW F4L SENIOR SUBORDINATED NOTES The New F4L Senior Subordinated Notes will be redeemable, at the option of the Company, in whole at any time or in part, from time to time, on and after June 15, 1996, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing 103 113 on June 15 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption:
REDEMPTION YEAR PRICE -------------------------------------------------- ---------- 1996.............................................. 106.111% 1997.............................................. 104.583% 1998.............................................. 103.056% 1999.............................................. 101.528% And thereafter.................................... 100.000%
The documents evidencing Senior Indebtedness will restrict the Company's ability to optionally redeem New F4L Senior Subordinated Notes. NOTICES AND SELECTION In the event of a redemption of less than all of the New F4L Senior Notes or the New F4L Senior Subordinated Notes, as the case may be, such New F4L Notes will be selected for redemption by the appropriate New Trustee pro rata, by lot or by any other method that such New Trustee considers fair and appropriate and, if such New F4L Notes are listed on any securities exchange, by a method that complies with the requirements of such exchange; provided, however, that any redemption of the New F4L Senior Notes pursuant to the provisions relating to a Public Equity Offering shall be made on a pro rata basis. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of New F4L Notes to be redeemed at such Holder's registered address. On and after the redemption date, interest will cease to accrue on New F4L Notes or portions thereof called for redemption (unless the Company shall default in the payment of the redemption price or accrued interest). New F4L Notes that are redeemed by the Company or that are purchased by the Company pursuant to a Net Proceeds Offer as described under "-- Certain Covenants -- Limitation on Asset Sales" below or pursuant to a Change of Control Offer as described under "-- Change of Control" below or that are otherwise acquired by the Company will be surrendered to the appropriate New Trustee for cancellation. RANKING OF THE NEW F4L SENIOR NOTES The New F4L Senior Notes will rank senior in right of payment to all Subordinated Indebtedness of the Company, including the New F4L Senior Subordinated Notes and the New RGC Notes. The New F4L Senior Notes will rank pari passu in right of payment with all unsubordinated Indebtedness and other liabilities of the Company, including borrowings and other obligations of the Company and its Subsidiaries under the Credit Agreement. The borrowings and obligations under the Credit Agreement (and the related guarantees) are secured by substantially all of the assets of the Company and its Subsidiaries, whereas the New F4L Senior Notes are senior unsecured obligations of the Company and its Subsidiaries. As of September 17, 1994, on a pro forma basis after giving effect to the Merger, the aggregate amount of secured Indebtedness and other obligations of the Company and its Subsidiaries outstanding would have been approximately $992.7 million (and the Company would have had $218.2 million available to be borrowed under the Credit Agreement). SUBORDINATION OF THE NEW F4L SENIOR SUBORDINATED NOTES The payment of the principal of, premium, if any, and interest on the New F4L Senior Subordinated Notes will be subordinated in right of payment, as set forth in the New Senior Subordinated Note Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness, whether outstanding on the Issue Date or thereafter incurred, including, with respect to Designated Senior Indebtedness, any interest accruing subsequent to a bankruptcy or other similar proceeding whether or not such interest is an allowed claim enforceable against the Company in a bankruptcy case under Title 11 of the United States Code. Upon any distribution of assets of the Company of any kind or character, whether in cash, property or securities upon any dissolution, winding up, total or partial liquidation or reorganization or the Company (including, without limitation, in bankruptcy, insolvency, or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of the Company's assets and liabilities), the holders of 104 114 Senior Indebtedness shall first be entitled to receive payment in full in cash or Cash Equivalents of all amounts payable under Senior Indebtedness (including, with respect to Designated Senior Indebtedness, any interest accruing after the commencement of any such proceeding at the rate specified in the applicable Senior Indebtedness whether or not such interest is an allowed claim enforceable against the Company in any such proceeding) before the Holders of New F4L Senior Subordinated Notes will be entitled to receive any payment with respect to the New F4L Senior Subordinated Notes (excluding Permitted Subordinated Reorganization Securities), and until all Obligations with respect to Senior Indebtedness are paid in full in cash or Cash Equivalents, any distribution to which the Holders of New F4L Senior Subordinated Notes would be entitled (excluding Permitted Subordinated Reorganization Securities) shall be made to the holders of Senior Indebtedness. No direct or indirect payment (other than payments previously made pursuant to the provision described under "-- Defeasance" below) by or on behalf of the Company of principal of, premium, if any, or interest on the New F4L Senior Subordinated Notes whether pursuant to the terms of the New F4L Senior Subordinated Notes or upon acceleration or otherwise shall be made if, at the time of such payment, there exists a default in the payment of all or any portion of principal of, premium, if any, or interest on any Designated Senior Indebtedness or any other Senior Indebtedness which, at the time of determination, is equal to or greater than $50 million in aggregate principal amount ("Significant Senior Indebtedness") (and the New Senior Subordinated Note Trustee has received written notice thereof), and such default shall not have been cured or waived by or on behalf of the holders of such Designated Senior Indebtedness or Significant Senior Indebtedness, as the case may be or shall have ceased to exist, until such default shall have been cured or waived or shall have ceased to exist or such Designated Senior Indebtedness or Significant Senior Indebtedness, as the case may be, shall have been discharged or paid in full, after which the Company shall resume making any and all required payments in respect of the New F4L Senior Subordinated Notes, including any missed payments. In addition, during the continuance of any other event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated, upon the earliest to occur of (a) receipt by the New Senior Subordinated Note Trustee of written notice from the holders of a majority of the outstanding principal amount of the Designated Senior Indebtedness or their representative, or (b) if such event of default results from the acceleration of the New F4L Senior Subordinated Notes, the date of such acceleration, no such payment (other than payments previously made pursuant to the provisions described under "-- Defeasance" below) may be made by the Company upon or in respect of the New F4L Senior Subordinated Notes for a period ("Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 179 days thereafter (unless (x) such Payment Blockage Period shall be terminated by written notice to the New Senior Subordinated Note Trustee from the holders of a majority of the outstanding principal amount of such Designated Senior Indebtedness or their representative who delivered such notice or (y) such default is cured or waived, or ceases to exist or such Designated Senior Indebtedness is discharged or paid in full), after which the Company shall resume making any and all required payments in respect of the New F4L Senior Subordinated Notes, including any missed payments. Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 179 days from the date on which such Payment Blockage Period was commenced. Not more than one Payment Blockage Period may be commenced with respect to the New F4L Senior Subordinated Notes during any period of 365 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the holders of such Designated Senior Indebtedness or their representative whether or not within a period of 365 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. If the Company fails to make any payment on the New F4L Senior Subordinated Notes when due or within any applicable grace period, whether or not on account of the payment blockage provision referred to above, such failure would constitute an Event of Default under the New Senior Subordinated Note Indenture 105 115 and would enable the holders of New F4L Senior Subordinated Notes to accelerate the maturity thereof. See "-- Events of Default." By reason of such subordination, in the event of the insolvency of the Company, holders of the New F4L Senior Subordinated Notes, may recover less, ratably, than holders of Senior Indebtedness. As of September 17, 1994, on a pro forma basis after giving effect to the Merger, the aggregate principal amount of Senior Indebtedness outstanding (excluding Company guarantees of certain Guarantor Senior Indebtedness) would have been approximately $1,554.8 million, the aggregate outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would have been approximately $16.0 million, and the Company would have had $218.2 million available to be borrowed under the New Revolving Facility. GUARANTEES Each Subsidiary Guarantor will unconditionally guarantee, jointly and severally (i) the Company's obligations under the New F4L Senior Notes on a senior unsecured basis (the "Senior Note Guarantees") and (ii) the Company's obligations under the New F4L Senior Subordinated Notes on a senior subordinated unsecured basis (the "Senior Subordinated Note Guarantees", and together with the Senior Note Guarantees, the "Guarantees"). The Indebtedness represented by each Senior Subordinated Note Guarantee (including the payment of principal of, premium, if any, and interest on the New F4L Senior Subordinated Notes) will be subordinated on the same basis to Guarantor Senior Indebtedness as the New F4L Senior Subordinated Notes are subordinated to Senior Indebtedness. See "-- Subordination of the New F4L Senior Subordinated Notes". Upon (i) the release by the lenders under the Term Loans and all other Loan Documents of all guarantees of a Subsidiary Guarantor and all Liens on the property and assets of such Subsidiary Guarantor relating to such Indebtedness, or (ii) the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially all of its assets) to an entity which is not a subsidiary of the Company, which is otherwise in compliance with the New Indentures, such Subsidiary Guarantor shall be deemed released from all its obligations under its Senior Note Guarantee and its Senior Subordinated Notes Guarantee; provided, however, that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, such Indebtedness of the Company shall also terminate upon such release, sale or transfer. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. Each of the New Indentures will further provide that a Subsidiary Guarantor may consolidate with or merge into or sell its assets to a corporation other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor, but subject to the provisions described in the immediately preceeding paragraph), provided that (a) if the surviving corporation is not the Subsidiary Guarantor, the surviving corporation agrees to assume such Subsidiary Guarantor's obligations under its Senior Note Guarantee or its Senior Subordinated Note Guarantee, as the case may be, and all its obligations under the applicable New Indenture and (b) such transaction does not (i) violate any covenants set forth in the applicable New Indenture or (ii) result in a Default or Event of Default under the applicable New Indenture immediately thereafter that is continuing. The obligations of each Subsidiary Guarantor under each of its Senior Note Guarantee and its Senior Subordinated Note Guarantee are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to its Senior Note Guarantee or its Senior Subordinated Note Guarantee, as the case may be) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Senior Note Guarantee or Senior Subordinated Note Guarantee, as the case may be, or pursuant to its contribution obligations under the applicable New Indenture, result in the obligations of such Subsidiary Guarantor under such Guarantee not constituting a fraudulent 106 116 conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor that makes a payment or distribution under a Senior Note Guarantee or Senior Subordinated Note Guarantee, as the case may be, shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor. CHANGE OF CONTROL Each of the New Indentures will provide that, upon the occurrence of a Change of Control, each Holder of New F4L Notes issued thereunder will have the right to require the repurchase of such Holder's New F4L Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Each of the New Indentures will provide that within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder of New F4L Notes issued under such New Indenture, with a copy to the applicable New Trustee, which notice shall govern the terms of the Change of Control Offer. The New Indentures shall require that notice of an event giving rise to a Change of Control shall be given on the same date and in the same manner to all Holders. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Each New Indenture shall provide that the Change of Control Payment Date under the New Senior Note Indenture with respect to any Change of Control shall be one business day prior to the Change of Control Payment Date under the New Senior Subordinated Note Indenture with respect to such Change of Control. Holders electing to have a New F4L Note purchased pursuant to a Change of Control Offer will be required to surrender the New F4L Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the New F4L Note completed, to the applicable Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the applicable Change of Control Payment Date. Each Change of Control Offer is required to remain open for at least 20 Business Days and until 12:00 Midnight, New York City time on the applicable Change of Control Payment Date. The New Senior Subordinated Note Indenture will further provide that, notwithstanding the foregoing, prior to the mailing of the notice of a Change of Control Offer referred to above, within 30 days following a Change of Control the Company shall either (a) repay in full and terminate all commitments under Indebtedness under the Credit Agreement to the extent the terms thereof require repayment upon a Change of Control (or offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and repay the Indebtedness owed to each lender which has accepted such offer), or (b) obtain the requisite consents under the Credit Agreement, the terms of which require repayment upon a Change of Control, to permit the repurchase of the New F4L Senior Subordinated Notes as provided above. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase New F4L Senior Subordinated Notes pursuant to the provisions described above. The Company's failure to comply with the covenants described in this paragraph shall constitute an Event of Default under the New Indentures. In addition, the New F4L Senior Subordinated Note Indenture will provide that prior to purchasing New F4L Senior Subordinated Notes tendered in a Change of Control Offer, the Company shall purchase all New F4L Senior Notes (or permitted refinancing thereof) which it is required to purchase by reason of such Change of Control pursuant to the provisions of the New F4L Senior Note Indenture, as in effect on the Issue Date. The Company must comply with Rule 14e-1 under the Exchange Act and any other applicable provisions of the federal securities laws in connection with a Change of Control Offer. 107 117 CERTAIN COVENANTS Except as otherwise specified below, each of the New Indentures will contain, among other things, the following covenants: Limitation on Restricted Payments. Each of the New Indentures will provide that the Company shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) the Company could not incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" below or (c) the aggregate amount expended for all Restricted Payments, including such proposed Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment as determined in good faith by the Board of Directors of the Company), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income is a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and on or prior to the date of the proposed Restricted Payment (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the Company from any person (other than a Subsidiary of the Company) from the issuance and sale (including upon exchange or conversion for other securities of the Company) subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary, until and to the extent such borrowing is repaid), plus (iii) 100% of the aggregate net cash proceeds received by the Company as capital contributions to the Company after the Issue Date, plus (iv) $25 million. The New Indentures will provide that if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of the Company or the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of the Company with an Average Life equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid, and (4) Permitted Payments; provided, however, that the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (iii), (iv), (v), (vi), (vii) and (ix) of the definition of the term "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and no amounts expended pursuant to clause (3) above or pursuant to clause (i), (ii) or (viii) of the definition of the term "Permitted Payments" shall be so counted; provided further that to the extent any payments made pursuant to clause (vii) of the definition of the term "Permitted Payments" are deducted for purposes of computing the Consolidated Net Income of the Company, such payments shall not be counted for purposes of computing amounts expended as Restricted Payments pursuant to subclause (c) in the immediately preceding paragraph. Limitation on Incurrences of Additional Indebtedness. Each of the New Indentures will provide that the Company shall not, and shall not permit any of its Subsidiaries, directly or indirectly, to incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the New F4L Notes issued under such New Indenture or Event of Default under such New Indenture shall have occurred and be continuing at the time or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness 108 118 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 New Senior Note Indenture will provide that neither the Company nor any Subsidiary Guarantor will, directly or indirectly, in any event incur any Indebtedness that by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of the Company or such Subsidiary Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the New F4L Senior Notes or the Senior Note Guarantee of such Subsidiary Guarantor, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated pursuant to subordination provisions that are most favorable to the holders of any other Indebtedness of the Company or such Subsidiary Guarantor, as the case may be. Limitation on Liens. Each of the New Indentures will provide that the Company shall not and shall not permit any Subsidiary to create, incur, assume or suffer to exist any Liens upon any of their respective assets unless the New F4L Notes issued thereunder are equally and ratably secured by the Liens covering such assets, except for (i) in the case of the New Senior Subordinated Note Indenture, Liens on assets of the Company securing Senior Indebtedness and Liens on assets of a Subsidiary Guarantor which, at the time of incurrence, secure Guarantor Senior Indebtedness, (ii) existing and future Liens securing Indebtedness and other obligations of the Company and its Subsidiaries under the Loan Documents or any refinancing or replacement thereof in whole or in part permitted under the applicable New Indenture, (iii) Permitted Liens, (iv) Liens securing Acquired Indebtedness; provided that such Liens (x) are not incurred in connection with, or in contemplation of the acquisition of the property or assets acquired and (y) do not extend to or cover any property or assets of the Company or any Subsidiary other than the property or assets so acquired, (v) Liens to secure Capitalized Lease Obligations and certain other Indebtedness that is otherwise permitted under the applicable New Indenture; provided that (A) any such Lien is created solely for the purpose of securing such other Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, the purchase (whether through stock or asset purchase, merger or otherwise) or construction) or improvement of the property subject thereto (whether real or personal, including fixtures and other equipment), (B) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs and (C) such Lien does not extend to or cover any other property other than such item of property and any improvements on such item; (vi) Liens existing on the Issue Date (after giving effect to the Merger); (vii) Liens in favor of the New Trustees under the New Indentures and any substantially equivalent Lien granted to any trustee or similar institution under any indenture for Indebtedness permitted to be incurred under such New Indenture; and (viii) any replacement, extension or renewal, in whole or in part, of any Lien described in this or the foregoing clauses including in connection with any refinancing of the Indebtedness, in whole or in part, secured by any such Lien provided that to the extent any such clause limits the amount secured or the assets subject to such Liens, no extension or renewal shall increase the amount or the assets subject to such Liens, except to the extent that the Liens associated with such additional assets are otherwise permitted hereunder. Limitation on Asset Sales. Each of the New Indentures will provide that neither the Company nor any of its Subsidiaries shall consummate an Asset Sale unless (a) the Company or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold and (b) upon consummation of an Asset Sale, the Company will within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (A) a Related Business Investment, (B) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale or (C) an investment in properties and assets that will be used in the business of the Company and its Subsidiaries existing on the Issue Date or in businesses reasonably related thereto; (ii) apply or cause to be applied such Net Cash Proceeds to the permanent repayment of Pari Passu Indebtedness or in the case of the New Senior Subordinated Note Indenture, Senior Indebtedness; provided, however, that the repayment of any revolving loan (under the Credit Agreement or otherwise) shall result in a 109 119 permanent reduction in the commitment thereunder; (iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of New F4L Notes issued under such New Indenture 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, (x) the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets which are acquired or constructed by the Company or a Subsidiary subsequent to the Issue Date, provided that such sale and substantially concurrent lease-back occurs within 180 days following such acquisition or the completion of such construction, as the case may be, and (y) the proceeds of which in the aggregate do not exceed $20 million; provided further that pending the utilization of any Net Cash Proceeds in the manner (and within the time period) described above, the Company may use any such Net Cash Proceeds to repay revolving loans (under the Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. Each Net Proceeds Offer will be mailed to the record Holders of New F4L Senior Notes or New F4L Senior Subordinated Notes, as the case may be, as shown on the register of Holders of such New F4L Notes not less than 325 nor more than 365 days after the relevant Asset Sale, with a copy to the applicable New Trustee, shall specify the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed) and shall otherwise comply with the procedures set forth in the applicable New Indenture. Upon receiving notice of the Net Proceeds Offer, Holders of New F4L Senior Notes or New F4L Senior Subordinated Notes, as the case may be, may elect to tender their New F4L Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender New F4L Senior Notes or New F4L Senior Subordinated Notes, as the case may be, in an amount exceeding the Net Proceeds Offer, New F4L Notes of tendering Holders will be repurchased on a pro rata basis (based on amounts tendered). The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of New F4L Notes pursuant to a Net Proceeds Offer. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. Each of the New Indentures will provide that the Company shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Loan Documents and related documents as in effect on the Issue Date as any such payment restriction may apply to any present or future Subsidiary, (ii) the New Indentures and any agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenants described under "-- Limitation on Incurrences of Additional Indebtedness" and "-- Limitation on Liens" above that limit the right of the debtor to dispose of the assets securing such Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; and (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole than those provided for in such Indebtedness being refinanced, refunded, extended or renewed and (g) Payment Restrictions contained in any other Indebtedness permitted 110 120 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. Each of the New Indentures will provide that the Company shall not permit any of its Subsidiaries to (a) incur, guarantee or secure through the granting of Liens the payment of any Indebtedness under the Term Loans or any other Loan Documents or (b) pledge any intercompany notes representing obligations of any of its Subsidiaries, to secure the payment of any Indebtedness under the Term Loans or any other Loan Documents, in each case unless (x) such Subsidiary, the Company and the New Senior Note Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Senior Note Guarantee in the case of the New Senior Note Indenture and (y) such Subsidiary, the Company and the New Senior Subordinated Note Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Senior Subordinated Note Guarantee in the case of the New Senior Subordinated Note Indenture. Limitation on Transactions with Affiliates. Each of the New Indentures will provide that neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities (other than equity securities which do not constitute Disqualified Capital Stock) from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of the Company or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under the following paragraph and (y) Affiliate Transactions in the ordinary course of business, that are fair to the Company or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the applicable New Trustee certifying that such Affiliate Transaction complies with clause (y) above, (B) with respect to Affiliate Transactions involving aggregate payments in excess of $5 million and less than $15 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the applicable New Trustee certifying that such Affiliate Transaction complies with clause (y) above 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 that the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party, and that such Independent Financial Advisor has provided written confirmation of such determination to the Board of Directors and (C) with respect to Affiliate Transactions involving aggregate payments in excess of $15 million, the Company or such Subsidiary, as the case may be, shall have delivered to the applicable New Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. The provisions of the foregoing paragraph shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of the covenant described under "-- Limitation on Restricted Payments" above, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among the Company and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such 111 121 transactions are not otherwise prohibited by the applicable New Indenture, (v) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders of the New F4L Senior Notes or New F4L Senior Subordinated Notes, as the case may be, in any material respect, (vi) the existence of, or the performance by the Company or any of its Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or New Holdings) is a party as of the Issue Date and any similar agreements which it (or New Holdings) may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the New F4L Senior Notes or New F4L Senior Subordinated Notes, as the case may be, in any material respect, (vii) transactions permitted by, and complying with, the provisions of the covenant described under "-- Limitation on Mergers and Certain Other Transactions" below and (viii) purchases or sales of goods or services or other transactions with suppliers, in each case, in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the applicable New Indenture which are fair to the Company, in the reasonable determination of the Board of Directors, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Limitations on Preferred Stock of Subsidiaries. Each of the New Indentures will provide that the Company will not permit any of its Subsidiaries to issue any Preferred Stock (other than to the Company or to a wholly-owned Subsidiary) or permit any person (other than the Company or a wholly-owned Subsidiary) to own any Preferred Stock of any Subsidiary. Limitation on Mergers and Certain Other Transactions. Each of the New Indentures will provide that the Company, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case, (1) either the Company shall be the continuing person, or the person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (the Company or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of the Company under such New Indenture and the New F4L Notes issued thereunder; (2) immediately after and giving effect of such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) the Surviving Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above; (3) immediately before and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing; and (4) each Subsidiary Guarantor, unless it is the other party to the transaction, shall have by supplemental indenture confirmed that its Guarantee of the obligations of the Company under the New F4L Notes issued under such New Indenture shall apply, without alteration or amendment as such Guarantee applies on the date it was granted under the applicable New Indenture to the obligations of the Company under the applicable New Indenture and the applicable New F4L Notes to the obligations of the Company or such Person, as the case may be, under the applicable New Indenture and the applicable New F4L Notes, after the consummation of such transaction. 112 122 Notwithstanding the foregoing, the consummation of the Merger on the Issue Date need only comply with clauses (1) and (3) of the foregoing paragraph. Each of the New Indentures will provide that upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company or any adoption of a Plan of Liquidation by the Company in accordance with the foregoing, the surviving person formed by such consolidation or into which the Company is merged or to which such transfer is made (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, the Company under such New Indenture with the same effect as if such surviving person had been named as the Company therein; provided, however, that solely for purposes of computing amounts described in subclause (c) of the first paragraph of the covenant described under "-- Limitation on Restricted Payments" above, any such surviving person shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Limitation on Other Senior Subordinated Indebtedness. The New F4L Senior Subordinated Note Indenture will provide that neither the Company nor any Subsidiary Guarantor will, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinate in right of payment to any Indebtedness of the Company or such Subsidiary Guarantor, as the case may be, unless such Indebtedness is either (a) pari passu in right of payment with the New F4L Senior Subordinated Notes or the Senior Subordinated Guarantee of such Subsidiary Guarantor, as the case may be, or (b) subordinate in right of payment to the New F4L Senior Subordinated Notes or the Senior Subordinated Guarantee of such Subsidiary Guarantor, as the case may be, in the same manner and at least to the same extent as the New F4L Senior Subordinated Notes are subordinate to Senior Indebtedness or as such Senior Subordinated Guarantee is subordinated to Senior Guarantor Indebtedness of such Subsidiary Guarantor, as the case may be. EVENTS OF DEFAULT The following events constitute "Events of Default" under each of the New Indentures: (i) failure to make any interest payment on the applicable New F4L Notes when due and the continuance of such default for a period of 30 days; (ii) failure to pay principal of, or premium, if any, on the applicable New F4L Notes when due, whether at maturity, upon acceleration, redemption, required repurchase or otherwise; (iii) failure to comply with any other agreement contained in the applicable New F4L Notes or the applicable New Indenture, if such failure continues unremedied for 30 days after written notice given by the applicable New Trustee or the Holders of at least 25% in principal amount of the applicable New F4L Notes then outstanding (except in the case of a default with respect to the covenants described under "-- Certain Covenants -- Limitation on Restricted Payments," "-- Certain Covenants -- Limitations on Asset Sales," "-- Change of Control," and "-- Certain Covenants -- Limitations on Merger and Certain Other Transactions," which shall constitute Events of Default with notice but without passage of time); (iv) a default under any Indebtedness of the Company or its Subsidiaries, whether such Indebtedness now exists or shall hereinafter be created, if both (A) such default either (1) results from the failure to pay any such Indebtedness at its stated final maturity or (2) relates to an obligation other than the obligation to pay such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, aggregate $20 million or more at any one time outstanding; (v) any final judgment or order for payment of money in excess of $20 million shall be entered against the Company or any Significant Subsidiary and shall not be discharged for a period of 60 days after such judgment becomes final and nonappealable; (vi) either the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a 113 123 Custodian of it or for all or substantially all of its property; or (d) makes a general assignment for the benefit of its creditors; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary, in an involuntary case or proceeding; (b) appoints a Custodian of the Company or any Significant Subsidiary, or for all or any substantial part of their respective properties; or (c) orders the liquidation of the Company or any Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 days; (viii) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of the Company and its Subsidiaries; or (ix) any of the Guarantees issued under such New Indenture shall be declared or adjudged invalid in a final judgment or order issued by any court of governmental authority. In the event of a declaration of acceleration because an Event of Default set forth in clause (iv) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured, within 90 days of such maturity or declaration of acceleration, as the case may be. If an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency, receivership or reorganization of the Company or a Subsidiary Guarantor) occurs and is continuing under a New Indenture, the New Trustee under such New Indenture or the Holders of at least 25% in principal amount of the then outstanding New F4L Notes issued under such New Indenture may declare due and payable all unpaid principal and interest accrued and unpaid on the then outstanding New F4L Notes issued under such New Indenture by notice in writing to the Company and the applicable New Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become due and payable upon the first to occur of an acceleration under the Credit Agreement, or five business days after receipt by the Company and the administrative agent under the Credit Agreement of such Acceleration Notice. If an Event of Default resulting from certain events of bankruptcy, insolvency, receivership or reorganization of the Company or a Subsidiary Guarantor shall occur under a New Indenture, all unpaid principal of and accrued interest on all then outstanding New F4L Notes issued under such New Indenture shall be immediately due and payable without any declaration or other act on the part of the applicable New Trustee or any of the Holders of such New F4L Notes. After a declaration of acceleration under a New Indenture, subject to certain conditions, the Holders of a majority in principal amount of the then outstanding New F4L Notes issued thereunder, by notice to the applicable New Trustee, may rescind such declaration if all existing Events of Default under such New Indenture are remedied. In certain cases the Holders of a majority in principal amount of outstanding New F4L Notes issued under such New Indenture may waive a past default under such New Indenture and its consequences, except a default in the payment of or interest on any of the New F4L Notes issued thereunder. Each New Indenture provides that if a Default or Event of Default occurs and is continuing thereunder and if it is known to the applicable New Trustee, such New Trustee shall mail to each Holder of New F4L Notes issued thereunder notice of the Default or Event of Default within 90 days after such Default or Event of Default occurs; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of or interest on any of such New F4L Notes, including the failure to make payment on a Change of Control Payment Date pursuant to a Change of Control Offer or payment when due pursuant to a Net Proceeds Offer the applicable New Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders of such New F4L Notes. Each New Indenture provides that no Holder of New F4L Notes issued thereunder may pursue any remedy thereunder unless the applicable New Trustee (i) shall have failed to act for a period of 60 days after receiving written notice of a continuing Event of Default under such New Indenture by such Holder and a request to act by Holders of at least 25% in principal amount of New F4L Notes issued under such New Indenture and (ii) has received indemnification satisfactory to it; provided, however, that such provision does 114 124 not affect the right of any Holder to sue for enforcement of any overdue payment of New F4L Notes issued under such New Indenture. Each New Indenture provides that two officers of the Company are required to certify to the applicable New Trustee within 120 days after the end of each fiscal year of the Company whether or not they know of any Default that occurred under such New Indenture during such fiscal year and, if applicable, describe such Default and the status thereof. DEFEASANCE OF INDENTURE The Company may, at its option and at any time, elect to have the obligations of the Company discharged with respect to the outstanding New F4L Senior Notes or the New F4L Senior Subordinated Notes. Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the applicable New F4L Notes except for (i) the rights of Holders of such New F4L Notes to receive payments in respect of the principal of, premium, if any, and interest on such New F4L Notes when such payments are due; (ii) the Company's obligations to issue temporary New F4L Notes, register the transfer or exchange of such New F4L Notes, replace mutilated, destroyed, lost or stolen New F4L Notes and maintain an office or agency for payments in respect of such New F4L Notes and money for security payments held in respect of such New F4L Notes, (iii) the rights, powers, trusts, duties and immunities of the applicable New Trustee and the Company's obligations in connection therewith; and (iv) the Legal Defeasance provisions of the New Indentures. In addition, the Company may, at its option and at any time elect to have the obligations of the Company released with respect to certain covenants described above under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to such New F4L Notes. In order to exercise either Legal Defeasance or Covenant Defeasance with respect to either issue of New F4L Notes, (i) the Company must have irrevocably deposited with the applicable New Trustee, in trust, for the benefit of the Holders of such New F4L Notes, cash in U.S. dollars, U.S. Government Obligations (as defined in the New Indentures), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the applicable outstanding New F4L Notes to redemption or maturity provided that the applicable New Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the New F4L Notes on the maturity date or such redemption date, as the case may be, (ii) in the case of Legal Defeasance, the Company shall have delivered to the applicable New Trustee an opinion of counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of New F4L Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the applicable New Trustee an opinion of counsel stating that the Holders of New F4L Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing under the applicable New Indenture on the date of such deposit or insofar as clauses (vi) and (vii) under the first paragraph under "-- Events of Default" above are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the applicable New Indenture or any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound (and in that connection, the New Trustee shall have received a certificate from the Agent under the Credit Agreement to that effect with respect to such Credit Agreement if then in effect); (vi) the Company shall have delivered to the applicable New Trustee an opinion of counsel to the effect that after the 91st day following the deposit (A) in the case of the New Senior Subordinated Note 115 125 Indenture, the trust funds will not be subject to any rights of holders of Senior Indebtedness or Guarantor Senior Indebtedness, including, without limitation, those arising under the New Senior Subordinated Note Indenture, after the 91st day following the deposit and (B) in the case of each of the New Indentures, after the 91st day following the deposit the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company shall have delivered to the applicable New Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the New F4L Notes over other creditors of the Company or any Subsidiary Guarantor or with the intent of defeating, hindering, delaying or defrauding creditors of the Company, any Subsidiary Guarantor or others; and (viii) the Company shall have delivered to the applicable New Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or Covenant Defeasance, have been complied with. SATISFACTION AND DISCHARGE Each New Indenture will be discharged and will cease to be of further effect as to all outstanding New F4L Notes issued thereunder, when either (a) all such New F4L Notes theretofore authenticated and delivered (except lost, stolen or destroyed New F4L Notes which have been replaced or paid and New F4L Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the appropriate New Trustee for cancellation; or (b)(i) all such New F4L Notes not theretofore delivered to such New Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and the Company has irrevocably deposited or caused to be deposited with such New Trustee as trust funds in trust for the purpose an amount of money sufficient to pay and discharge the entire indebtedness on such New F4L Notes not theretofore delivered to such New Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (ii) the Company has paid all sums payable by it under such New Indenture; and (iii) the Company has delivered irrevocable instructions to the New Trustee under such New Indenture to apply the deposited money toward the payment of such New F4L Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the appropriate New Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. MODIFICATION OF THE NEW INDENTURES Each of the New Indentures and the New F4L Notes issued thereunder may be amended or supplemented (and compliance with any provision thereof may be waived) by the Company, the Subsidiary Guarantors, the New Trustee thereunder and the Holders of not less than a majority in aggregate principal amount of such New F4L Notes then outstanding, except that (i) without the consent of each Holder of such New F4L Notes affected, no such amendment, supplement or waiver may (1) change the principal amount of the applicable New F4L Notes the Holders of which must consent to an amendment, supplement or waiver of any provision of the applicable New Indenture, the applicable New F4L Notes or the applicable Guarantees, (2) reduce the rate or extend the time for payment of interest on any applicable New F4L Notes, (3) reduce the principal amount of any applicable New F4L Notes, (4) change the Maturity Date of any applicable New F4L Notes or the Change of Control Payment Date or alter the redemption provisions in the applicable New Indenture or the applicable New F4L Notes or the purchase price in connection with any repurchase of New F4L Notes pursuant to the covenant described under "-- Change of Control" above in a manner adverse to any Holder of such New F4L Notes, (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on or redemption payment with respect to any applicable New F4L Notes, (6) make the principal of, or interest on, any applicable New F4L Notes payable with anything or in any manner other than as provided for in the applicable New Indenture, the applicable New F4L Notes and the applicable Guarantees, (7) waive an Default or Event of Default resulting from a failure to comply with the covenant described under "-- Change of Control" above or (8) in the case of the New Senior Subordinated Note Indenture, modify the subordination provisions of the New Senior Subordinated Note Indenture (including the related definitions) so as to adversely affect the ranking of any applicable New F4L Note or Guarantee and (ii) without the 116 126 consent of Holders of not less than two thirds in aggregate principal amount of such New F4L Notes then outstanding, no such amendment, supplement or waiver may release any Subsidiary Guarantor from any of its Obligations under its applicable Guarantee or the applicable New Indenture other than in accordance with the terms of such applicable Guarantee and the applicable New Indenture. In addition, each of the New Indentures and the New F4L Notes issued thereunder and the related Guarantees may be amended by the Company, the Subsidiary Guarantors and the applicable New Trustee (a) to cure any ambiguity, defect or ambiguity therein; provided that such amendment or supplement does not adversely affect the rights of any Holder thereof or (b) to make any other change that does not adversely affect the rights of any Holder thereunder in any material respect. THE NEW TRUSTEES Each New Indenture will provide that the Holders of a majority in principal amount of the outstanding New F4L Notes issued thereunder may remove the New Trustee thereunder and appoint a successor trustee with the Company's consent, by so notifying the trustee to be so removed and the Company. In addition, the Holders of a majority in principal amount of the outstanding New F4L Notes issued under a New Indenture have the right, subject to certain limitations, to direct the time, method and place of conducting any proceeding for any remedy available to the New Trustee under such New Indenture or of exercising any trust or power conferred on such New Trustee. Each of the New Indentures will provide that, in case a Default or an Event of Default has occurred and is continuing thereunder, the New Trustee thereunder shall exercise such of the rights and powers vested in it by such New Indenture, and use the same degree of care and skill in the exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Subject to the latter provision, the New Trustee under each New Indenture is under no obligation to exercise any of its rights or powers under the applicable New Indenture at the request, order or direction of any of the Holders of the New F4L Notes issued thereunder, unless they shall have offered to such New Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred thereby. If the Company fails to pay such amounts of principal of, premium, if any, or interest on, the New F4L Senior Notes or the New F4L Senior Subordinated Notes as shall have become due and payable upon demand as specified in the applicable New Indenture, the New Trustee thereunder, at the request of the Holders of a majority in aggregate principal amount of such New F4L Notes at the time outstanding, and upon being offered such reasonable indemnity as it may be required against the costs, expenses and liabilities incurred by it, except as a result of its negligence or bad faith, shall institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and collect in the manner provided by law the monies adjudged or decreed to be payable. Each New Indenture contains limitations on the rights of the New Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to be realized on certain property received by it in respect of any such claims, securities or otherwise. Each New Trustee is permitted to engage in other transactions; however, if a New Trustee acquires any "conflicting interest," it must eliminate such conflict or resign. REPORTS Each New Indenture will provide that the Company will deliver to the New Trustee thereunder within 15 days after the filing of the same with the Commission, copies of the quarterly and annual report and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Each New Indenture will further provide that, notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the New Trustee under such New Indenture and Holders of the New F4L Notes issued thereunder with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA Section 314(a). 117 127 CERTAIN DEFINITIONS "Acquired Indebtedness" means (i) with respect to any person that becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) after the Issue Date, Indebtedness of, such person or any of its Subsidiaries existing at the time such person becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) and which was not incurred in connection with, or in contemplation of, such person becoming a Subsidiary of the Company (or being merged into the Company or any of its Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries, any Indebtedness assumed by the Company or any of its Subsidiaries in connection with the acquisition of any assets from another person (other than the Company or any of its Subsidiaries), and which was not incurred by such other person in connection with, or in contemplation of, such acquisition. "Adjusted Net Assets" means, with respect to the Guarantee of a Subsidiary Guarantor at any date, the lesser of the amount by which (x) the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to such Guarantee)), but excluding liabilities under the Senior Note Guarantee of such Subsidiary Guarantor, in the case of the New Senior Note Indenture, or the Senior Subordinated Note Guarantee of such Subsidiary Guarantor, in the case of the New Senior Subordinated Note Indenture, at such date and (y) the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to such Guarantee) and after giving effect to any collection from any Subsidiary of such Subsidiary Guarantor in respect of the obligations of such Subsidiary under the applicable Guarantee), excluding debt in respect of the Senior Note Guarantee of such Subsidiary Guarantor, in the case of the New Senior Note Indenture, or the Senior Subordinated Note Guarantee of such Subsidiary Guarantor, in the case of the New Senior Subordinated Note Indenture, as they become absolute and matured. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the New Indentures, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of the Company or any of its Subsidiaries. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise) made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than the Company or a directly or indirectly wholly-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 or (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company with a Lien on such assets, which Lien is permitted under the New Indentures, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law. "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 118 128 dates of each successive scheduled principal payments of such debt security multiplied by the amount of each such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board Resolution" means a duly adopted resolution of the Board of Directors of the Company. "Capital Stock" means, with respect to any person, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii) and (v) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of New Holdings or the Company such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of the Company (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of the Company's Board of Directors. "Commission" means the Securities and Exchange Commission. "Common Stock" means, with respect to any person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of, such person's common stock, whether outstanding at the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually 119 129 prevented the payment of an amount that otherwise could have been paid to, or received by, such person or a subsidiary of such person not subject to any Payment Restriction; and (c)(i) the net income (or loss) of any other person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of such person or any of its subsidiaries and any gains on pension reversions received by such person or any of its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any of its subsidiaries of any securities of such person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C) any other restructuring reserves or charges (provided, however, that any cash payments actually made with respect to the liabilities for which such restructuring reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case, incurred by the Company or any of its Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by the Company and its Subsidiaries resulting from earthquakes and (ix) with respect to the Company, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among Food 4 Less, certain of its subsidiaries, the Lenders referred to therein, and Bankers Trust Company, as administrative agent, as the case may be, amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness incurred to refund or refinance the entirety of the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or such agreement. The Company shall promptly notify the New Trustees of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Designated Senior Indebtedness" means (i) in the event any Indebtedness is outstanding under the Credit Agreement, all Senior Indebtedness under the Credit Agreement and (ii) if no Indebtedness is outstanding under the Credit Agreement, any other issue of Senior Indebtedness which (a) at the time of the determination is equal to or greater than $50 million in aggregate principal amount and (b) is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company. "Disqualified Capital Stock" means, with respect to any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security, into which it is convertible, puttable or exchangeable is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder thereof, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date of the New F4L Senior Notes, in the case of the New Senior Note Indenture, or the New F4L Senior Subordinated Notes, in the case of the New Senior Subordinated Note Indenture, or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (i) redeemable or repurchaseable 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 120 130 person for such period (without duplication)(i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in fixed charges), (iii) fixed charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credits) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring reserve or charge referred to in clause (v) above (and were not otherwise deducted in the computation of Consolidated Net Income of such person for such period). "Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated by the Commission thereunder. "Excluded Assets" means assets of the Company required to be disposed of by applicable regulatory authorities in connection with the Merger. "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 exception), in the case of the Company, any original issue discount on the applicable New F4L Notes but excluding amortization of debt issuance costs) and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period but excluding the amortization of debt issuance costs) and (ii) dividend requirements on Capital Stock of such person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock)) paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) and excluding items eliminated in consolidation. For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such person (as evidenced by a Board Resolution) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "FFL" means Food 4 Less, Inc., a Delaware corporation and its successors, including, without limitation, Holdings following the FFL Merger and New Holdings following the Reincorporation Merger. "FFL Merger" means the merger, prior to the Merger, of FFL and Holdings. "Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, Ralphs Supermarkets, Inc. (to be renamed Ralphs Grocery Company following the Merger). 121 131 "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "Guarantor Senior Indebtedness" means, with respect to any Subsidiary Guarantor, the principal of, premium, if any, and interest on any Indebtedness of such Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Senior Subordinated Note Guarantee of such Subsidiary Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of such Subsidiary Guarantor from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal of and interest on, and all fees, indemnities and expenses payable under the Credit Agreement. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Senior Subordinated Note Guarantee of such Subsidiary Guarantor, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of such Subsidiary Guarantor, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Subsidiary Guarantor, (d) Indebtedness which is represented by Disqualified Capital Stock, (e) Obligations for goods, materials or services purchased in the ordinary course of business or Obligations consisting of trade payables, (f) Indebtedness of or amounts owed by such Subsidiary Guarantor for compensation to employees or for services rendered to such Subsidiary Guarantor, (g) any liability for federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (h) Indebtedness of such Subsidiary Guarantor representing a guarantee of Subordinated Indebtedness or Pari Passu Indebtedness (in each case, with respect to the New F4L Senior Subordinated Notes or any Senior Subordinated Note Guarantee) of the Company or any other Subsidiary Guarantor, (i) Indebtedness of such Subsidiary Guarantor to a Subsidiary of the Company and (j) that portion of any Indebtedness which is incurred by such Subsidiary Guarantor in violation of the New Senior Subordinated Note Indenture. "Holdings" means Food 4 Less Holdings, Inc., a California corporation, and its successors, including, without limitation, New Holdings following the Reincorporation Merger. "Holdings Discount Notes" means the 15.25% Senior Discount Notes due 2004 of Holdings, as the same may be modified or amended from time to time and refinancings thereof. "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 122 132 determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes of the New Indentures, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of the Company, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Independent Financial Advisor" means a reputable accounting, appraisal or nationally recognized investment banking firm that is, in the reasonable judgment of the Board of Directors of the Company, qualified to perform the tasks for which such firm has been engaged and disinterested and independent with respect to the Company and its Affiliates. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by a purchase of assets, in any transaction or series of related transactions, individually or in the aggregate, in an amount greater than $5 million, share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances or to permit the purchase of Qualified Capital Stock of the Company and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of original issuance of the New F4L Notes under the New Indentures. "Letter of Credit Obligations" means Indebtedness of the Company or any of its Subsidiaries with respect to letters of credit issued pursuant to the Loan Documents, and for purposes of the definition of the term "Permitted Indebtedness" above, the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien under the New Indentures. 123 133 "Loan Documents" means the Credit Agreement and all promissory notes, guarantees, security agreements, pledge agreements, deeds of trust, mortgages, letters of credit and other instruments, agreements and documents executed pursuant thereto or in connection therewith, and all amendments, supplements, extensions, renewals, restatements, replacements or refinancings thereof (in each case, in whole or in part, and without limitation as to amount, number, terms, conditions, covenants or other provisions) or other modifications thereof from time to time (whether or not any such replacement or refinancing replaces or refinances the entirety of the borrowings then outstanding under the Credit Agreement) and including all subsequent amendments, supplements, extensions, renewals, restatements, replacements, or refinancings of any such Loan Documents (in each case, in whole or in part, and without limitation as to amount, number, terms, conditions, covenants or other provisions). "Maturity Date" means (i) with respect to the New F4L Senior Notes, March 1, 2004 and (ii) with respect to the New F4L Senior Subordinated Notes, March 1, 2005. "Merger" means (i) the merger of Food 4 Less Supermarkets, Inc. into Ralph Supermarkets, Inc. (with Ralph 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 Supermarket, Inc. surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated September 14, 1994, by and among Holdings, FFL, Food 4 Less, RSI and the Stockholders of RSI, as such agreement is in effect on the Issue Date. "Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in the form of cash or Cash Equivalents. "Net Proceeds" means (a) in the case of any Asset Sale or any issuance and sale by any person of Qualified Capital Stock, the aggregate net proceeds received by such person after payment of expenses, taxes, commissions and the like incurred in connection therewith (and, in the case of any Asset Sale, net of the amount of cash applied to repay Indebtedness secured by the asset involved in such Asset Sale), whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt as determined with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board of 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 Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and its successors. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Operating Coverage Ratio" means, with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT" for the Pro Forma Period shall be calculated, in the case of the Company, after giving effect on a pro forma basis to the Merger as if it had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing 124 134 on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by the applicable New Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Pari Passu Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, (i) in the case of the New Senior Note Indenture, Indebtedness of such person which ranks pari passu in right of payment to the New F4L Senior Notes or the Senior Note Guarantee of such Subsidiary Guarantor, as the case may be, and (ii) in the case of the New Senior Subordinated Note Indenture, Indebtedness of such person which ranks pari passu in right of payment to the New F4L Senior Subordinated Notes or the Senior Subordinated Note Guarantee of such Subsidiary Guarantor, as the case may be. "Payment Restriction" means, with respect to a subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person or (c) transfer any of its properties or assets to such person or any other subsidiary of such persons, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and The Yucaipa Companies, or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of the Company, or any participant therein or any of its subsidiaries, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its Subsidiaries pursuant to (i) the Term Loans or any Loan Documents in an aggregate principal amount at any time outstanding not to exceed $750 million, less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above subsequent to the Issue Date, and (ii) the revolving credit facility under the Credit Agreement or any Loan Documents (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above, (b) Indebtedness of the Company or a Subsidiary Guarantor owed to and held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred by the Company or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations provided that (i) at the time of the incurrence thereof, such indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not 125 135 exceed, in the aggregate, 3% of net sales of the Company and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the first anniversary of the Merger) and (ii) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon this clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of the Company and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the third anniversary of the Merger); (d) Indebtedness incurred by the Company or any Subsidiary in connection with capital expenditures in an aggregate principal amount not exceeding $150 million in the aggregate, 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 and Solicitation Statement; (e) Indebtedness of the Company incurred under certain Foreign Exchange Agreements and Interest Swap Obligations; (f) guarantees incurred in the ordinary course of business by the Company or a Subsidiary of Indebtedness of any other person in aggregate not to exceed $25 million at any time outstanding; (g) guarantees by the Company or a Subsidiary Guarantor of Indebtedness incurred by a wholly-owned Subsidiary Guarantor so long as the incurrence of such Indebtedness incurred by such wholly-owned Subsidiary Guarantor is permitted under the terms of the applicable New Indenture; (h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (j) other Indebtedness outstanding on the Issue Date (after giving effect to the Merger); (k) Indebtedness arising from guarantees of Indebtedness of the Company or any Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such bonuses, assets or Subsidiary for the purpose of financing such acquisition, provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary in the ordinary course of business; and (m) additional Indebtedness of the Company and the Subsidiary Guarantors in an amount not to exceed $200 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale made pursuant to the provisions of the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with the provisions of the covenant described under "-- Certain Covenants -- Limitation on Transactions with Affiliates," (vi) Investments by Subsidiary Guarantors in other Subsidiary Guarantors and Investments by Subsidiaries which are not Subsidiary Guarantors in other Subsidiaries which are not Subsidiary Guarantors and (vii) additional Investments in an aggregate amount not exceeding $5 million. "Permitted Liens" shall mean (i) Liens for taxes, assessments and governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (ii) statutory Liens of landlords and carriers, warehouseman, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business, deposits made to obtain the release of such Liens, and with respect to amounts not yet delinquent for a period of more than 60 days or being contested in good faith by an appropriate process of law, and for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (iii) Liens incurred or pledges or deposits made in the ordinary course of business to secure obligations under workers' compensation, unemployment insurance and other types of social security or similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, zoning or other restrictions, minor defects or irregularities in title and 126 136 other similar charges or encumbrances not interfering in any material respect with the business of the Company or any of its Subsidiaries incurred in the ordinary course of business; (vi) Liens upon specific items of inventory or other goods and proceeds of any person securing such person's obligations in respect of bankers' acceptances issued or created for the account of such person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business; (vii) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of nondelinquent customs duties in connection with the importation of goods; (ix) judgment and attachment Liens not giving rise to a Default or Event of Default; (x) leases or subleases granted to others not interfering in any material respect with the business of the Company or any Subsidiary; (xi) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Swap Obligations and Foreign Exchange Agreements and forward contracts, option futures contracts, futures options or similar agreements or arrangements designed to protect the Company or any Subsidiary from fluctuations in the price of commodities; (xii) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or its Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (xiii) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Subsidiary in the ordinary course of business in accordance with past practices; (xiv) any interest or title of a lessor in the property subject to any lease, whether characterized as capitalized or operating other than any such interest or title resulting from or arising out of a default by the Company or any Subsidiary of its obligations under such lease; (xv) Liens arising from filing UCC financing statements for precautionary purposes in connection with true leases of personal property that are otherwise permitted under the applicable Indenture and under which the Company or any Subsidiary is lessee; (xvi) in the case of the New Senior Subordinated Note Indenture, Liens on assets of the Company securing Indebtedness which would constitute Senior Indebtedness but for the provisions of clause (c) in the third sentence of the definition of Senior Indebtedness and Liens on assets of a Subsidiary Guarantor securing Indebtedness which would constitute Guarantor Senior Indebtedness but for the provisions of clause (c) in the third sentence of the definition of Guarantor Senior Indebtedness; and (xvii) additional Liens securing Indebtedness at any one time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the aggregate Consolidated Net Income of the Company earned subsequent to the Issue Date and on or prior to such time. "Permitted Payments" means (i) any payment by the Company or any Subsidiary to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar advisory services during such period pursuant to that certain Consulting Agreement, dated as of the Issue Date, between Food 4 Less, New Holdings and The Yucaipa Companies, (as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date), (ii) any payment by the Company or any Subsidiary pursuant to the Amended and Restated Tax Sharing Agreement, dated as of June 17, 1991, between Food 4 Less and certain Subsidiaries, as such Tax Sharing Agreement may be amended from time to time, so long as the payment thereunder by the Company and its Subsidiaries shall not exceed the amount of taxes the Company would be required to pay if it were the filing person for all applicable taxes, (iii) any payment by the Company or any Subsidiary pursuant to the Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4 Less and Holdings, as in effect on the Issue Date, (iv) any payment by the Company or any Subsidiary (a) in connection with repurchases of outstanding shares of the Company's or New Holdings Common Stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by New Holdings, the Company or any of its Subsidiaries to participants in employee benefit plans upon termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period), (v) from and after June 30, 1998, payments of cash dividends to New 127 137 Holdings in an amount sufficient to enable New Holdings to make payments of interest required to be made in respect of the Holdings Discount Notes in accordance with the terms thereof in effect on the Issue Date, (vi) from and after March 1, 2000, payments of cash dividends to New Holdings in an amount sufficient to enable New Holdings to make payments of interest required to be made in respect of the Seller Debentures in accordance with the terms thereof in effect on the Issue Date, (vii) dividends or other payments to New Holdings sufficient to enable New Holdings to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business or to pay required fees and expenses in connection with the Merger, the FFL Merger, the Reincorporation Merger and the registration under applicable laws and regulations of its debt or equity securities, (viii) dividends or other distributions by the Company to New Holdings on the Issue Date of shares of New Holdings common stock owned by the Company and (ix) dividends by the Company to New Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (x) neither the Company nor any of the Subsidiaries is required, or may be required, pursuant to the documents governing any outstanding Indebtedness of the Company or any of the Subsidiaries to utilize such Net Cash Proceeds to repay (or offer to repay) such Indebtedness, (y) such Net Cash Proceeds have not been utilized to repay outstanding Indebtedness of the Company or any of the Subsidiaries and (z) New Holdings is required pursuant to the documents governing any outstanding Indebtedness of New Holdings to utilize such Net Cash Proceeds to repay (or offer to repay) such Indebtedness. "Permitted Subordinated Reorganization Securities" means securities of the Company issued in a plan of reorganization in a case under the Bankruptcy Law relating to the Company which constitutes either (y) Capital Stock (other than Disqualified Capital Stock with the reference to "Maturity Date" in the definition of such term modified to relate to the final stated maturity of any debt securities issued in such plan of reorganization to the holders of Designated Senior Indebtedness ("Senior Reorganization Securities")) and (z) debt securities of the Company which are (i) unsecured, (ii) have no scheduled mandatory amortization thereon prior to the final stated maturity of the Senior Reorganization Securities and (iii) are subordinated in right of payment to the Senior Reorganization Securities to at least the same extent as the Securities are subordinated to Designated Senior Indebtedness. "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of the Company, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person and (v) any investment fund or investment entity that is a subsidiary of such person or a Permitted Transferee of such person. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such person, over shares of Capital Stock of any other class of such person. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of the New Indentures, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act of 1933, as amended, as interpreted by the Company's chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Public Equity Offering" means an underwritten public offering of Common Stock of the Company or New Holdings pursuant to a registration statement filed with the Commission in accordance with the Securities Act which public equity offering results in gross proceeds to the Company or New Holdings, as the 128 138 case may be, of not less than $20,000,000; provided, however, that in the case of a Public Equity Offering by New Holdings, New Holdings contributes to the capital of the Company net cash proceeds in an amount sufficient to redeem New Notes called for redemption in accordance with the terms thereof. "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (c), (d), (h) and (j) of the definition thereof) incurred in accordance with the applicable New Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date of the applicable New F4L Notes and (y) shall contain subordination and default provisions no less favorable in any material respect to holders of the applicable New F4L Notes than those contained in such repaid or amended Subordinated Indebtedness. "Reincorporation Merger" means the merger, prior to the Merger, of Holdings with and into New Holdings. "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment (without regard to the $5 million threshold in the definition thereof), 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% Senior Subordinated Pay-in-Kind Debentures of New Holdings, as the same may be modified or amended from time to time and future refinancings thereof. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the 129 139 case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Senior Subordinated Notes. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include (x) the principal of, premium, if any, and interest on all obligations of every nature of the Company from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal of and interest on, all fees and expenses payable under the Credit Agreement, and (y) interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (vi) or (vii) under "-- Events of Default" relating to the Company, whether or not the claim for such interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the New F4L Senior Subordinated Notes, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of the Company, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company, (d) Indebtedness which is represented by Disqualified Capital Stock, (e) obligations for goods, materials or services purchased in the ordinary course of business or obligations consisting of trade payables, (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services rendered to the Company, (g) any liability for federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the Company, and (i) that portion of any Indebtedness which is incurred by the Company in violation of the New Senior Subordinated Note Indenture. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each subsidiary of the Company that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act of 1933, as amended, and the Exchange Act (as such regulation is in effect on the date hereof) 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. "Subordinated Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, (i) in the case of the New Senior Note Indenture, Indebtedness of such person which is subordinated in right of payment to the New F4L Senior Notes or the Senior Note Guarantee of such Subsidiary Guarantor, as the case may be, and (ii) in the case of the New Senior Subordinated Note Indenture, Indebtedness of such person which is subordinated in right of payment to the New F4L Senior Subordinated Notes or the Senior Subordinated Note Guarantee of such Subsidiary Guarantor, as the case may be. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of 130 140 determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than fifty percent of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of the Company. "Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less GM, Inc., Food 4 Less of Southern California, Inc., (ii) upon consummation of the Merger, Crawford Stores, Inc., (iii) each of the Company's Subsidiaries which becomes a guarantor of the New F4L Notes in compliance with the provisions set forth under "-- Certain Covenants -- Guarantees of Certain Indebtedness," and (iv) each of the Company's Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of a New Indenture. "Term Loans" means the term loan facility under the Credit Agreement. "Yearly Period" means each fiscal year of the Company; provided that the first Yearly Period shall begin on the Issue Date and shall end on January 28, 1996. "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership. 131 141 MARKET PRICES OF THE OLD F4L NOTES In general, there has been limited trading of the Old F4L Notes and such trading has taken place primarily in the over-the-counter market. Prices and trading volumes of the Old F4L Notes in the over-the-counter market are not reported and can be difficult to monitor. Quotations for securities that are not widely traded, such as the Old F4L Notes, may differ from actual trading prices and should be viewed as approximations. Holders of Old F4L Notes are urged to contact their brokers with respect to current information regarding the Old F4L Notes that they hold. THE PROPOSED AMENDMENTS OLD F4L SENIOR NOTE INDENTURE The 10.45% Senior Notes due 2000 of Food 4 Less were issued under an indenture dated as of April 15, 1992 (the "Old F4L Senior Note Indenture") between Food 4 Less and Norwest Bank Minnesota, N.A., as trustee (the "Old F4L Senior Notes Trustee"). In connection with the consummation of the Merger, Food 4 Less is soliciting Consents from the holders of Old F4L Senior Notes to the Proposed Amendments and is making the Exchange Offers to (i) extend the maturities of the existing long-term debt securities of Food 4 Less and RGC by exchanging such securities for new longer-term securities and (ii) establish uniform covenants in the New F4L Notes and the New RGC Notes in order to simplify the capital structure of the Company. The primary purpose of the Proposed Amendments is to permit the Merger and to eliminate substantially all of the restrictive covenants in the Old F4L Senior Note Indenture. Upon receipt of the Requisite Consents, a supplemental indenture to the Old F4L Senior Note Indenture will be executed between Food 4 Less and the Old F4L Senior Notes Trustee (the "F4L Senior Note Supplemental Indenture"). Following the consummation of the Merger, the obligations of Food 4 Less under the Old F4L Senior Note Indenture and the F4L Senior Note Supplemental Indenture will be assumed by the Company. The Proposed Amendments would make the following changes to the Old F4L Senior Note Indenture: 1. Eliminate the covenant entitled "Maintenance of Net Worth". 2. Eliminate the covenant entitled "Limitation on Change of Control". 3. Eliminate the covenant entitled "Limitation on Restricted Payments". 4. Eliminate the covenant entitled "Limitation on Incurrences of Additional Indebtedness". 5. Eliminate the covenant entitled "Limitation on Liens". 6. Eliminate the covenant entitled "Limitation on Disposition of Assets". 7. Eliminate the covenant entitled "Limitation on Payment Restrictions Affecting Subsidiaries". 8. Eliminate the covenant entitled "Limitation on Transactions with Affiliates". 9. Eliminate the covenant entitled "Guarantees of Certain Indebtedness". 10. Amend the provisions regarding when Food 4 Less may merge, which limits the ability of Food 4 Less to consolidate or merge with or sell all or substantially all of its assets to, any other person or entity unless certain conditions are satisfied, to eliminate the subsections thereof which require that immediately after giving effect to such transaction and the incurrence of any indebtedness in connection therewith, Food 4 Less or the surviving entity, as the case may be, has a Net Worth (as defined) or Operating Coverage Ratio (as defined) that meets the standards set forth therein. 11. The definitions relating solely to such eliminated covenants will be eliminated. The F4L Senior Note Supplemental Indenture will provide that the New Credit Facility constitutes a refinancing of the Loan Documents (as defined). 132 142 The remaining sections of the Old F4L Senior Note Indenture will not be changed by the Proposed Amendments. Copies of the Old F4L Senior Note Indenture and the form of the F4L Senior Note Supplemental Indenture are available from Food 4 Less upon request. For a description of the covenants being amended or eliminated, see "Comparison of Old F4L Senior Notes and New F4L Senior Notes" set forth in Appendix A hereto. OLD F4L SENIOR SUBORDINATED NOTE INDENTURE The 13.75% Senior Subordinated Notes due 2001 of Food 4 Less were issued under an indenture dated as of June 15, 1991 (the "Old F4L Senior Subordinated Note Indenture"), between Food 4 Less and United States Trust Company of New York, as trustee (the "Old F4L Senior Subordinated Notes Trustee"). In connection with the consummation of the Merger, Food 4 Less is soliciting Consents from the holders of Old F4L Senior Subordinated Notes to the Proposed Amendments and is making the Exchange Offers to (i) extend the maturities of the existing long-term debt securities of Food 4 Less and RGC by exchanging such securities for new longer-term securities and (ii) establish uniform covenants in the New F4L Notes and the New RGC Notes in order to simplify the capital structure of the Company. The primary purpose of the Proposed Amendments is to permit the Merger and to eliminate most of the restrictive covenants in the Old F4L Senior Subordinated Note Indenture. Upon receipt of the Requisite Consents, a supplemental indenture to the Old F4L Senior Subordinated Note Indenture will be executed between Food 4 Less and the Old F4L Senior Subordinated Notes Trustee (the "F4L Senior Subordinated Note Supplemental Indenture"). Following the consummation of the Merger, the obligations of Food 4 Less under the Old F4L Senior Subordinated Note Indenture and the F4L Senior Subordinated Note Supplemental Indenture will be assumed by the Company. The Proposed Amendments would make the following changes to the Old F4L Senior Subordinated Note Indenture: 1. Eliminate the covenant entitled "Maintenance of Net Worth." 2. Eliminate the covenant entitled "Limitation on Restricted Payments". 3. Eliminate the covenant entitled "Limitation on Incurrences of Additional Indebtedness". 4. Eliminate the covenant entitled "Limitation on Liens". 5. Eliminate the covenant entitled "Limitation on Disposition of Assets". 6. Eliminate the covenant entitled "Limitation on Payment Restrictions Affecting Subsidiaries". 7. Eliminate the covenant entitled "Limitation on Transactions with Affiliates". 8. Eliminate the covenant entitled "Limitation on Change of Control". 9. Eliminate the covenant entitled "Guarantees of Certain Indebtedness." 10. Amend the provisions regarding when Food 4 Less may merge, which limits the ability of Food 4 Less to consolidate or merge with or sell all or substantially all of its assets to any other person or entity unless certain conditions are satisfied, to eliminate the subsections thereof which require that immediately after giving effect to such transaction and the incurrence of any indebtedness in connection therewith, Food 4 Less or the surviving entity, as the case may be, has a Net Worth (as defined) or Operating Coverage Ratio (as defined) that meets the standards set forth therein. 11. The definitions relating solely to such eliminated covenants will be eliminated. The F4L Senior Subordinated Note Supplemental Indenture will provide that the New Credit Facility constitutes a refinancing of the Loan Documents (as defined). The remaining sections of the Old F4L Senior Subordinated Note Indenture will not be changed by the Proposed Amendments. Copies of the Old F4L Senior Subordinated Note Indenture and the form of the F4L Senior Subordinated Note Supplemental Indenture are available from Food 4 Less upon request. For a description of the covenants being amended or eliminated, see "Comparison of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes" set forth in Appendix B hereto. 133 143 THE RGC EXCHANGE OFFERS AND THE PUBLIC OFFERING THE RGC EXCHANGE OFFERS Concurrently with the Exchange Offers, Food 4 Less is offering to holders of the Old RGC Notes the opportunity to exchange such Old RGC Notes for New RGC Notes and $10.00 in cash for each $1,000 principal amount exchanged, plus accrued and unpaid interest to the date of exchange. The consummation of the RGC Exchange Offers will occur simultaneously with the consummation of the Exchange Offers. The obligation of Food 4 Less to accept for exchange any validly tendered Old RGC Note is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) satisfaction of a minimum tender amount (i.e., at least 80% of the aggregate principal amount of the outstanding Old RGC Notes being validly tendered and not withdrawn pursuant to the RGC Exchange Offers prior to the date of expiration); (ii) the receipt of the requisite consents to certain amendments to the Old RGC Indentures (i.e., consents from Old RGC Noteholders representing at least a majority in aggregate principal amount of each issue of Old RGC Notes held by persons other than RGC and its affiliates) on or prior to the date of expiration; (iii) the satisfaction or waiver, in Food 4 Less's sole discretion, of all conditions precedent to the Merger; (iv) the prior or contemporaneous consummation of the Public Offering, the Holdings Consent Solicitation and the Exchange Offers and the Solicitation with respect to the Old F4L Notes described herein; and (v) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment. The terms of the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture (collectively, the "Old RGC Indentures") are substantially identical. Noteholders participating in the RGC Exchange Offers will be required to consent to certain proposed amendments to the Old RGC Indentures. Such proposed amendments will modify certain terms of such indentures to permit the Merger and will eliminate substantially all the restrictive covenants in the Old RGC Indentures. The Old RGC Notes. The Old RGC 10 1/4% Notes were originally issued in July 1992, are currently outstanding in an aggregate principal amount of $300 million and will mature on July 15, 2002. The Old RGC 9% Notes were originally issued in March 1993, are currently outstanding in an aggregate principal amount of $150 million and will mature on April 1, 2003. Interest on the Old RGC 10 1/4% Notes accrues at a rate of 10 1/4% per annum and is payable semi-annually on each January 15 and July 15. Interest on the Old RGC 9% Notes accrues at a rate of 9% per annum and is payable semi-annually on each April 1 and October 1. The Old RGC 10 1/4% Notes are subject to redemption at any time on or after July 15, 1997, at the option of RGC, in whole or in part, on not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple of $1,000 at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning July 15 of the years indicated below:
REDEMPTION YEAR PRICE ---------------------------------------------------------- ---------- 1997...................................................... 105.0% 1998...................................................... 102.5% 1999 and thereafter....................................... 100.0%
in each case plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on relevant record dates to receive interest due on an interest payment date). The Old RGC 9% Notes are subject to redemption at any time on or after April 1, 2000, at the option of RGC, in whole or in part, on not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple of $1,000 at 100% of the principal amount thereof plus accrued interest to the redemption date (subject to the right of holders of record on relevant record dates to receive interest due on an interest payment date.) Standard & Poor's has publicly announced that it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline under the Old RGC Indentures. The consummation of the Merger (which is conditioned on, among other things, successful 134 144 consummation of the Other Debt Financing Transactions and the Bank Financing, which itself is conditioned upon at least 80% of the aggregate principal amount of Old RGC Notes being tendered into the RGC Exchange Offers upon receipt of the Minimum Tender) and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline would constitute a Change of Control Triggering Event under the Old RGC Indentures. Upon such a Change of Control Triggering Event the Company would be obligated to make the Change of Control Offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof ($90.9 million, assuming $90 million of Old RGC Notes are outstanding following the Merger) plus accrued and unpaid interest to the date of repurchase. The Old RGC Indentures contain certain covenants, including, but not limited to, covenants with respect to the following matters: (i) limitation on incurrence of additional indebtedness; (ii) limitation on dividends and other restricted payments; (iii) limitation on transactions with affiliates; (iv) limitation on liens securing subordinated indebtedness; (v) limitation on other senior subordinated indebtedness; (vi) limitation on preferred stock of subsidiaries; (vii) limitation on dividend and other payment restrictions affecting subsidiaries; and (viii) limitation on mergers and sales of assets. Under the Old RGC Indentures, certain events constitute an event of default including: (i) the failure to make any principal and interest payment on the Old RGC Notes when due; (ii) the failure to comply with any other agreement contained in the Old RGC Indentures or the Old RGC Notes; (iii) a default under certain indebtedness; (iv) certain final judgments or orders for payments of money; and (v) certain events occurring under bankruptcy laws. Upon the consummation of the RGC Exchange Offers, supplemental indentures to each of the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture will become effective, reflecting the proposed amendments to the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture. Such supplemental indentures will eliminate substantially all of the restrictive covenants in the Old RGC Indentures, including covenants with respect to limitation on indebtedness, limitation on restricted payments, limitation on transactions with affiliates, limitation on liens securing subordinated indebtedness, restrictions on preferred stock of subsidiaries and limitation on dividends and other payment restrictions affecting subsidiaries. In addition, the Supplemental Indentures will modify the covenants which limit the ability of RGC to consolidate or merge with, or sell all or substantially all of its assets, to any other person or entity unless certain conditions are satisfied, by eliminating the subsections thereof which require that immediately after giving effect to such transaction on a pro forma basis RGC or the surviving entity, as the case may be, has a Consolidated Interest Coverage Ratio (as defined in the Old RGC Note Indentures) for its four most recently completed fiscal quarters of at least 1.8 to 1.0. The New RGC Notes. The New RGC Notes will be issued upon consummation of the RGC Exchange Offers to tendering holders of Old RGC Notes. The New RGC Notes will bear interest at a fixed rate per annum equal to the greater of (a) 11.50% and (b) the RGC Applicable Treasury Rate (as hereinafter defined) plus 425 basis points (4.25 percentage points); provided, however, that in no event will the New RGC Notes bear interest at a rate per annum that is less than the interest rate on the New F4L Senior Notes offered pursuant to the Public Offering plus 50 basis points (0.50 percentage points). The "RGC Applicable Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by and published in the most recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the average life to stated maturity of the New RGC Notes; provided, that if the average life to stated maturity of the New RGC Notes is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of the year) from the weekly average yields of the United States Treasury securities for which such yields are given. The New RGC Notes will mature on March 1, 2005. On or after March 1, 2000, the New RGC Notes may be redeemed in whole at any time or in part from time to time, at the option of the Company, at a redemption price equal to the applicable percentage of the principal amount thereof set forth 135 145 below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12 months commencing on March 1 of the years set forth below:
REDEMPTION YEAR PRICE ---- ---------- 2000............................................ 104.3125% 2001............................................ 102.8750% 2002............................................ 101.4375% 2003 and thereafter............................. 100.0000%
In the event that the interest rate on the New RGC Notes is greater than 11.50%, the above redemption prices will be correspondingly adjusted. In addition, on or prior to March 1, 1998 the Company may, at its option, use the net cash proceeds from one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the New RGC Notes originally issued, at a redemption price equal to 111.5% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1995, 110.0625% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1996 and 108.625% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. The New RGC Note Indenture provides that if a Change of Control (as defined therein) occurs, each holder will have the right to require the Company to repurchase such holder's New RGC Notes pursuant to a Change of Control Offer (as defined therein) at 101% of the principal amount thereof plus accrued interest, if any, to the date of repurchase. The New RGC Note Indenture contains certain covenants, including, but not limited to, covenants with respect to the following matters: (i) limitation on dividends and other restricted payments; (ii) limitation on incurrences of additional indebtedness; (iii) limitation on liens; (iv) limitation on asset sales; (v) limitation on dividend and other payment restrictions affecting subsidiaries; (vi) limitation on transactions with affiliates; (vii) limitation on preferred stock of subsidiaries; (viii) limitation on mergers and certain other transactions; (ix) limitation on other senior subordinated indebtedness; and (x) limitation on guarantees of certain indebtedness. The aggregate principal amount of Old RGC Notes and New RGC Notes will be limited to $450 million at any one time outstanding. The covenants in the indenture governing the New RGC Notes will be substantially similar to the covenants in the New F4L Senior Subordinated Note Indenture. THE PUBLIC OFFERING Concurrently with the Exchange Offers, Food 4 Less is offering up to $400 million of New F4L Senior Notes pursuant to the Public Offering. The terms of the New F4L Senior Notes offered pursuant to the Public Offering will be part of the same issue as the New F4L Senior Notes issued pursuant to the F4L Senior Notes Exchange Offer. See "Description of the New F4L Notes." The consummation of the Public Offering and the Exchange Offers will occur simultaneously. It is a condition to the consummation of the Public Offering that the Exchange Offers and the RGC Exchange Offers be successfully consummated. Certain proceeds of the Public Offering are expected to be used to fund the Change of Control Offer. See "The Merger and the Financing -- Sources and Uses." DESCRIPTION OF THE NEW CREDIT FACILITY In connection with the Merger, Food 4 Less will enter into the New Credit Facility with a syndicate of financial institutions for whom Bankers Trust will act as agent. All of Food 4 Less' obligations under the New Credit Facility will be assumed by the Company immediately following the Merger. Food 4 Less has accepted a commitment letter (the "Commitment Letter") from Bankers Trust pursuant to which Bankers Trust has 136 146 agreed, subject to certain conditions, to provide the Company up to a maximum aggregate amount of $1,075.0 million of financing under the New Credit Facility. The following is a summary of the anticipated material terms and conditions of the New Credit Facility. This summary does not purport to be a complete description of the New Credit Facility and is subject to the detailed provisions of the loan agreement (the "Loan Agreement") and various related documents to be entered into in connection with the New Credit Facility. A draft copy of the Loan Agreement will be available upon request from Food 4 Less. GENERAL The New Credit Facility will provide for (i) term loans in the aggregate amount of $750 million, comprised of the $375 million Tranche A Loan, the $125 million Tranche B Loan, the $125 million Tranche C Loan, and the $125 million Tranche D Loan; and (ii) the $325 million New Revolving Facility under which working capital loans may be made and commercial or standby letters of credit in the maximum aggregate amount of up to $150 million may be issued, under which approximately $101 million of letters of credit are expected to be issued upon the closing of the Merger. Proceeds of the New Term Loans, together with proceeds from the New Equity Investment and the Public Offering will be used to fund the cash requirements for the acquisition of RSI, refinance existing bank indebtedness of Ralphs and Food 4 Less, purchase Old RGC 9% Notes and Old RGC 10 1/4% Notes, repay a portion of other indebtedness, pay holders of the Ralphs EARs and pay various fees, expenses and other costs associated with the Merger and the Financing. The New Revolving Facility will be available to provide for the working capital requirements and general corporate purposes of the Company and to issue commercial and standby letters of credit to support workers' compensation contingencies and for other corporate purposes. INTEREST RATE; FEES Borrowings under (i) the New Revolving Facility and the Tranche A Loan will bear interest at a rate equal to the Base Rate (as defined in the Loan Agreement) plus 1.25% per annum or the reserve adjusted Euro-Dollar Rate (as defined in the Loan Agreement) plus 2.50% per annum; (ii) the Tranche B Loan will bear interest at the Base Rate plus 1.75% per annum or the reserve adjusted Euro-Dollar Rate plus 3.00% per annum; (iii) the Tranche C Loan will bear interest at the Base Rate plus 2.125% per annum or the reserve adjusted Euro-Dollar Rate plus 3.375% per annum; and (iv) the Tranche D Loan will bear interest at the Base Rate plus 2.50% per annum or the reserve adjusted Euro-Dollar Rate plus 3.75% per annum, 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 Term Loans have been reduced by such amounts and if the Company meets certain financial tests. Up to $30 million of the New Revolving Facility will be available as a swingline facility and loans outstanding under the swingline facility shall bear interest at the Base Rate plus 0.75% per annum (subject to adjustment as described in the preceding sentence). After the occurrence of a default under the New Credit Facility, interest will accrue at the rate equal to the rate on loans bearing interest at the rate determined by reference to the Base Rate plus an additional 2.00% per annum. The Company will pay certain fees on the standby and the commercial letters of credit and will pay a commitment fee of 0.50% per annum on the undrawn amount of the Tranche A Loans from the closing of the Merger until the drawing or termination thereof and on the unused portions of the New Revolving Facility. The New Credit Facility will require the Company to enter into hedging agreements to limit its exposure to increases in interest rates for a period of not less than two years. The New Credit Facility may be prepaid in whole or in part without premium or penalty. AMORTIZATION; PREPAYMENTS The Tranche A Loan will mature six years after the closing of the Merger and will be subject to amortization, commencing in the fifteenth month after the closing of the Merger on a quarterly basis in aggregate annual amounts of $45 million in the second year, $75 million in the third year, $80 million in the fourth year, $85 million in the fifth year, and $90 million in the sixth year. The Tranche B Loan will mature seven years after the closing of the Merger and will be subject to amortization on a quarterly basis in aggregate annual amounts of $1.25 million for the first six years and $117.5 million in the seventh year. The Tranche C 137 147 Loan will mature eight years after the closing of the Merger and will be subject to amortization on a quarterly basis in aggregate annual amounts of $1.25 million for the first seven years and $116.25 million in the eighth year. The Tranche D Loan will mature nine years after the closing of the Merger and will be subject to amortization on a quarterly basis in aggregate annual amounts of $1.25 million for the first eight years and $115 million in the ninth year. The New Revolving Facility will mature on the same date as the Tranche A Loan. The Company will be required to reduce loans outstanding under the New Revolving Facility to $75 million for a period of not less than 30 consecutive days during each consecutive 12-month period. The Company will be required to make certain prepayments, subject to certain exceptions, on the New Credit Facility with 75% of Consolidated Excess Cash Flow (as defined in the Loan Agreement) and with the proceeds from certain asset sales, issuances of debt and equity securities and any pension plan reversion. Such prepayments will be allocated pro rata between the Tranche A Loans, Tranche B Loans, Tranche C Loans and the Tranche D Loans and to scheduled amortization payments of the Tranche A Loans, the Tranche B Loans, Tranche C Loans, and the Tranche D Loans pro rata. GUARANTEES AND COLLATERAL New Holdings and all active subsidiaries of the Company (including the Subsidiary Guarantors) will guarantee the Company's obligations under the New Credit Facility. The Company's obligations and the guarantees of its subsidiaries will be secured by substantially all personal property of the Company and its subsidiaries, including a pledge of the stock of all subsidiaries of the Company (with the exception of the stock of Bell Markets, Inc., which has been pledged to secure notes payable to the former owners thereof). New Holdings' guarantee will be secured by a pledge of the stock of the Company. The Company's obligations will also be secured by first priority liens on certain unencumbered real property fee interests of the Company and its subsidiaries and the Company and its subsidiaries will use their reasonable economic efforts to provide the lenders with a first priority lien on certain unencumbered leasehold interests of the Company and its subsidiaries. COVENANTS The obligation of the lenders under the New Credit Facility to advance funds is subject to the satisfaction of certain conditions customary in agreements of this type. In addition, the Company will be subject to certain customary affirmative and negative covenants contained in the New Credit Facility, including, without limitation, covenants that restrict, subject to specified exceptions, (i) the incurrence of additional indebtedness and other obligations, (ii) a merger or acquisition, (iii) asset sales, (iv) the granting of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in transactions with affiliates, or (vii) cash capital expenditures. Certain of these covenants may be more restrictive than those in favor of holders of the New F4L Notes as described herein and as set forth in the New F4L Indentures. In addition, the New Credit Facility will require that the Company maintain certain specified financial covenants, including a minimum fixed charge coverage, a minimum EBITDA, a maximum ratio of total debt to EBITDA and a minimum net worth. EVENTS OF DEFAULT The New Credit Facility also provides for customary events of default. The occurrence of any of such events of default could result in acceleration of the Company's obligations under the New Credit Facility and foreclosure on the collateral securing such obligations, which could have material adverse results to holders of the New F4L Notes. DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS The Seller Debentures. The Seller Debentures will be issued to the stockholders of RSI upon consummation of the Merger. The Seller Debentures will be issued in an aggregate principal amount of $100 million and will mature on a date to be determined in 2007. The Seller Debentures will be general unsecured obligations of New Holdings and will be subordinated to the prior payment when due of all Senior Indebtedness (as defined in the indenture governing the Seller Debentures (the "Debenture Indenture")). 138 148 The Seller Debentures will bear interest at a rate equal to 13.00% per annum. Interest will accrue on the Seller Debentures beginning from the date of issuance or from the most recent date to which interest has been paid and will be payable semi-annually in arrears on each interest payment date. New Holdings will have the option, in its sole discretion, to issue additional securities ("Secondary Securities") in lieu of a cash payment of any or all of the interest due for the period prior to the interest payment date five years after the date of issuance of the Seller Debentures. On or after a date to be determined in 2000, the Seller Debentures may be redeemed, at the option of New Holdings, in whole at any time or in part from time to time, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, together with accrued interest to the redemption date, if redeemed during the twelve-month period commencing on a date to be determined in the years set forth below:
REDEMPTION YEAR PRICE ------------------------------------------ ---------- 2000...................................... 106.500% 2001...................................... 104.875% 2002...................................... 103.250% 2003...................................... 101.625% 2004 and thereafter....................... 100.000%
Notwithstanding the foregoing, prior to a date to be determined in 1998, New Holdings may use the net proceeds of an Initial Public Offering (as defined in the Debenture Indenture) of New Holdings or Food 4 Less to redeem up to 35% of the Seller Debentures at a redemption price equal to 110% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. In the event of a Change of Control (as defined in the Debenture Indenture), each holder has the right to require the repurchase of such holder's Seller Debentures at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase. The Debenture Indenture will contain certain covenants that, among other things, limit the ability of New Holdings to enter into certain mergers or consolidations or incur certain liens or of New Holdings or its subsidiaries to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined in the Debenture Indenture), or engage in certain transactions with affiliates. Under certain circumstances, New Holdings will be required to make an offer to purchase Seller Debentures at a price equal to 100% of the aggregate principal amount thereof with the proceeds of certain Asset Sales (as defined in the Debenture Indenture). The Debenture Indenture will contain certain customary events of default, which will include the failure to pay interest and principal, the failure to comply with certain covenants in the Seller Debentures or the Debenture Indenture, a default under certain indebtedness, the imposition of certain final judgments or warrants of attachment and certain events occurring under bankruptcy laws. Pursuant to the terms of the Merger Agreement and a registration rights agreement to be executed concurrently with the closing of the Merger, New Holdings is obligated to file a shelf registration statement with the Commission with respect to the Seller Debentures, use its best efforts to cause such shelf registration statement to become effective and remain effective for up to three years, and pay the expenses related thereto. The effectiveness of such shelf registration statement is a condition to the consummation of the Merger. If New Holdings fails to comply with its obligations to keep such shelf registration statement effective, Holdings will be obligated to pay certain liquidated damages. The Holdings Discount Notes. The Holdings Discount Notes were issued in December 1992, are limited in aggregate principal amount to $103.6 million and will mature on December 15, 2004. The Holdings Discount Notes are unsecured general obligations of Holdings (and will become unsecured obligations of New Holdings by operation of the Reincorporation Merger) and bear interest at a rate equal to 15.25% per annum. The purchase discount on the Holdings Discount Notes accretes from the date of issuance until December 15, 1997. Interest accrues on the Holdings Discount Notes beginning December 15, 1997, or from the most recent 139 149 date to which interest has been paid, and is payable semi-annually on each June 15 and December 15, commencing on June 15, 1998. The Holdings Discount Notes are redeemable, at the option of Holdings, in whole at any time or in part from time to time, on or after December 15, 1997 at the following redemption prices (expressed as percentages of the accreted value) if redeemed during the twelve-month period commencing on December 15 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption:
REDEMPTION YEAR PRICE ------------------------------------------ ---------- 1997...................................... 107.625% 1998...................................... 106.100% 1999...................................... 104.575% 2000...................................... 103.050% 2001...................................... 101.525% 2002 and thereafter....................... 100.000%
Notwithstanding the foregoing, prior to December 15, 1997, Holdings may use the net proceeds of an Initial Public Offering (as defined in the Holdings Discount Note Indenture) of Holdings or Food 4 Less to redeem up to 25% of the Holdings Discount Notes at redemption prices equal to the sum of (i) the applicable percentage of the accreted value plus (ii) the Proportionate Share (as defined in the Holdings Discount Note Indenture) of the Holdings Discount Notes, if any to the date of redemption if redeemed during the twelve-month period beginning December 15 of the year set forth below:
REDEMPTION YEAR PRICE ------------------------------------------ ---------- 1992...................................... 120.000% 1993...................................... 117.525% 1994...................................... 115.050% 1995...................................... 112.575% 1996...................................... 110.100%
In the event of a Change of Control (as defined in the Holdings Discount Note Indenture), each holder has the right to require the repurchase of such holder's Holdings Discount Notes at a purchase price equal to 101% of the accreted value, plus either, (i) if the date of the purchase is prior to December 15, 1997, the Proportionate Share, if any, with respect to the Holdings Discount Notes to the date of purchase and (ii) if the date of the purchase is on or after December 15, 1997, the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Holdings will make a mandatory sinking fund payment on December 15, 2003, sufficient to retire 50% of the Holdings Discount Notes, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the redemption date. Holdings may, at its option, receive credit against such sinking fund payment for 100% of the principal amount of any Holdings Discount Notes previously acquired or redeemed by Holdings and surrendered to the Trustee under the Holdings Discount Note Indenture for cancellation and which were not previously used as a credit against any other required payment pursuant to the Holdings Discount Note Indenture. The Holdings Discount Note Indenture contains certain covenants that, among other things, limit the ability of Holdings to enter into certain mergers or consolidations or incur certain liens or of Holdings or its subsidiaries to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined in the Debenture Indenture), or engage in certain transactions with affiliates. Under certain circumstances, Holdings will be required to make an offer to purchase Holdings Discount Notes at a price equal to 100% of the aggregate principal amount thereof with the proceeds of certain Asset Sales (as defined in the Debenture Indenture). The Holdings Discount Note Indenture contains certain customary events of default, including the failure to pay interest and principal, the failure to comply with certain covenants in the Holdings Discount Notes or the Holdings Discount Note Indenture, a default under certain indebtedness, the 140 150 imposition of certain final judgments or warrants of attachment and certain events occurring under bankruptcy laws. Pursuant to the Holdings Consent Solicitation, Holdings is soliciting consents from, and will make a cash consent payment of $20.00 for each $1,000 principal amount of Holdings Discount Notes for which a consent is properly delivered and accepted to, holders of the Holdings Discount Notes representing at least a majority in aggregate principal amount of such notes to proposed amendments to the Holdings Discount Note Indenture to permit the consummation of the Merger and to provide appropriate operating and financial flexibility to the Company after the Merger. Following the Reincorporation Merger, New Holdings and the trustee under the Holdings Discount Note Indenture will execute a supplemental indenture assuming the obligations of Holdings thereunder. New Holdings and the trustee under the Holdings Discount Note Indenture will then execute a second supplemental indenture implementing such proposed amendments to the Holdings Discount Note Indenture after certification to such trustee that Holdings has received consents from at least a majority in aggregate principal amount of such notes. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS Latham & Watkins, counsel to Food 4 Less ("Counsel"), has advised Food 4 Less that the following discussion expresses their opinion as to the material federal income tax consequences expected to result from the Exchange Offers and the Solicitation. Such opinion is based on current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations, judicial authority and current administrative rulings and pronouncements of the Internal Revenue Service (the "Service"), any of which may be altered with retroactive effect, thereby changing the federal income tax consequences discussed below. There can be no assurance that the Service will not take a contrary view, and no ruling from the Service has been or will be sought. The tax treatment of a holder of Old F4L Notes or New F4L Notes may vary depending upon such holder's particular situation. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. This discussion is limited to those holders who have held the Old F4L Notes as "capital assets" and who will hold the New F4L Notes as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Code. EACH HOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING, HOLDING AND DISPOSING OF OLD F4L NOTES AND NEW F4L NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. EXCHANGES OF OLD F4L NOTES FOR NEW F4L NOTES AND EXCHANGE PAYMENTS GENERAL Whether the exchange of Old F4L Notes for New F4L Notes and Exchange Payments will be a recapitalization under the Code will depend in part upon whether the Old F4L Notes and New F4L Notes are considered to be "securities" within the meaning of the provisions of the Code governing reorganizations. The test as to whether a debt instrument is a "security" involves an overall evaluation of the nature of the debt instrument, with the term of the debt instrument usually regarded as a significant factor. Generally, a debt instrument with a term of ten years or more is considered to constitute a security for purposes of the reorganization provisions of the Code. Although the treatment of Old F4L Senior Notes and New F4L Senior Notes is not entirely certain because the stated term of such instruments may be less than ten years, the Old F4L Senior Notes and New F4L Senior Notes should, and the Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes will, be treated as "securities" for federal income tax purposes. As a result, an exchange of Old F4L Notes for New F4L Notes and Exchange Payments pursuant to the Exchange Offers should constitute a recapitalization for federal income tax purposes, and exchanging holders of Old F4L Notes who receive New 141 151 F4L Notes and Exchange Payments should recognize gain, but not loss, equal to the lesser of (i) the amount of cash received (other than that portion, if any, attributable to accrued but unpaid interest on the Old F4L Notes) or (ii) the excess of the sum of the issue price of the New F4L Notes (or possibly their fair market value for cash method holders) and the amount of cash (other than that portion, if any, attributable to accrued but unpaid interest on the Old F4L Notes) received over the holders' adjusted tax basis in the Old F4L Notes surrendered therefor. Such gain will be long-term capital gain if the Old F4L Notes had been held for more than one year. A holder's initial tax basis in the New F4L Notes received will equal such holder's adjusted tax basis in the Old F4L Notes exchanged therefor, increased by any gain recognized as a result of the exchange and decreased by the amount of cash received. Because the law is unclear, however, Counsel is unable to opine on whether the Old F4L Senior Notes or New F4L Senior Notes will be treated as "securities" for federal income tax purposes. If either the Old F4L Senior Notes or New F4L Senior Notes were determined not to constitute "securities" for federal income tax purposes, holders exchanging Old F4L Senior Notes for New F4L Senior Notes and the Exchange Payment would recognize gain or loss equal to the difference between the sum of the issue price of the New F4L Senior Notes (or possibly their fair market value for cash method holders) and the amount of cash received (other than that portion, if any, attributable to accrued but unpaid interest on the Old F4L Senior Notes) and the holders' adjusted tax basis on the Old F4L Senior Notes surrendered therefor. Such gain or loss would generally be long-term capital gain or loss, provided the Old F4L Senior Notes had been held for more than one year. It should be noted that restrictions apply to the deduction of net capital losses. Noncorporate taxpayers may deduct no more than $3,000 of capital losses from ordinary income and corporations may deduct capital losses only from capital gains. ACCRUED INTEREST Under the terms of the Exchange Offers, accrued interest on tendered Old F4L Notes up to, but not including, the date on which such Old F4L Notes are accepted for exchange will be paid in cash promptly after consummation of the Exchange Offers. CONSEQUENCES TO HOLDERS OF OLD F4L NOTES NOT PARTICIPATING IN THE EXCHANGE OFFERS Although not free from doubt, holders of Old F4L Notes who do not participate in the Exchange Offers should not recognize any income, gain or loss for federal income tax purposes as a result of the Proposed Amendments. Because the law is unclear however, Counsel is unable to opine on whether holders of Old F4L Notes who do not participate in the Exchange Offers will recognize any such income, gain or loss. The Service could assert that, due to the adoption of the Proposed Amendments, such non-participating holders should be treated as having exchanged their Old F4L Notes for modified Old F4L Notes ("Modified Old F4L Notes"). The deemed exchange should, however, constitute a recapitalization and non-participating holders would not recognize any gain or loss as a result of such deemed exchange. Modified Old F4L Notes may be considered to be issued with original issue discount if the Old F4L Notes were treated as "traded on an established securities market" or, in certain circumstances, in the case of a "potentially-abusive situation." See "-- New F4L Notes -- Original Issue Discount." NEW F4L NOTES STATED INTEREST Holders of New F4L Notes will be required to include stated interest in gross income in accordance with their methods of accounting for tax purposes. ORIGINAL ISSUE DISCOUNT General Original Issue Discount Rules. The amount of original issue discount, if any, on a debt instrument is the excess of its "stated redemption price at maturity" over its "issue price," subject to a statutorily-defined de minimis exception. The "issue price" of a debt instrument that is part of an issue of debt instruments a substantial amount of which is issued for money (such as the New F4L Senior Notes) will be 142 152 equal to the first price at which a substantial amount of such debt instruments is sold for money. The "issue price" of a debt instrument that is not part of an issue of debt instruments a substantial amount of which is issued for money but is issued in exchange for another debt instrument (such as the New F4L Senior Subordinated Notes) depends on whether either debt instrument is treated as "traded on an established securities market." If neither is so traded, the issue price of the debt instrument received will be equal to its stated principal amount, assuming the debt instrument provides for "adequate stated interest" (i.e., interest at least at the applicable federal rate), and will be equal to its "imputed principal amount" (the sum of the present values of all payments due under the debt instrument, using a discount rate equal to the applicable federal rate) if either the debt instrument does not provide for "adequate stated interest" or in the case of a "potentially abusive situation" (including certain recent sales transactions). If the debt instrument received is "traded on an established securities market," then its issue price will be its trading price immediately following issuance. If the exchanged debt instrument is so traded (but the debt instrument received in exchange therefor is not), the issue price of the debt instrument received will generally be equal to the fair market value of the debt instrument exchanged therefor. The "stated redemption price at maturity" of a debt instrument is the sum of its principal amount plus all other payments required thereunder, other than payments of "qualified stated interest" (defined generally as stated interest that is unconditionally payable in cash or in property (other than debt instruments of the issuer) at least annually at a single fixed rate that appropriately takes into account the length of intervals between payments). In general, a holder of a debt instrument with original issue discount must include in gross income for federal income tax purposes the sum of the daily portions of original issue discount with respect to such debt instrument for each day during the taxable year or portion of a taxable year on which such holder holds the debt instrument. The daily portion is determined by allocating to each day of any accrual period (generally, a six month period or a shorter or longer period from the date of original issuance) a pro rata portion of an amount equal to the "adjusted issue price" of the debt instrument at the beginning of the accrual period multiplied by the yield to maturity of the debt instrument. The "adjusted issue price" is the issue price of the debt instrument increased by the accrued original issue discount for all prior accrual periods (and decreased by the amount of cash payments made in all prior accrual periods, other than qualified stated interest payments). The tax basis of the debt instrument in the hands of the holder will be increased by the amount of original issue discount, if any, on the debt instrument that is included in the holder's gross income and will be decreased by the amount of any cash payments (other than qualified stated interest payments) received with respect to the debt instrument, whether such payments are denominated as principal or interest. Sections 1272 and 1273 of the Code and the Treasury regulations thereunder provide detailed rules for computing original issue discount. Notwithstanding the original issue discount rules described in the preceding paragraphs, a holder of a debt instrument would not be required to include original issue discount in income if such holder's tax basis in the debt instrument were to exceed the debt instrument's stated principal amount. In addition, a holder would be permitted to offset any original issue discount income by an amount equal to the excess of such holder's tax basis (if less than or equal to the stated principal amount) over the adjusted issue price of the debt instrument. New F4L Senior Notes. Because the New F4L Senior Notes will be part of an issue a substantial amount of which will be sold in the Public Offering for money, the issue price of the New F4L Senior Notes received by holders in exchange for their Old F4L Senior Notes should be equal to the first price at which a substantial amount of the New F4L Senior Notes is sold pursuant to the Public Offering. The stated redemption price at maturity of the New F4L Senior Notes will be equal to their stated principal amount (in that all interest will be paid on a current basis in cash). As a result, the New F4L Senior Notes will not be issued with original issue discount unless the first price at which the New F4L Senior Notes are sold pursuant to the Public Offering is less than the stated principal amount of the New F4L Senior Notes by more than the de minimis amount. New F4L Senior Subordinated Notes. If neither the Old F4L Senior Subordinated Notes nor the New F4L Senior Subordinated Notes were treated as "traded on an established securities market," the issue price of the New F4L Senior Subordinated Notes would be equal to their stated principal amount (except in the case of a "potentially abusive situation," as discussed above) and, because the stated redemption price at 143 153 maturity of the New F4L Senior Subordinated Notes would also be equal to their stated principal amount (in that all interest will be paid on a current basis in cash), the New F4L Senior Subordinated Notes would generally not be issued with original issue discount. If the New F4L Senior Subordinated Notes were considered to be "traded on an established securities market," their issue price would be their trading price immediately following their issuance. If the Old F4L Senior Subordinated Notes, but not the New F4L Senior Subordinated Notes, were considered to be so traded, then the issue price of the New F4L Senior Subordinated Notes received would be equal to the fair market value of the Old F4L Senior Subordinated Notes exchanged therefor. In either event, if such trading price or fair market value were less than the stated principal amount of the New F4L Senior Subordinated Notes by more than the de minimis amount, holders of New F4L Senior Subordinated Notes would be required to include original issue discount in income. MARKET DISCOUNT The Code generally requires holders of "market discount bonds" to treat as ordinary income any gain realized on the disposition (or gift) of such bonds to the extent of the market discount accrued during the holder's period of ownership. A "market discount bond" is a debt obligation purchased at a market discount subject to a statutory de minimis exception. For this purpose, a purchase at a market discount includes a purchase at or after the original issue at a price below the stated redemption price at maturity, or, in the case of a debt instrument issued with original issue discount, at a price below (a) its "issue price," plus (b) the amount of original issue discount includible in income by all prior holders of the debt instrument, minus (c) all cash payments (other than payments constituting qualified stated interest) received by such previous holders. The accrued market discount generally equals a ratable portion of the bond's market discount, based on the number of days the taxpayer has held the bond at the time of such disposition, as a percentage of the number of days from the date the taxpayer acquired the bond to its date of maturity. An exception is made for certain tax-free (and partially tax-free) exchanges, such as the exchange of Old F4L Notes for New F4L Notes and Exchange Payments. In such cases, however, on a subsequent disposition of the stock or securities received in such a non-recognition transaction, gain is treated as ordinary income to the extent of the market discount accrued prior to the nontaxable exchange. In that regard, the New F4L Notes received by a holder of Old F4L Notes will contain accrued market discount to the extent of the market discount accrued in the Old F4L Notes but not recognized at the time of the exchange. AMORTIZABLE BOND PREMIUM Generally, if the tax basis of an obligation held as a capital asset exceeds the amount payable at maturity of the obligation, such excess will constitute amortizable bond premium that the holder may elect to amortize under the constant interest rate method and deduct over the period from his acquisition date to the obligation's maturity date. A holder who elects to amortize bond premium must reduce his tax basis in the related obligation by the amount of the aggregate deductions allowable for amortizable bond premium. Amortizable bond premium will be treated under the Code as an offset to interest income on the related debt instrument for federal income tax purposes, subject to the promulgation of Treasury regulations altering such treatment. DISPOSITION In general, a holder of New F4L Notes will recognize gain or loss upon the sale, exchange, redemption or other taxable disposition of such New F4L Notes measured by the difference between (i) the amount of cash and the fair market value of property received (except to the extent attributable to accrued interest on the New F4L Notes) and (ii) the holder's tax basis in the New F4L Notes (as increased by any original issue discount and market discount previously included in income by the holder and decreased by any amortizable bond premium, if any, deducted over the term of the New F4L Notes). Subject to the market discount rules discussed above, any such gain or loss will generally be long-term capital gain or loss, provided the New F4L Notes had been held for more than one year. 144 154 ELECTION A holder of New F4L Notes, subject to certain limitations, may elect to include all interest and discount, if any, on the New F4L Notes in gross income under the constant yield method. For this purpose, interest includes stated and unstated interest, acquisition discount, original issue discount, de minimis market discount and market discount, as adjusted by any acquisition premium. Such election, if made in respect of a market discount bond, will constitute an election to include market discount in income currently on all market discount bonds acquired by such holder on or after the first day of the first taxable year to which the election applies. See "-- Market Discount." BACKUP WITHHOLDING A holder of New F4L Notes may be subject to backup withholding at the rate of 31% with respect to interest paid on and gross proceeds from a sale of the New F4L Notes unless (i) such holder is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (ii) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A holder of New F4L Notes who does not provide the Company with his or her correct taxpayer identification number may be subject to penalties imposed by the Service. The Company will report to the holders of the New F4L Notes and the Service the amount of any "reportable payments" (including any interest paid on the New F4L Notes) and any amount withheld with respect to the New F4L Notes during the calendar year. TAX CONSEQUENCES TO THE COMPANY EXCHANGE OFFERS AND SOLICITATION In general, the consummation of the Exchange Offers and the Solicitation will result in no material federal income tax consequences to the Company, except that the Company will recognize cancellation of indebtedness income to the extent that the adjusted issue price of the Old F4L Notes surrendered by holders exceeds the sum of (i) the issue price of the New F4L Notes (as described above under "New F4L Notes -- Original Issue Discount") and (ii) the amount of the Exchange Payments delivered to holders in exchange therefor. The Company does not expect to recognize any cancellation of indebtedness income as a result of the consummation of the Exchange Offers and the Solicitation, although no assurance can be given in this regard due to the uncertainty regarding the issue price of the New F4L Notes (see "New F4L Notes -- Original Issue Discount"). NET OPERATING LOSS CARRYFORWARDS Under Section 382 of the Code, if a corporation with net operating losses (a "loss corporation") undergoes an "ownership change," the use of such net operating losses will be limited annually to the product of the long-term tax exempt rate (published monthly by the Service) and the value of the loss corporation's outstanding stock immediately before the ownership change (excluding certain capital contributions) (the "Section 382 Limitation"). In general, an "ownership change" occurs if the percentage of the value of the loss corporation's stock owned by one or more direct or indirect "five percent shareholders" has increased by more than 50 percentage points over the lowest percentage of that value owned by such five percent shareholder or shareholders at any time during the applicable "testing period" (generally the shorter of (i) the three-year period preceding the testing date or (ii) the period of time since the most recent ownership change of the corporation). Both FFL and RSI have significant net operating loss carryforwards for regular federal income tax purposes. The New Equity Investment and Merger will trigger ownership changes for both the FFL and RSI affiliate groups for purposes of Section 382 of the Code. As a result, the use of the FFL and RSI pre- ownership change net operating loss carryforwards will be limited annually by the Section 382 Limitation. The annual Section 382 Limitation that will be applicable to the FFL net operating loss carryforwards is estimated 145 155 to be approximately $15.6 million, and the annual Section 382 Limitation that will be applicable to the RSI net operating loss carryforwards is estimated to be approximately $15 million. THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF OLD F4L NOTES AND NEW F4L NOTES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF OLD F4L NOTES AND NEW F4L NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OFFERS AND THE SOLICITATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. LEGAL MATTERS The validity of the New F4L Senior Notes and the New F4L Senior Subordinated Notes to be issued in connection with the Exchange Offers and the Solicitation will be passed upon for Food 4 Less by Latham & Watkins, Los Angeles, California. Certain legal matters in connection with the Exchange Offers and the Solicitation will be passed upon for the Dealer Managers by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York. EXPERTS The consolidated balance sheets of Ralphs Supermarkets, Inc. as of January 31, 1993 and January 30, 1994, and the related consolidated statements of operations, cash flows and stockholders' equity for the year ended January 31, 1993, the year ended January 30, 1994, and the statements of operations, cash flows and stockholders' equity of Ralphs Grocery Company for the year ended February 2, 1992 have been included in this Prospectus and Solicitation Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated balance sheets and schedules of Food 4 Less Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25, 1994, and the related consolidated statements of operations, cash flows and stockholders' equity of Food 4 Less Supermarkets, Inc. for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993 and the 52 weeks ended June 25, 1994, and the related financial statement schedules, included in this Prospectus and Solicitation Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 146 156 INDEX TO FINANCIAL STATEMENTS
PAGE ----- RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY): Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-2 Consolidated balance sheets at January 31, 1993, January 30, 1994 and October 9, 1994 (unaudited)......................................................................... F-3 Consolidated statements of operations for the years ended February 2, 1992, January 31, 1993 and January 30, 1994 and the 36 weeks ended October 10, 1993 (unaudited) and October 9, 1994 (unaudited)..................................................... F-4 Consolidated statements of cash flows for the years ended February 2, 1992, January 31, 1993 and January 30, 1994 and the 36 weeks ended October 10, 1993 (unaudited) and October 9, 1994 (unaudited)..................................................... F-5 Consolidated statements of stockholders' equity for the years ended February 2, 1992, January 31, 1993 and January 30, 1994 and the 36 weeks ended October 9, 1994 (unaudited)......................................................................... F-6 Notes to consolidated financial statements............................................ F-7 FOOD 4 LESS SUPERMARKETS, INC.: Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-27 Consolidated balance sheets as of June 26, 1993, June 25, 1994 and September 17, 1994 (unaudited)......................................................................... F-28 Consolidated statements of operations for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 12 weeks ended September 18, 1993 (unaudited) and September 17, 1994 (unaudited)...................................................... F-30 Consolidated statements of cash flows for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 12 weeks ended September 18, 1993 (unaudited) and September 17, 1994 (unaudited)...................................................... F-31 Consolidated statements of stockholder's equity for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 12 weeks ended September 17, 1994 (unaudited)......................................................................... F-33 Notes to consolidated financial statements............................................ F-34
F-1 157 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 31, 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended and the statements of operations, stockholders' equity and cash flows of Ralphs Grocery Company for the year ended February 2, 1992. 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 31, 1993, and the results of their operations and their cash flows for the years then ended and the results of operations and cash flows of Ralphs Grocery Company for the year ended February 2, 1992, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Los Angeles, California April 8, 1994 (except as to Note 16, which is as of September 14, 1994) F-2 158 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
JANUARY 31, JANUARY 30, OCTOBER 9, 1993 1994 1994 ----------- ----------- ----------- (UNAUDITED) Current Assets: Cash and cash equivalents............................ $ 46,192 $ 55,080 $ 33,305 Accounts receivable.................................. 19,117 30,420 45,182 Inventories.......................................... 207,023 202,354 217,186 Prepaid expenses and other current assets............ 16,543 18,111 18,321 ---------- ---------- ---------- Total current assets......................... 288,875 305,965 313,994 Property, plant and equipment, net................... 610,665 601,897 611,642 Excess of cost over net assets acquired, net......... 387,410 376,414 368,801 Beneficial lease rights, net......................... 60,757 55,553 50,733 Deferred debt issuance costs, net.................... 27,999 26,583 22,568 Deferred income taxes................................ -- 109,125 113,639 Other assets......................................... 12,792 8,113 9,985 ---------- ---------- ---------- Total assets................................. $1,388,498 $1,483,650 $1,491,362 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt................. $ 66,465 $ 70,975 $ 79,865 Short-term debt...................................... 31,100 -- 37,400 Bank overdrafts...................................... 37,061 37,716 35,784 Accounts payable..................................... 120,709 138,554 141,775 Accrued expenses..................................... 127,788 101,543 109,273 Current portion of self-insurance reserves........... 27,732 30,138 28,209 ---------- ---------- ---------- Total current liabilities.................... 410,855 378,926 432,306 Long-term debt....................................... 932,226 927,909 883,377 Self-insurance reserves.............................. 45,247 49,872 46,025 Lease valuation reserve.............................. 35,941 32,575 30,096 Other non-current liabilities........................ 97,526 89,299 84,593 ---------- ---------- ---------- Total liabilities............................ 1,521,795 1,478,581 1,476,397 ---------- ---------- ---------- Stockholders' equity (deficit): Common stock, $.01 par value per share Authorized 50,000,000 shares; issued and outstanding, 25,587,280 shares at January 31, 1993, January 30, 1994 and October 9, 1994.......................... 256 256 256 Additional paid-in capital........................... 175,292 175,292 175,292 Accumulated deficit.................................. (308,845) (170,479) (160,583) ---------- ---------- ---------- Total stockholders' equity (deficit)......... (133,297) 5,069 14,965 ---------- ---------- ---------- Commitments and contingencies (See Notes 2 and 8) Total liabilities and stockholders' equity (deficit).................................. $1,388,498 $1,483,650 $1,491,362 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-3 159 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
THIRTY-SIX THIRTY-SIX YEAR ENDED YEAR ENDED YEAR ENDED WEEKS ENDED WEEKS ENDED FEBRUARY 2, 1992 JANUARY 31, 1993 JANUARY 30, 1994 OCTOBER 10, 1993 OCTOBER 9, 1994 ------------------ ------------------ ------------------ ------------------ ------------------ (UNAUDITED) Sales................ $2,889,222 100.0% $2,843,816 100.0% $2,730,157 100.0% $1,874,222 100.0% $1,856,341 100.0% Cost of sales........ 2,275,237 78.8 2,217,197 78.0 2,093,727 76.7 1,445,171 77.1 1,433,008 77.2 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Gross profit....... 613,985 21.2 626,619 22.0 636,430 23.3 429,051 22.9 423,333 22.8 Selling, general and administrative expenses......... 456,602 15.8 466,737 16.4 467,630 17.1 319,417 17.1 316,045 17.0 Provision for equity appreciation rights........... 18,321 0.6 -- -- -- -- -- -- -- -- Amortization of excess cost over net assets acquired......... 10,996 0.4 10,997 0.4 10,996 0.4 7,614 0.4 7,613 0.4 Provision for restructuring.... -- -- 7,100 0.2 2,374 0.1 -- -- -- -- Provision for post retirement benefits other than pensions.... 2,627 0.1 3,275 0.1 3,370 0.1 2,079 0.1 1,821 0.1 Provision for tax indemnification payments to Federated Department Stores, Inc...... 10,000 0.3 -- -- -- -- -- -- -- -- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Operating income... 115,439 4.0 138,510 4.9 152,060 5.6 99,941 5.3 97,854 5.3 Other expenses: Interest expense, net.............. 130,206 4.5 125,611 4.4 108,755 4.0 75,748 4.0 77,162 4.2 Loss on disposal of assets........... 12,967 0.5 2,607 0.1 1,940 0.1 422 -- 796 -- Provision for legal settlement....... -- -- 7,500 0.3 -- -- -- -- -- -- Provision for earthquake losses........... -- -- -- -- 11,048 0.4 -- -- -- -- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Earnings (loss) before income taxes and extraordinary item............... (27,734) (1.0) 2,792 0.1 30,317 1.1 23,771 1.3 19,896 1.1 Income tax expense (benefit).......... 13,506 0.4 8,346 0.3 (108,049) (4.0) -- -- -- -- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Earnings (loss) before extraordinary item............... (41,240) (1.4) (5,554) (0.2) 138,366 5.1 23,771 1.3 19,896 1.1 Extraordinary item-debt refinancing, net of tax benefit $4,173............. -- -- (70,538) (2.5) -- -- -- -- -- -- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Net earnings (loss)............. $ (41,240) (1.4)% $ (76,092) (2.7)% $ 138,366 5.1% $ 23,771 1.3% $ 19,896 1.1% ========== ===== ========== ===== ========== ===== ========== ===== ========== =====
See accompanying notes to consolidated financial statements. F-4 160 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR END YEAR END THIRTY-SIX THIRTY-SIX YEAR END JANUARY JANUARY WEEKS ENDED WEEKS ENDED FEBRUARY 2, 31, 30, OCTOBER 10, OCTOBER 9, 1992 1993 1994 1993 1994 ----------- --------- --------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net earnings (loss)........................... $ (41,240) $ (76,092) $ 138,366 $ 23,771 $ 19,896 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization............... 76,552 76,873 74,452 51,704 51,929 Amortization of discounts and deferred debt issuance costs............................ 8,564 20,978 9,768 6,715 6,322 LIFO charge (credit)........................ 2,829 1,115 (2,054) 2,615 1,897 Loss on sale of assets...................... 12,967 6,841 4,314 422 796 Provision for equity appreciation rights.... 18,321 -- -- -- -- Provision for post-retirement benefits...... 2,627 3,275 3,370 2,079 1,821 Provision for tax indemnification payments to Federated Department Stores, Inc. ..... 10,000 -- -- -- -- Provision for legal settlement.............. -- 7,500 -- -- -- Other changes in assets and liabilities: Accounts receivable........................... 20,660 6,376 326 (7) (14,763) Inventories at replacement cost............... (21,523) (13,682) 6,724 6,058 (16,728) Prepaid expenses and other current assets..... (4,446) 3,703 (1,658) 1,915 (210) Other assets.................................. 2,133 (616) 4,449 2,353 (1,993) Interest payable.............................. (1,448) (13,393) (4,822) (4,226) (11,089) Accounts payable and accrued liabilities...... 1,606 23,054 (1,622) (771) 23,579 Income taxes payable.......................... 822 (527) (1,480) -- -- Deferred tax asset............................ -- -- (109,125) -- (4,514) Business interruption credit.................. -- -- (581) -- -- Earthquake losses............................. -- -- (11,048) -- -- Self insurance reserves....................... 6,575 8,456 7,031 3,860 (5,776) Other liabilities............................. 1,095 (170) (12,407) (6,957) (7,635) ----------- --------- --------- ----------- ----------- Cash provided by operating activities......... 96,094 53,691 104,003 89,531 43,532 ----------- --------- --------- ----------- ----------- Cash flows from investing activities: Capital expenditures.......................... (50,355) (102,697) (62,181) (46,827) (44,544) Proceeds from sale of property, plant and equipment................................... 8,498 219 16,700 2,968 6,362 ----------- --------- --------- ----------- ----------- Cash used in investing activities............. (41,857) (102,478) (45,481) (43,859) (38,182) ----------- --------- --------- ----------- ----------- Cash flows from financing activities: Net borrowings under lines of credit.......... 29,000 2,100 (31,100) (31,100) 37,400 Redemption of preferred stock................. -- (3,000) -- -- -- Capitalized financing and acquisition costs... (573) (22,426) (5,108) (5,717) (246) Increase (decrease) in bank overdrafts........ (7,193) (8,865) 655 (751) (1,932) Proceeds from issuance of long-term debt...... 2,000 668,269 150,000 150,000 -- Dividends paid................................ -- -- -- -- (10,000) Principal payments on long-term debt.......... (75,361) (577,902) (164,081) (157,963) (52,347) ----------- --------- --------- ----------- ----------- Cash provided by (used in) financing activities.................................. (52,127) 58,176 (49,634) (45,531) (27,125) ----------- --------- --------- ----------- ----------- Net increase (decrease) in cash and cash equivalents................................... 2,110 9,389 8,888 141 (21,775) Cash and cash equivalents at beginning of period........................................ 34,693 36,803 46,192 46,192 55,080 ----------- --------- --------- ----------- ----------- Cash and cash equivalents at end of period...... $ 36,803 $ 46,192 $ 55,080 $ 46,333 $ 33,305 ========== ========== ========== ============ ============
See accompanying notes to consolidated financial statements. F-5 161 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 3, 1991...................... -- $ -- 100 $ -- $175,548 $(191,513) $(15,965) Net Loss.................. -- -- -- -- -- (41,240) (41,240) ---------- ---- --- ---- -------- --------- -------- 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 (unaudited)............ -- -- -- -- -- 19,896 19,896 Dividends Paid (unaudited)............ -- -- -- -- -- (10,000) (10,000) ---------- ---- --- ---- -------- --------- -------- BALANCES AT OCTOBER 9, 1994 (unaudited)............... 25,587,280 $256 -- $ -- $175,292 $(160,583) $ 14,965 ========== ==== === ==== ======== ========= ========
See accompanying notes to consolidated financial statements. F-6 162 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION At February 2, 1992, Ralphs Grocery Company was an indirect wholly owned subsidiary of Federated Stores, Inc. ("Federated"). Two wholly owned subsidiaries of Federated, Federated Holdings III, Inc. ("Holdings III") and Allied Stores Corporation ("Allied") directly owned the common stock of Ralphs Grocery Company approximately 84% and 16% respectively. In January 1990 Holdings III and Allied, and certain other subsidiaries of Federated, each filed petitions for relief under Chapter 11, Title 11 of the United States Code ("Chapter 11"). In March 1990, Federated filed a petition for relief under Chapter 11. Pursuant to the plans of reorganization for Federated and certain of its subsidiaries, Ralphs Supermarkets, Inc. was formed to hold the outstanding shares of common stock of Ralphs Grocery Company. On February 3, 1992, Holdings III and Allied contributed their shares of Ralphs Grocery Company to Ralphs Supermarkets, Inc. in exchange for the issuance by Ralphs Supermarkets, Inc. of Ralphs Supermarkets, Inc. shares in the same proportion in Ralphs Grocery Company shares were owned ("Internal Reorganization"). For financial reporting purposes, this transaction was recorded at predecessor cost. For Federal tax purposes, a new basis was established at Ralphs Supermarket, Inc. as more fully described in Note 11. Under the plans of reorganization for Federated, Holdings III and certain other subsidiaries of Federated (the "FSI Plan"), all Ralphs Supermarkets, Inc. shares of common stock held by Holdings III were to be distributed to certain creditors of Federated and Holdings III, including The Edward J. DeBartolo Corporation ("EJDC"), Bank of Montreal ("BMO"), Banque Paribas ("BP") and Camdev Properties Inc. ("Camdev"), and Federated. The FSI Plan was confirmed by the Bankruptcy Court in January 1992 and was consummated on February 3, 1992. Under the plan of reorganization of Allied and certain affiliates including Federated Department Stores, Inc. (the "Allied-Federated Plan"), a portion of Allied's Holding Company shares were to be distributed to BMO and BP. The Allied-Federated Plan was confirmed by the Bankruptcy Court in January 1992 and was consummated shortly after the FSI Plan. Thus, following consummation of both the FSI Plan and the Allied-Federated Plan and the transfer on July 19, 1993 of the shares of common stock in Ralphs Supermarkets, Inc. held by Federated Stores, Inc. to Camdev. The approximate ownership of Ralphs Supermarkets, Inc. is as follows:
APPROXIMATE PERCENT OWNERSHIP OF RALPHS SUPERMARKETS, INC. COMMON STOCK AS OF JULY 19, 1993 ------------------- EJDC................................................ 60.4% BMO................................................. 10.1% BP.................................................. 10.1% Camdev.............................................. 12.8% Federated Department Stores, Inc. (as successor by merger to Allied)................................. 6.6%
Pursuant to certain agreements entered into contemporaneously with the effectiveness of the FSI Plan and the Allied-Federated Plan, certain income tax liabilities of Ralphs Grocery Company, Federated, Allied, Federated Department Stores, Inc. and other affiliates have been settled with the Internal Revenue Service. In addition, Ralphs Grocery Company and certain affiliates including Federated Department Stores, Inc., Allied and Federated (the "Affiliated Group") entered into an agreement (the "Tax Indemnity Agreement") pursuant to which Federated Department Stores, Inc. agreed to pay certain tax liabilities, if any, relating to Ralphs Grocery Company being a member of the Affiliated Group. The Tax Indemnity Agreement provides a formula to determine the amount of additional tax liabilities through February 3, 1992 that Ralphs Grocery F-7 163 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 30, 1994 and January 31, 1993 and the results of their operations and their cash flows for the two years then ended. In addition, these consolidated financial statements present the results of operations and cash flows of Ralphs Grocery Company for the year ended February 2, 1992. 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". The interim consolidated financial statements included herein have been prepared by Ralphs (the "Company") without audit, pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the "Commission"). Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have been omitted pursuant to Commission rules and regulations; nevertheless, Ralphs believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in Ralphs Grocery Company's latest annual report filed on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of Ralphs with respect to the interim financial statements, and of the results of Ralphs' operations for the thirty-six weeks ended October 9, 1994 and cash flows for the thirty-six weeks ended October 9, 1994 and the results of Ralphs' operations for the thirty-six weeks ended October 10, 1993 and cash flows for the thirty-six weeks ended October 10, 1993, F-8 164 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) have been included. The results of operations for the interim periods are not necessarily indicative of the results for the full year. (b) Reporting Period Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal year-ends are as follows: February 2, 1992 (Fiscal 1991) January 31, 1993 (Fiscal 1992) January 30, 1994 (Fiscal 1993) (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. (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 $15.535 million and $17.589 million at January 30, 1994 and January 31, 1993, respectively. (e) Property, Plant and Equipment Property, plant and equipment are stated at cost. Property and equipment held under capital leases are stated at the present value of the minimum lease payments at the inception of the lease. Depreciation of plant and equipment is calculated using the straight-line method over the estimated useful lives of assets. Plant and equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Useful lives range from 10 to 40 years for buildings and improvements and 3 to 20 years for fixtures and equipment. Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. Interest cost capitalized during fiscal 1991, 1992 and 1993 was $.510 million, $1.074 million, and $.740 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. F-9 165 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (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 $52.4 million and $63.4 million at January 31, 1993 and January 30, 1994, respectively. (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. F-10 166 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (m) Postretirement Medical Benefits Effective for the fiscal year ended February 3, 1991, Ralphs adopted SFAS 106, "Employers' Accounting for Postretirement Benefits other Than Pensions", which requires that the cost of postretirement benefits other than pensions be recognized in the financial statements over an employee's service with Ralphs. (n) Reclassification Certain amounts in the accompanying financial statements have been reclassified to conform to the current year's presentation. (o) 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. (p) 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. (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. (3) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is summarized as follows:
JANUARY 31, JANUARY 30, 1993 1994 ----------- ----------- (DOLLARS IN THOUSANDS) Land................................................. $ 156,487 $ 159,904 Buildings and improvements........................... 180,639 191,179 Leasehold improvements............................... 149,273 161,341 Fixtures and equipment............................... 349,697 354,626 Capital leases....................................... 69,058 86,964 ---------- ---------- 905,154 954,014 Less: Accumulated depreciation....................... (266,127) (312,746) Less: Accumulated capital lease amortization......... (28,362) (39,371) ---------- ---------- Property, plant and equipment, net................... $ 610,665 $ 601,897 ========== ==========
F-11 167 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) ACCRUED EXPENSES Accrued expenses are summarized as follows:
JANUARY 31, JANUARY 30, 1993 1994 ----------- ----------- (DOLLARS IN THOUSANDS) Accrued wages, vacation and sick leave............... $ 38,238 $ 34,763 Taxes other than income tax.......................... 13,285 11,084 Interest............................................. 15,912 11,090 Other................................................ 60,353 44,606 ----------- ----------- $ 127,788 $ 101,543 ========= =========
(5) LONG-TERM DEBT Long-term debt is summarized as follows:
JANUARY 31, JANUARY 30, 1993 1994 ----------- ----------- (DOLLARS IN THOUSANDS) First mortgage notes payable in monthly installments, commencing June 1, 1994 of $1,553,000 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 $190.8 million............................................ $ 178,482 $ 178,013 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 $30.0 million............................................ 17,920 9,721 Capitalized lease obligations at interest rates ranging from 7.25% to 14% maturing at various dates through 2009 (note 6).............................. 54,181 61,150 Note payable to bank................................. 350,000 300,000 Senior Subordinated Debentures, 14% due 2000......... 98,108 -- Initial Notes and Exchange Notes, 9% due 2003........ -- 150,000 Senior Subordinated Debentures, 10 1/4%, due 2002.... 300,000 300,000 ----------- ----------- Total long-term debt................................. 998,691 998,884 Less current maturities.............................. (66,465) (70,975) ----------- ----------- Long-term debt....................................... $ 932,226 $ 927,909 ========= =========
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 F-12 168 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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 30, 1994, interest rates under these borrowings ranged from 5.9375% to 7.75%. 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 30, 1994, $51.1 million of letters of credit were outstanding, with $68.9 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 ---------- ------------- 1991........................................ 11.87% 11.52% 1992........................................ 10.52% 10.22% 1993........................................ 8.96% 8.96%
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. F-13 169 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 aggregate maturities on long-term debt for each of the five years subsequent to fiscal 1993 are as follows:
(DOLLARS IN THOUSANDS) ------------ 1994...................................................... $ 70,975 1995...................................................... 81,572 1996...................................................... 83,756 1997...................................................... 81,716 1998...................................................... 50,406 1999 and thereafter....................................... 630,459 -------- $998,884 ========
The fair value of each class of financial instruments (where practical) is as follows in (000s): Long-term debt........................................... $1,014,634 Interest rate swap agreement............................. $ 1,153 Interest rate cap agreement.............................. $ (19)
(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. F-14 170 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Minimum rental payments due under capital leases and operating leases subsequent to fiscal 1993 are as follows:
CAPITAL OPERATING LEASES LEASES TOTAL -------- -------- -------- (DOLLARS IN THOUSANDS) 1994............................................... $ 17,043 $ 57,264 $ 74,307 1995............................................... 15,172 55,424 70,596 1996............................................... 12,381 53,998 66,379 1997............................................... 11,607 51,124 62,731 1998............................................... 9,286 47,211 56,497 1999 and thereafter................................ 18,247 321,149 339,396 -------- -------- -------- Total minimum lease payments....................... $ 83,736 $586,170 $669,906 ======== ======== Less amounts representing interest................. (22,586) -------- Present value of net minimum lease payments........ 61,150 Less current portion of lease obligations.......... (11,052) -------- Long-term capital lease obligations................ $ 50,098 ========
Total rent expense is summarized as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED FEBRUARY 2, JANUARY 31, JANUARY 30, 1992 1993 1994 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Capital Leases Contingent rental............................... $ 2,358 $ 2,443 $ 2,241 Rentals from subleases.......................... (2,133) (2,144) (2,048) Operating Leases Minimum rentals................................. 42,156 49,001 54,965 Contingent rentals.............................. 4,081 5,058 3,645 Rentals from subleases.......................... (1,057) (1,123) (1,150) ----------- ----------- ----------- $45,405 $53,235 $57,653 ======== ======== ========
(7) SELF-INSURANCE Ralphs is a qualified self-insurer in the State of California for worker's compensation and for automobile liability. For fiscal 1991, 1992 and 1993 self insurance loss provisions amounted to (in thousands) $25,549, $25,950 and $30,323, 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. Ralphs' historical self-insurance liability for the previous three fiscal years is as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED FEBRUARY 2, JANUARY 30, JANUARY 30, 1992 1993 1994 ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Self-insurance liability......................... $ 82,757 $ 88,987 $ 97,864 Less: Discount................................... (18,234) (16,008) (17,854) ------------ ------------ ------------ Net self-insurance liability..................... $ 64,523 $ 72,979 $ 80,010 ========= ========= =========
F-15 171 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company expects that cash payments for claims will aggregate approximately $28 million (unaudited) in fiscal year 1995, $19 million (unaudited) in fiscal year 1996, $13 million (unaudited) in fiscal year 1997, $8 million (unaudited) in fiscal year 1998 and $7 million (unaudited) in fiscal year 1999 and thereafter. (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 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. Ralphs intends to vigorously pursue its defense in these actions. 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 $4,949,084 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 judgement. 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's Atwater property. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where Ralphs' Atwater property is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, because of regional groundwater contamination. On June 18, 1991, the EPA made its own request for information concerning the Atwater property. Since that time, the Regional Board has requested further investigations by Ralphs. Ralphs has conducted the requested investigations and has reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order with the EPA to investigate contaminated groundwater beneath an area which includes the Atwater property. Ralphs is not a party to that Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on Ralphs' property. Based upon available information, management does not believe this matter will have a material adverse effect on Ralphs' financial condition or results of operations. Ralphs has removed several underground storage tanks and remediated soil contamination at the Atwater property. Although the possibility of other localized 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 Ralphs. Ralphs has not incurred material capitalizable and noncapitalizable expenses relating to environmental type issues during the previous three fiscal years. Ralphs has not incurred material preventative and remediation costs related to environmental type issues. Ralphs is a party to several pending legal proceedings and claims incurred in the normal course of business. In the opinion of management, based in part on the advice of counsel, these matters are adequately covered by insurance or will not have a material effect on Ralphs' financial position or results of operations. F-16 172 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (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 are 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 and fiscal 1993. The amount of Equity Rights redeemable for each of the five years subsequent to fiscal 1993 are as follows:
(DOLLARS IN THOUSANDS) 1994...................................................... $ 7,251 1995...................................................... 7,251 1996...................................................... 7,251 1997...................................................... 5,185 1998...................................................... 13,318 ----------- $40,256 ========
F-17 173 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (11) INCOME TAXES Income tax expense (benefit) consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED FEBRUARY 2, JANUARY 31, JANUARY 30, 1992 1993 1994 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Current Federal........................................ $ 9,224 $ 4,173 $ (2,424) State.......................................... 4,282 -- 3,500 ----------- ----------- ----------- $13,506 $ 4,173 $ 1,076 ----------- ----------- ----------- Deferred Federal........................................ $ -- $ -- $ (109,125) State.......................................... -- -- -- ----------- ----------- ----------- $ -- $ -- $ (109,125) ----------- ----------- ----------- Total income tax expense (benefit)............. $13,506 $ 4,173 $ (108,049) ======== ======== =========
Income tax expense (benefit) has been classified in the accompanying statements of operations as follows:
1991 1992 1993 ------- ------- --------- Earnings before extraordinary items................. $13,506 $ 8,346 $(108,049) Extraordinary item.................................. -- (4,173) -- ------- ------- --------- Net tax expense (benefit)........................... $13,506 $ 4,173 $(108,049) ======= ======= =========
The differences between income tax expense and income taxes computed using the top marginal U.S. Federal income tax rate of 34% for both Fiscal 1991 and 1992 and, for Fiscal 1993, of 35% 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 FEBRUARY 2, JANUARY 31, JANUARY 30, 1992 1993 1994 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Amount of expected expense (benefit) computed using the statutory Federal rate............... $ (9,430) $ (24,450) $ 10,611 Utilization of financial operating loss........ -- -- (10,611) Amortization of excess cost over net assets acquired.................................... 3,356 3,356 -- State income taxes, net of Federal income tax benefit..................................... 4,282 -- 3,500 Accounting limitation (recognition) of deferred tax benefit................................. 6,139 20,041 (109,125) Alternative minimum tax........................ 9,224 4,173 625 Other, net..................................... (65) 1,053 (3,049) ---------- ----------- ----------- Total income tax expense (benefit)..... $ 13,506 $ 4,173 $ (108,049) ======== ========= =========
F-18 174 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Ralphs' deferred tax assets, recorded under SFAS 109, were comprised of the following:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 31, JANUARY 30, 1993 1994 ----------- ----------- (DOLLARS IN THOUSANDS) Deductible intangible assets................................. $ -- $ 56,000 Net operating loss carryforward and tax credit............... 5,907 40,125 Self insurance accrual....................................... 8,951 43,000 Software basis difference and amortization................... 9,320 -- Fees collected in advance.................................... 5,572 -- Property, plant and equipment basis difference and depreciation............................................... 25,914 21,000 Equity appreciation rights................................... -- 16,000 Favorable lease basis differences............................ -- 16,000 State deferred taxes......................................... -- 17,000 Other........................................................ 16,539 40,000 ----------- ----------- 72,203 249,125 Less valuation allowance................................... (72,203) (140,000) ----------- ----------- Total.............................................. $ -- $ 109,125 ========= =========
The provision for income taxes for the thirty-six weeks ended October 9, 1994 and the thirty-six weeks ended October 10, 1993 consists of the following:
36 WEEKS 36 WEEKS ENDED ENDED OCTOBER 10, OCTOBER 9, 1993 1994 ----------------- ----------------- (UNAUDITED) Federal Income Taxes................................ $ 3,121 $ 836 State Income Taxes.................................. 1,290 3,678 Adjustment to Valuation Allowance for Deferred Tax Assets............................................ (4,411) (4,514) ------- ------- Total Income Tax Provision.......................... $ -- $ -- ======= =======
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 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 30, 1994. 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. F-19 175 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) This excess in the tax basis over the financial statement basis of excess of cost over net assets acquired aggregated $153.0 million at January 30, 1994. During the year ended January 30, 1994, Ralphs has 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 $300.0 million. At January 30, 1994, the Company has Federal net operating loss (NOL) carryforwards of approximately $115.0 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 two fiscal years, the Company has generated Federal taxable losses of approximately $115.0 million versus financial pre-tax losses of approximately $42.0 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. The following actuarially determined components were included in the net pension expense:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED FEBRUARY 2, JANUARY 31, JANUARY 30, 1992 1993 1994 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Service cost...................................... $ 1,806 $ 2,076 $ 2,228 Interest cost on projected benefit obligation..... 2,079 2,471 2,838 Actual return on assets........................... (3,291) (2,794) (2,695) Net amortization and deferral..................... 992 237 (46) ----------- ----------- ----------- Net pension expense............................. $ 1,586 $ 1,990 $ 2,325 ======== ======== ========
F-20 176 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The funded status of Ralphs' pension plan, (based on December 31, 1992 and 1993 asset values), is as follows:
JANUARY 31, JANUARY 30, 1993 1994 ----------- ----------- (DOLLARS IN THOUSANDS) Actuarial present value of benefit obligations: Vested benefit obligation................................... $18,608 $29,659 Accumulated benefit obligation.............................. 20,887 29,950 Projected benefit obligation................................ 33,378 42,690 Plan assets at fair value................................... 30,684 32,968 ------- ------- Projected benefit obligation in excess of Plan Assets......... (2,694) (9,722) Unrecognized net gain......................................... (1,959) 4,567 Unrecognized prior service cost............................... 46 (1,778) Unrecognized net asset........................................ -- -- ------- ------- Accrued pension cost........................................ $(4,607) $(6,933) ======= =======
Service costs for fiscal 1991, 1992 and 1993 were calculated using a rate of increase in future compensation levels of 6% and discount rate of 8.5%. Certain assumptions will be revised to reflect future trends in fiscal 1994. The discount rate will be reduced to 7.75% to reflect current decline in interest rates and the rate of increase in future compensation levels will be 5% for fiscal 1994. These changes are not expected to have a material effect on Fiscal 1994 operations. A long-term rate of return on assets of 9% was used for fiscal 1992 and 1993. Plan assets consist primarily of debt securities, guaranteed interest contracts and a money market fund. Plan benefits are based primarily on years of service and on average compensation during the last years of employment. On February 23, 1990, Ralphs adopted a Supplemental Executive Retirement Plan covering certain key officers of Ralphs. Earned vested benefits under the Plan were $4,246,300 at December 31, 1992 and $5,075,000 at December 31, 1993. Under certain circumstances, the cash surrender value of certain split-dollar life insurance policies purchased under split-dollar life insurance agreement will offset Ralphs' obligations under the Supplemental Executive Retirement Plan. 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. The United Food and Commercial Workers 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 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. F-21 177 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The expense related to these plans is summarized as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED FEBRUARY 2, JANUARY 31, JANUARY 30, 1992 1993 1994 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Multi-employer pension plans...................... $ 7,370 $ 7,973 $17,687 ======= ======= ======= Multi-employer health and welfare................. $73,250 $71,183 $45,235 ======= ======= =======
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 10% 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 1991, 1992 and 1993 were $377,335, $407,961 and $431,774, 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 1991, 1992 and 1993 was $2.4 million, $2.5 million and $2.6 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 1991, 1992 and 1993 was $2.8 million, $2.8 million and $3.0 million, respectively. 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 $1,180 per individual, indexed to the Medical Consumer Price Index. On February 3, 1991, Ralphs adopted Statement of Financial Accounting Standards (SFAS) 106, "Employees' Accounting for Postretirement Benefits other Than Pension," which required that the cost of future benefits under the Postretirement Medical Plan be recognized in the financial statements over an employee's service with Ralphs. At the beginning of fiscal 1990, Ralphs elected to immediately recognize the transition obligation in accordance with the provision of SFAS 106. Previously, expenses were recognized as paid. F-22 178 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The net periodic cost of the Postretirement Medical Plan includes the following components:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED FEBRUARY 2, JANUARY 31, JANUARY 30, 1992 1993 1994 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Service cost...................................... $ 1,323 $ 1,908 $ 1,767 Interest cost..................................... 1,304 1,367 1,603 Return on plan assets............................. -- -- -- Net amortization and deferral..................... -- -- -- ------- ------- ------- Net postretirement benefit cost................. $ 2,627 $ 3,275 $ 3,370
The funded status of the postretirement benefit plan is as follows:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 31, JANUARY 30, 1993 1994 ----------- ----------- (DOLLARS IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees...................................................... $ 2,218 $ 1,237 Fully eligible plan participants.............................. 441 357 Other active plan participants................................ 16,675 16,062 Plan assets at fair value..................................... -- -- --------- --------- Funded status................................................. (19,334) (17,656) Plan assets in excess of projected obligations................ -- -- Unrecognized gain (loss)...................................... 1,694 6,302 Unrecognized prior service cost............................... -- -- --------- --------- Accrued postretirement benefit obligation..................... $ (21,028) $ (23,958) ========= =========
Service cost was calculated using a medical cost trend of 10.5% for fiscal 1992 and 1993. Certain assumptions will be revised to reflect future trends. The discount rate will be reduced to 7.75% in 1994 to reflect current decline in interest rates. The long term rate of return of plan assets is not applicable as the plan is not funded. The effect on a one-percent increase in the medical cost trend would increase the fiscal 1993 service and interest cost of 24%. The accumulated postretirement benefit obligation at January 30, 1994 would also increase by 31%. F-23 179 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (13) QUARTERLY RESULTS (UNAUDITED) Quarterly results for fiscal 1992 and 1993 are as follows:
EXTRAORDINARY ITEM, NET OF NET GROSS OPERATING INCOME INCOME TAX EARNINGS/ SALES PROFIT INCOME TAXES BENEFIT (LOSS) ------- ------ --------- ------- ------------- --------- (DOLLARS IN MILLIONS) FY 1992 Quarters 12 weeks ended 04/26/92............. $ 677.0 $146.7 $ 35.1 $ 3.9 $ -- $ 2.2 12 weeks ended 07/19/92............. 660.3 143.5 33.0 3.9 -- 1.7 12 weeks ended 10/11/92............. 631.4 137.0 28.8 1.3 (55.8) (58.6) 16 weeks ended 01/31/93............. 875.1 199.4 41.6 (.8) (14.8) (21.4) -------- ------ ------- ------- ------- ------- Total....................... $2,843.8 $626.6 $ 138.5 $ 8.3 $ (70.6) $ (76.1) ======== ====== ======= ======= ======= ======= 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 ======== ====== ======= ======= ======= =======
(14) SUPPLEMENTAL CASH FLOW INFORMATION
52 WEEKS 52 WEEKS 52 WEEKS 36 WEEKS 36 WEEKS ENDED ENDED ENDED ENDED ENDED FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9, 1992 1993 1994 1993 1994 ----------- ----------- ----------- ---------- ---------- (DOLLARS IN THOUSANDS) Supplemental cash flow disclosures: Interest paid, net of amounts capitalized........................... $ 115,159 $ 118,391 $93,738 $ 65,148 $ 65,969 Income taxes paid........................ $ 12,643 $ 7,169 $ 2,423 $ 2,196 $ 4,750 Capital lease assets and obligations assumed............................... $ 3,847 $ -- $15,395 $ 92 $ 17,630
(15) STOCK OPTION PLAN On February 3, 1992, 3,162,235 options for Common Stock of the Company were granted under the Ralphs Non-qualified Stock Option Plan. All options were vested, but not exercisable, on the date of the grant. Options granted to certain officers become exercisable at the rate of 20% on each September 30 of calendar years 1992 through 1996. Options granted to other officers become exercisable as to 10% of the grant on each of September 30, 1992 and 1993, 15% on each of September 30, 1994 through September 30, 1997, and 20% on September 20, 1998. F-24 180 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 31, 1993: Beginning of year............................................. -- -- Granted....................................................... 3,162,235 $20.21 Exercised..................................................... -- -- Cancelled..................................................... -- -- Expired....................................................... -- -- --------- ------ End of year................................................ 3,162,235 $20.21 --------- ------ Exercisable at end of year..................................... 405,880 -- --------- ------ Available for grant at end of year............................. -- -- --------- ------
The option price for outstanding options at January 30, 1994 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) SUBSEQUENT EVENT (UNAUDITED) On September 14, 1994 Ralphs entered into a definitive Agreement and Plan of Merger (the "Merger") with Food 4 Less, Inc. ("FFL"), Food 4 Less Holdings ("FFL Holdings") and Food 4 Less Supermarkets, Inc. ("FFL Supermarkets"). Pursuant to the terms of the Merger Agreement, Ralphs will merge with FFL Supermarkets and become a wholly-owned subsidiary of FFL Holdings. Conditions to the consummation of the Merger include, among other things, receipt of regulatory approvals and other necessary consents and the completion of financing for the transactions. The consideration price paid for the Company approximates $1.5 billion, including assumption of debt. Upon the effectiveness of the Merger, each outstanding share of common stock, par value $0.01 per share, of Ralphs will be converted into and become a right to receive (a) approximately $16.61 in cash and (b) approximately $3.91 principal amount of 13% Senior Subordinated Pay-In Kind Debentures due 2006 issued by FFL Holdings (the "Debentures"). This represents aggregate consideration, payable to the stockholders of the Company of $425 million in cash and $100 million initial principal amount of Debentures. F-25 181 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Upon consummation of the Merger, the operations and activities of Ralphs will be significantly impacted due to conversions of some existing stores to Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. This consolidation may result in a restructuring charge for the merged entity. The amount of the restructuring charge is not presently determinable due to various factors, including uncertainties inherent in the completion of the Merger; however, the restructuring charge may be material in relation to the stockholders' equity and financial position of Ralphs at January 30, 1994 and to the merged entity. F-26 182 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Food 4 Less Supermarkets, Inc.: We have audited the accompanying consolidated balance sheets of Food 4 Less Supermarkets, Inc. (a Delaware corporation) and subsidiaries (the Company) as of June 26, 1993 and June 25, 1994, and the related consolidated statements of operations, stockholder's equity and cash flows for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Food 4 Less Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25, 1994, and the results of their operations and their cash flows for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California July 29, 1994 (except with respect to the matter discussed in Note 14, as to which the date is September 14, 1994, and with respect to the matter discussed in Note 15, as to which the date is October 14, 1994) F-27 183 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
JUNE 26, JUNE 25, SEPTEMBER 17, 1993 1994 1994 -------- -------- ------------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents.............................. $ 25,089 $ 32,996 $ 29,388 Trade receivables, less allowances of $1,919, $1,386 and $1,318 at June 26, 1993, June 25, 1994 and September 17, 1994, respectively.................... 22,048 25,039 24,331 Notes and other receivables............................ 1,278 1,312 1,094 Inventories............................................ 191,467 212,892 210,548 Patronage receivables from suppliers................... 2,680 2,875 3,998 Prepaid expenses and other............................. 6,011 6,323 9,437 -------- -------- --------- Total current assets........................... 248,573 281,437 278,796 INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER COOPERATIVES: A.W.G.................................................. 6,693 6,718 6,718 Certified and Other.................................... 6,657 5,984 5,952 PROPERTY AND EQUIPMENT: Land................................................... 23,912 23,488 23,488 Buildings.............................................. 12,827 12,827 12,827 Leasehold improvements................................. 81,049 97,673 101,634 Store equipment and fixtures........................... 129,178 148,249 150,851 Transportation equipment............................... 31,758 32,259 32,306 Construction in progress............................... 757 12,641 20,369 Leased property under capital leases................... 77,553 78,222 78,222 Leasehold interests.................................... 93,863 93,464 93,473 -------- -------- --------- 450,897 498,823 513,170 Less: Accumulated depreciation and amortization........ 96,948 134,089 143,135 -------- -------- --------- Net property and equipment.......................... 353,949 364,734 370,035 OTHER ASSETS: Deferred financing costs, less accumulated amortization of $11,611, $17,083 and $18,382 at June 26, 1993, June 25, 1994 and September 17, 1994, respectively........................................ 33,778 28,536 27,245 Goodwill, less accumulated amortization of $26,254, $33,945 and $35,732 at June 26, 1993, June 25, 1994 and September 17, 1994, respectively................ 280,895 267,884 266,097 Other, net............................................. 27,295 24,787 23,643 -------- -------- --------- $957,840 $980,080 $ 978,486 ======== ======== =========
See accompanying notes to consolidated financial statements. F-28 184 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDER'S EQUITY
JUNE 26, JUNE 25, SEPTEMBER 17, 1993 1994 1994 -------- -------- ------------- (UNAUDITED) CURRENT LIABILITIES: Accounts payable....................................... $140,468 $180,708 $ 176,148 Accrued payroll and related liabilities................ 40,319 42,805 43,767 Accrued interest....................................... 5,293 5,474 14,310 Other accrued liabilities.............................. 40,467 53,910 48,782 Income taxes payable................................... 2,053 2,000 1,249 Current portion of self-insurance liabilities.......... 23,552 29,492 29,492 Current portion of long-term debt...................... 12,778 18,314 19,566 Current portion of obligations under capital leases.... 2,865 3,616 3,612 -------- -------- --------- Total current liabilities................................ 267,795 336,319 336,926 LONG-TERM DEBT........................................... 335,576 310,944 311,457 OBLIGATIONS UNDER CAPITAL LEASES......................... 41,864 39,998 39,186 SENIOR SUBORDINATED DEBT................................. 145,000 145,000 145,000 DEFERRED INCOME TAXES.................................... 22,429 14,740 14,740 SELF-INSURANCE LIABILITIES AND OTHER..................... 72,313 64,058 65,503 COMMITMENTS AND CONTINGENCIES............................ -- -- -- STOCKHOLDER'S EQUITY: Cumulative convertible preferred stock, $.01 par value, 200,000 shares authorized and 50,000 shares issued at June 26, 1993, June 25, 1994 and September 17, 1994 (aggregate liquidation value of $53.8 million, $62.2 million and $64.4 million at June 26, 1993, June 25, 1994 and September 17, 1994, respectively)....................................... 50,230 58,997 61,373 Common stock, $.01 par value, 1,600,000 shares authorized and 1,519,632 shares issued at June 26, 1993, June 25, 1994 and September 17, 1994.......... 15 15 15 Additional paid-in capital............................. 107,650 107,650 107,650 Notes receivable from shareholders of parent........... (714) (586) (586) Retained deficit....................................... (83,119) (94,586) (100,309) -------- -------- --------- 74,062 71,490 68,143 Treasury stock: 13,249 shares, 16,732 shares and 16,732 shares of common stock at June 26, 1993, June 25, 1994 and September 17, 1994, respectively........... (1,199) (2,469) (2,469) -------- -------- --------- Total stockholder's equity..................... 72,863 69,021 65,674 -------- -------- --------- $957,840 $980,080 $ 978,486 ======== ======== =========
See accompanying notes to consolidated financial statements. F-29 185 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWELVE WEEKS TWELVE WEEKS WEEKS ENDED WEEKS ENDED WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17, 1992 1993 1994 1993 1994 ----------- ----------- ----------- ------------- ------------- (UNAUDITED) SALES...................................... $2,913,493 $2,742,027 $2,585,160 $ 616,616 $ 598,698 COST OF SALES (including purchases from related parties of $277,812, $204,028, $175,929, $47,607 and $41,165 for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, and for the 12 weeks ended September 18, 1993 and September 17, 1994, respectively).................. 2,392,655 2,257,835 2,115,842 504,269 495,656 ---------- ---------- ---------- ---------- ---------- GROSS PROFIT............................... 520,838 484,192 469,318 112,347 103,042 SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET...................................... 469,751 434,908 388,836 95,694 88,152 AMORTIZATION OF EXCESS COST OVER NET ASSETS ACQUIRED................................. 7,795 7,571 7,691 1,772 1,787 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME........................... 43,292 41,713 72,791 14,881 13,103 INTEREST EXPENSE: Interest expense, excluding amortization of deferred financing costs........... 63,907 64,831 62,778 14,491 14,709 Amortization of deferred financing costs................................. 6,304 4,901 5,472 1,239 1,299 ---------- ---------- ---------- ---------- ---------- 70,211 69,732 68,250 15,730 16,008 LOSS (GAIN) ON DISPOSAL OF ASSETS.......... (1,364) (2,083) 37 (37) (458) PROVISION FOR EARTHQUAKE LOSSES............ -- -- 4,504 -- -- ---------- ---------- ---------- ---------- ---------- LOSS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY CHARGES.................... (25,555) (25,936) -- (812) (2,447) PROVISION FOR INCOME TAXES................. 3,441 1,427 2,700 300 900 ---------- ---------- ---------- ---------- ---------- LOSS BEFORE EXTRAORDINARY CHARGES.......... (28,996) (27,363) (2,700) (1,112) (3,347) EXTRAORDINARY CHARGES: Loss on extinguishment of debt, net of income tax benefit of $2,484.......... 6,716 -- -- -- -- Gain on partially depreciated assets replaced by insurance companies, net of income tax expense of $702......... (1,898) -- -- -- -- ---------- ---------- ---------- ---------- ---------- NET LOSS................................... $ (33,814) $ (27,363) $ (2,700) $ (1,112) $ (3,347) ========== ========== ========== ========== ========== PREFERRED STOCK ACCRETION.................. -- 3,882 8,767 2,023 2,376 LOSS APPLICABLE TO COMMON SHARES........... $ (33,814) $ (31,245) $ (11,467) $ (3,135) $ (5,723) ========== ========== ========== ========== ========== LOSS PER COMMON SHARE: Loss before extraordinary charges........ $ (20.74) $ (21.52) $ (7.63) $ (2.08) $ (3.81) Extraordinary charges.................... (3.45) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net loss................................. $ (24.19) $ (21.52) $ (7.63) $ (2.08) $ (3.81) ========== ========== ========== ========== ========== Average Number of Common Shares Outstanding........................... 1,397,939 1,452,184 1,503,828 1,505,004 1,502,900 ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. F-30 186 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWELVE TWELVE WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17, 1992 1993 1994 1993 1994 ----------- ----------- ----------- ------------- ------------- (UNAUDITED) CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Cash received from customers............ $ 2,913,493 $ 2,742,027 $ 2,585,160 $ 616,616 $ 598,698 Cash paid to suppliers and employees.... (2,752,442) (2,711,779) (2,441,353) (586,745) (582,504) Interest paid........................... (56,234) (58,807) (56,762) (4,367) (5,873) Income taxes (paid) refunded............ (4,665) 2,971 (247) 1,289 (1,651) Interest received....................... 1,266 993 903 202 688 Other, net.............................. 4,734 8,093 121 2,093 140 ----------- ----------- ----------- --------- --------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.............................. 106,152 (16,502) 87,822 29,088 9,498 CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Proceeds from sale of property and equipment............................ 17,395 15,685 11,953 2,486 2,703 Payment for purchase of property and equipment............................ (60,263) (53,467) (57,471) (6,585) (16,750) Proceeds (payment) for sale (purchase) of other assets...................... (4,754) (18) 813 -- -- Business acquisition costs, net of cash acquired............................. (27,563) -- (11,050) -- -- Receivable received from seller of business acquired.................... 12,259 -- -- -- -- Other, net.............................. -- -- -- 799 -- ----------- ----------- ----------- --------- --------- NET CASH USED BY INVESTING ACTIVITIES..... (62,926) (37,800) (55,755) (3,300) (14,047) CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Proceeds from issuance of long-term debt................................. 177,500 26,557 28 -- -- Net increase (decrease) in revolving loan................................. (23,900) 4,900 (4,900) (4,900) 6,100 Payments of long-term debt.............. (184,389) (14,319) (14,224) (1,955) (4,335) Proceeds from the issuance of preferred stock................................ -- 46,348 -- -- -- Proceeds from issuance of common stock, net.................................. 341 3,652 -- -- -- Purchase of treasury stock, net......... (313) (545) (1,192) -- -- Payments of capital lease obligation.... (2,814) (2,840) (3,693) (667) (816) Deferred financing costs and other...... (6,656) (8,839) (179) (214) (8) ----------- ----------- ----------- --------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES.............................. (40,231) 54,914 (24,160) (7,736) 941 ----------- ----------- ----------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. 2,995 612 7,907 18,052 (3,608) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. 21,482 24,477 25,089 25,089 32,996 ----------- ----------- ----------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 24,477 $ 25,089 $ 32,996 $ 43,141 $ 29,388 =========== =========== =========== ========= =========
F-31 187 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWELVE TWELVE WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17, 1992 1993 1994 1993 1994 ------------ ------------ ------------ ------------- ------------- (UNAUDITED) RECONCILIATION OF NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Net loss................................ $ (33,814) $(27,363) $ (2,700) $ (1,112) $ (3,347) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization........ 61,181 62,541 62,555 14,263 14,301 Extraordinary charge................. 4,818 -- -- Loss (gain) on sale of assets........ (1,364) (4,613) 65 (37) (458) Equity loss on investments in supplier cooperative............... 472 207 -- -- 32 Change in assets and liabilities, net of effects from acquisition of businesses: Accounts and notes receivable...... (7,688) 17,145 (3,220) (5,777) (197) Inventories........................ 202 17,697 (17,125) 7,562 2,344 Prepaid expenses and other......... (2,834) (6,163) (5,717) (3,213) (3,982) Accounts payable and accrued liabilities..................... 71,369 (83,286) 55,301 14,573 (1,945) Self-insurance liabilities......... 15,034 2,935 (3,790) 1,240 3,501 Deferred income taxes.............. 2,033 4,004 2,506 1,289 -- Income taxes payable............... (3,257) 394 (53) 300 (751) --------- -------- -------- --------- --------- Total adjustments.................... 139,966 10,861 90,522 30,200 12,845 --------- -------- -------- --------- --------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.............................. 106,152 $(16,502) $ 87,822 $ 29,088 $ 9,498 ========= ======== ======== ========= ========= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Purchase of property and equipment through issuance of capital lease obligation........................... -- -- $ 2,575 -- -- ========= ======== ======== ========= ========= Reduction of goodwill and deferred income taxes......................... -- -- $ 9,896 -- -- ========= ======== ======== ========= ========= Acquisition of businesses: Fair value of assets acquired........ -- -- $ 11,241 -- -- Net cash paid in acquisition......... -- -- (11,050) -- -- --------- -------- -------- --------- --------- Liabilities assumed.................. -- -- $ 191 -- -- ========= ======== ======== ========= ========= Final purchase price allocation for the Alpha Beta Acquisition: Property and equipment valuation adjustment......................... 44,231 -- -- -- -- ========= ======== ======== ========= ========= Additional acquisition liabilities... 14,305 -- -- -- -- ========= ======== ======== ========= ========= Deferred tax benefit................. 12,800 -- -- -- -- ========= ======== ======== ========= ========= Accretion of preferred stock............ -- $ 3,882 $ 8,767 $ 2,023 $ 2,376 ========= ======== ======== ========= =========
See accompanying notes to consolidated financial statements. F-32 188 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED STOCK COMMON STOCK TREASURY STOCK ---------------- ------------------ ----------------- TOTAL NUMBER NUMBER NUMBER SHARE- ADD'L STOCK- OF OF OF HOLDERS' PAID-IN RETAINED HOLDER'S SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL (DEFICIT) EQUITY ------ ------- --------- ------ ------- ------- -------- -------- --------- -------- BALANCES AT JUNE 29, 1991................... -- $ -- 1,396,878 $ 14 (1,250) $ (125) $ (930) $103,658 $ (18,060) $ 84,557 Net loss............... -- -- -- -- -- -- -- -- (33,814) (33,814) Issuance of Common Stock................ -- -- 1,636 -- -- -- (190) 341 -- 151 Purchase of Treasury Stock................ -- -- -- -- (3,947) (463) 131 -- -- (332) Sale of Treasury Stock................ -- -- -- -- 1,560 159 (50) -- -- 109 Payments of Shareholders' Notes................ -- -- -- -- -- -- 100 -- -- 100 ------ ------- --------- ---- ------- ------- ------ -------- --------- -------- BALANCES AT JUNE 27, 1992................... -- -- 1,398,514 14 (3,637) (429) (939) 103,999 (51,874) 50,771 Net loss............... -- -- -- -- -- -- -- -- (27,363) (27,363) Issuance of Common Stock................ -- -- 121,118 1 -- -- -- 3,651 -- 3,652 Purchase of Treasury Stock................ -- -- -- -- (9,612) (770) 225 -- -- (545) Issuance of Cumulative Convertible Preferred Stock................ 50,000 46,348 -- -- -- -- -- -- -- 46,348 Accretion of Preferred Stock................ -- 3,882 -- -- -- -- -- -- (3,882) -- ------ ------- --------- ---- ------- ------- ------ -------- --------- -------- BALANCES AT JUNE 26, 1993................... 50,000 50,230 1,519,632 15 (13,249) (1,199) (714) 107,650 (83,119) 72,863 Net loss............... -- -- -- -- -- -- -- -- (2,700) (2,700) Purchase of Treasury Stock................ -- -- -- -- (3,483) (1,270) 78 -- -- (1,192) Payments of Shareholders' Notes................ -- -- -- -- -- -- 50 -- -- 50 Accretion of Preferred Stock................ -- 8,767 -- -- -- -- -- -- (8,767) -- ------ ------- --------- ---- ------- ------- ------ -------- --------- -------- BALANCES AT JUNE 25, 1994................... 50,000 58,997 1,519,632 15 (16,732) (2,469) (586) 107,650 (94,586) 69,021 Net loss (unaudited)... -- -- -- -- -- -- -- -- (3,347) (3,347) Accretion of Preferred Stock (unaudited).... -- 2,376 -- -- -- -- -- -- (2,376) -- ------ ------- --------- ---- ------- ------- ------ -------- --------- -------- BALANCES AT SEPTEMBER 17, 1994 (unaudited)....... 50,000 $61,373 1,519,632 $ 15 (16,732) $(2,469) $ (586) $107,650 $(100,309) $ 65,674 ====== ======= ========= ==== ======= ======= ====== ======== ========= ========
See accompanying notes to consolidated financial statements. F-33 189 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND ACQUISITIONS Food 4 Less Supermarkets, Inc. (the "Company"), a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("Holdings"), is a multiple format supermarket operator that tailors its retail strategy to the particular needs of the individual communities it serves. Holdings is a majority-owned subsidiary of Food 4 Less, Inc. ("FFL"). The Company operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest. The Company has three first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc. ("Falley's") and Food 4 Less of Southern California, Inc. ("F4L-SoCal"), formerly known as Breco Holding Company, Inc. ("BHC"). Cala Foods, Inc. ("Cala Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of Cala, and Alpha Beta Company ("Alpha Beta") is a subsidiary of F4L-SoCal. (a) Acquisitions On March 29, 1994, the Company purchased certain operating assets formerly owned by Food Barn Stores, Inc. (the "Food Barn Stores") from Associated Wholesale Grocers, Inc. ("AWG") (the "Food Barn Acquisition") for $11,241,000 (including acquisition costs of $180,000). The financial statements reflect the preliminary allocation of the purchase price as the purchase price allocation has not been finalized. The effect of the acquisition was not material to the Company's financial position and results of operations. Falley's has agreed to purchase merchandise (as defined) for the Food Barn Stores from AWG through March 24, 2001. Falley's has pledged its patronage dividends and notes receivable from AWG as security under this supply agreement. On June 17, 1991, the Company acquired all of the common stock of Alpha Beta for $270,513,000 (including acquisition costs of $41,477,000) in a transaction accounted for as a purchase. In January 1990, the Company purchased certain operating assets of ABC Market Corp. ("ABC") for $14,675,000, plus approximately $1,000,000 in fees and expenses. On June 30, 1989, the Company acquired Bell for approximately $13,700,000, which includes $8,000,000 of notes and the assumption of Bell's long-term debt. The transaction was accounted for as a purchase. Certified Grocers of California, Ltd. ("Certified") has guaranteed up to $4,000,000 of notes issued by the Company to the seller in connection with the purchase and the performance of a lease. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Business The Company is engaged primarily in the operation of retail supermarkets. (b) Basis of Presentation Principles of Consolidation. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The results of operations of Alpha Beta, F4L-SoCal (BHC), Bell, ABC and the Food Barn Stores have been excluded from the consolidated financial statements prior to their respective acquisition dates. The excess of the purchase price over the fair value of the net assets acquired is classified as goodwill. All intercompany transactions have been eliminated in consolidation. Interim Financial Statements. The consolidated balance sheet of the Company as of September 17, 1994 and the consolidated statements of operations and cash flows for the interim periods ended September 17, 1994 and September 18, 1993 are unaudited, but include all adjustments (consisting of only normal recurring accruals) which the Company considers necessary for a fair presentation of its consolidated financial position, results of operations and cash flows for these periods. These interim financial statements do not include all disclosures required by generally accepted accounting principles, and, therefore, should be read in conjunction F-34 190 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) with the Company's financial statements and notes thereto included herein. Results of operations for interim periods are not necessarily indicative of the results for a full fiscal year. (c) Fiscal Years The Company's fiscal year is the 52 or 53-week period which ends on the last Saturday in June. Fiscal years 1994, 1993, and 1992 include 52 weeks. (d) Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. (e) Inventories Inventories, which consist of grocery products, are stated at the lower of cost or market. Cost has been principally determined using the last-in, first-out ("LIFO") method. If inventories had been valued using the first-in, first-out ("FIFO") method, inventories would have been higher by $13,103,000, $13,802,000 and $14,822,000 (unaudited) at June 26, 1993, June 25, 1994 and September 17, 1994, respectively, and gross profit and operating income would have been greater by $3,554,000, $4,441,000, $699,000, $1,011,000 (unaudited) and $1,020,000 (unaudited) for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25, 1994, the 12 weeks ended September 18, 1993, and the 12 weeks ended September 17, 1994, respectively. (f) Pre-opening Costs The costs associated with opening new stores are deferred and amortized over one year following the opening of each new store. (g) Closed Store Reserves When a store is closed, the Company provides a reserve for the net book value of any store assets, net of salvage value, and the net present value of the remaining lease obligation, net of sublease income. For the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25, 1994, the 12 weeks ended September 18, 1993 and the 12 weeks ended September 17, 1994, utilization of this reserve was $4.0 million, $2.4 million, $1.1 million, $0.2 million (unaudited) and $0.2 million (unaudited), respectively. (h) Investments in Supplier Cooperatives The investment in Certified is accounted for on the cost method. There are certain restrictions on the sale of this investment. (i) Investment in Food 4 Less of Modesto, Inc. During the 52 weeks ended June 26, 1993, the Company sold its 20% investment in Food 4 Less of Modesto, Inc. ("Modesto") for gross proceeds of $4.5 million, which included a $1.5 million note receivable, resulting in a gain of $2.5 million. The Company previously accounted for this investment using the cost method. F-35 191 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (j) Property and Equipment Property and equipment are stated at cost and are depreciated principally using the straight-line method over the following estimated useful lives: Buildings and improvements.................. 5-40 years Equipment and fixtures...................... 3-10 years Property under capital leases and leasehold interests................................. 3-45 years (lease term)
(k) Deferred Financing Costs Costs incurred in connection with the issuance of debt are amortized over the term of the related debt using the effective interest method. (l) Goodwill and Covenants Not to Compete The excess of the purchase price over the fair value of the net assets of businesses acquired is amortized on a straight-line basis over 40 years beginning at the date of acquisition. Covenants not to compete, which are included in Other Assets, are amortized on a straight-line basis over the term of the covenant. Current and undiscounted future operating cash flows are compared to current and undiscounted future goodwill amortization to determine if an impairment of goodwill has occurred and is continuing. As of June 25, 1994, no impairment exists. (m) Income Taxes On June 27, 1993, the Company prospectively adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Previously, the Company used the SFAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. Under SFAS 109, the Company recognizes to a greater degree the future tax benefits of expenses which have been recognized in the financial statements. The implementation of SFAS No. 109 did not have a material effect on the accompanying consolidated financial statements. (n) Notes Receivable from Shareholders of Parent Notes receivable from shareholders of parent represent loans to employees of the Company for purchases of Holdings' stock. The notes are due over various periods, bear interest at the prime rate, and are secured by each shareholder's shares of common stock. (o) Self-Insurance Certain of the Company's subsidiaries are self-insured for a portion of workers' compensation, general liability and automobile accident claims. The Company establishes reserves based on an independent actuary's review of claims filed and an estimate of claims incurred but not yet filed. F-36 192 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (p) Discounts and Promotional Allowances Promotional allowances and vendor discounts are recorded as a reduction of cost of sales in the accompanying consolidated statements of operations. Allowance proceeds received in advance are deferred and recognized over the period earned. (q) Provision for Earthquake Losses On January 17, 1994, Southern California was struck by a major earthquake which resulted in the temporary closing of 31 of the Company's stores. The closures were caused primarily by loss of electricity, water, inventory, or structural damage. All but one of the closed stores reopened within a week of the earthquake. The final closed store reopened on March 24, 1994. The Company is insured against earthquake losses (including business interruption), subject to certain deductibles. The pre-tax financial impact, net of insurance claims, was approximately $4.5 million. At June 25, 1994, the Company had received all expected insurance proceeds related to this claim. (r) Extraordinary Items For the 52 weeks ended June 27, 1992, the Company classified the write-off of deferred financing costs associated with the early extinguishment of debt as an extraordinary item. For the 52 weeks ended June 27, 1992, the Company also classified the difference between the net book value and replacement cost of property and equipment destroyed during the April 1992 civil unrest in Los Angeles and replaced by insurance companies as an extraordinary item. Proceeds received from insurance companies for business interruption related to the civil unrest are included as a component of selling, general, administrative and other expenses. (s) Loss Per Common Share Loss per common share is computed based on the weighted average number of shares outstanding during the applicable period. Fully diluted loss per share has been omitted as it is anti-dilutive for all periods presented. (t) Reclassifications Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the June 25, 1994 presentation. (3) PREFERRED STOCK On December 31, 1992, the Company issued 50,000 shares of $.01 par value Series A cumulative convertible preferred stock (the "Preferred Stock") with a liquidation value of $1,000 per share and 121,118 shares of its $.01 par value common stock (the "Common Stock") to its parent company, Food 4 Less Holdings, Inc. ("Holdings") in exchange for gross proceeds of $50.0 million. The Preferred Stock is convertible into common stock at the option of the holder based upon a conversion price which results in a one-for-one exchange. The Preferred Stock has a stated dividend rate of $152.50 per share, per annum, and is anti-dilutive. The Company may pay dividends on or before December 31, 1997 only by issuing additional shares of Preferred Stock. The Company may redeem the Preferred Stock at any time after December 31, 1997 for its liquidation value. At June 25, 1994, the Company had accrued approximately $12,649,000 for the Preferred Stock dividends earned but not yet declared. In order to finance the purchase of the Preferred and Common Stock from the Company, Holdings issued $103.6 million aggregate principal amount of 15.25% Senior Discount Notes due 2004 (the "Holdings F-37 193 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Notes") and 121,118 Common Stock Purchase Warrants (the "Warrants") for gross proceeds of $50.0 million. No cash interest is payable on the Notes until June 15, 1998. At the present time, Holdings has no other income or assets other than its investment in the Company's Common and Preferred Stock and intends to service the interest payments on the Holdings Notes when they become payable in cash (in fiscal 1998) through dividends it receives on the Company's capital stock. (4) LONG-TERM DEBT AND SENIOR SUBORDINATED DEBT The Company's long-term debt is summarized as follows:
JUNE 26, JUNE 25, 1993 1994 ------------ ------------ Bank Term Loan, principal due quarterly through January 1999, with interest payable monthly in arrears........ $148,478,000 $137,064,000 10.45 percent Senior Notes principal due 2000 with interest payable semi-annually in arrears............. 175,000,000 175,000,000 Revolving Loan.......................................... 4,900,000 -- 10.625 percent first real estate mortgage due 1998, $12,000 of principal plus interest payable monthly secured by land and building with a net book value of $2,122,000............................................ 1,558,000 1,521,000 9.2 to 9.25 percent notes payable, collateralized by equipment, due September 1994, $67,000 of principal plus interest payable monthly, plus balloon payment of $992,000.............................................. 1,772,000 1,103,000 10.8 percent notes payable, collateralized by equipment, due September 1995, $72,000 of principal plus interest payable monthly, plus balloon payment of $1,004,000... 2,447,000 1,819,000 10.0 percent secured promissory note, collateralized by the stock of Bell, due 1996, interest payable quarterly through June 1996........................... 8,000,000 8,000,000 10.08 percent notes payable, collateralized by equipment, due November 1996, $34,000 of principal plus interest payable monthly, plus balloon payment of $493,000.............................................. 1,515,000 1,242,000 10.15 percent notes payable, collateralized by equipment, due December 1996, $45,000 of principal and interest payable monthly, plus balloon payment of $640,000.............................................. 1,994,000 1,675,000 10.0 percent real estate mortgage due 2000, $8,000 of principal and interest payable monthly................ 474,000 419,000 Other long-term debt.................................... 2,216,000 1,415,000 ------------ ------------ 348,354,000 329,258,000 Less -- current portion................................. 12,778,000 18,314,000 ------------ ------------ $335,576,000 $310,944,000 ============ ============
In June 1991, the Company and certain of its subsidiaries entered into a Credit Agreement (the "Credit Agreement") with certain banks, comprised of a $315,000,000 Term Loan (the "Bank Term Loan") facility, a $70,000,000 Revolving Loan (the "Revolving Loan") facility and a $55,000,000 standby letter of credit facility (the "Letter of Credit Facility"). At June 25, 1994, $137,064,000 was outstanding under the Bank Term Loan, there were no borrowings outstanding under the Revolving Loan and $48,131,000 of standby letters of credit had been issued on behalf of the Company. A commitment fee of 1/2 of 1 percent is charged on the average daily unused portion of the Revolving Loan and the Letter of Credit Facility; such commitment fees are due quarterly in arrears. Interest on borrowings under the Bank Term Loan is at the bank's Base Rate (as defined) plus 1.25 percent or the Eurodollar Rate (as defined) plus 2.5 percent. At June 25, 1994, the F-38 194 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) weighted average interest rate on the Bank Term Loan was 6.5 percent. In accordance with certain requirements of the Credit Agreement, the Company purchased an interest rate cap for a principal amount of approximately $91.4 million on the three-month Libor rate at 5.5% which expires on January 3, 1995. Quarterly principal installments on the Bank Term Loan continue to December 1998, with $15,580,000 payable in fiscal year 1995, $21,245,000 payable in fiscal year 1996, $22,661,000 payable in fiscal 1997, $40,489,000 payable in fiscal 1998, and $37,089,000 payable in fiscal 1999. Interest on borrowings under the Revolving Loan is at the bank's Base Rate (as defined) plus 1.25 percent. At June 25, 1994, the interest rate on the Revolving Loan was 8.5 percent. To the extent borrowings under the Revolving Loan are not paid earlier, they are due in June 1996. The common stock of F4L-SoCal, Falley's, Cala and certain of their direct and indirect subsidiaries has been pledged as security under the Credit Agreement. In April 1992, the Company and its wholly-owned subsidiaries issued $175,000,000 of 10.45 percent Senior Notes (the "Senior Notes"). These notes are due in two equal sinking fund payments on April 15, 1999 and 2000. They are general unsecured obligations of the Company and rank senior in right of payment to all subordinated indebtedness (as defined). The Senior Notes rank "pari passu" in right of payment with all borrowings and other obligations of the Company under its bank Credit Agreement; however, the obligations under the Credit Agreement are secured by substantially all the assets of the Company and its subsidiaries. The Senior Notes may be redeemed beginning in 1996 at 104.5 percent, declining ratably to 100 percent in 1999. The proceeds received, net of issuance costs, were used to pay down borrowings under the Bank Term Loan. Deferred financing costs related to the portion of the Bank Term Loan that was retired of $6.7 million, net of related tax benefit of $2.5 million, are classified as an extraordinary item in the Company's consolidated statement of operations for the 52 weeks ended June 27, 1992. Scheduled maturities of principal of Long-Term Debt at June 25, 1994 are as follows: 1995................................................... $ 18,314,000 1996................................................... 23,384,000 1997................................................... 32,322,000 1998................................................... 40,701,000 1999................................................... 124,823,000 Later years............................................ 89,714,000 ------------ $329,258,000 ===========
The Company issued $145,000,000 principal amount of Senior Subordinated Notes (the "Subordinated Notes") in connection with the acquisition of Alpha Beta as described in Note 1. The Subordinated Notes bear interest, payable semi-annually on June 15 and December 15, at an annual rate of 13.75 percent. The Subordinated Notes are subordinated to all Senior Indebtedness (as defined) of the Company, and may be redeemed beginning in 1996 at a redemption price of 106 percent. The redemption price declines ratably to 100 percent in 2000. The debt agreements, among other things, require the Company to maintain minimum levels of net worth (as defined), to maintain minimum levels of earnings (as defined), to maintain a hedge agreement to provide interest rate protection, and to comply with certain ratios related to interest expense (as defined), fixed charges (as defined), working capital and indebtedness. In addition, the debt agreements limit, among other things, additional borrowings, dividends on, and redemption of, capital stock, capital expenditures, incurrence of lease obligations, and the acquisition and disposition of assets. At June 26, 1993 and June 25, 1994 the Company was in compliance with the financial covenants of its debt agreements. At June 25, 1994, dividends and certain other payments are restricted based on terms in the debt agreements. F-39 195 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) LEASES The Company's operations are conducted primarily in leased properties. Substantially all leases contain renewal options. Rental expense under operating leases was as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ----------- ----------- ----------- Minimum rents................................. $46,706,000 $44,504,000 $49,788,000 Rents based on sales.......................... 7,656,000 5,917,000 3,806,000
Following is a summary of future minimum lease payments under operating leases at June 25, 1994: 1995................................................... $ 52,542,000 1996................................................... 48,966,000 1997................................................... 45,325,000 1998................................................... 38,925,000 1999................................................... 34,423,000 Later years............................................ 269,332,000 ------------ $489,513,000 ===========
The Company has entered into lease agreements for new supermarket sites which were not in operation at June 25, 1994. Future minimum lease payments under such operating leases generally begin when such supermarkets open and at June 25, 1994 are: 1995 -- $5,990,000; 1996 -- $11,772,000; 1997 -- $11,825,000; 1998 -- $11,810,000; 1999 -- $11,819,000; later years -- $218,480,000. Certain leases qualify as capital leases under the criteria established in Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and are classified on the consolidated balance sheets as leased property under capital leases. Future minimum lease payments for the property under capital leases at June 25, 1994 are as follows: 1995.................................................... $ 7,948,000 1996.................................................... 7,521,000 1997.................................................... 6,995,000 1998.................................................... 6,374,000 1999.................................................... 6,071,000 Later years............................................. 44,108,000 ----------- Total minimum lease payments.................. 79,017,000 Less: amounts representing interest..................... 35,403,000 ----------- Present value of minimum lease payments................. 43,614,000 Less: current portion................................... 3,616,000 ----------- $39,998,000 ==========
Accumulated depreciation related to capital leases was $20,356,000 and $24,041,000 at June 26, 1993 and June 25, 1994, respectively. The Company is leasing a distribution facility and four store locations from the previous owner of Alpha Beta. The agreement contains a purchase option for the land, buildings and improvements and equipment at a price that equals or exceeds the estimated fair market value throughout the term of the lease. F-40 196 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) INVESTMENT IN A.W.G. The investment in Associated Wholesale Grocers ("A.W.G.") consists principally of the cooperative's six percent interest-bearing seven and eight-year patronage certificates received in payment of certain rebates. Following is a summary of future maturities based upon current redemption terms: 1995..................................................... $ -- 1996..................................................... -- 1997..................................................... 795,000 1998..................................................... 1,420,000 1999..................................................... 1,520,000 Later years.............................................. 2,983,000 ---------- $6,718,000 =========
(7) INCOME TAXES The provision (benefit) for income taxes consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ---------- ---------- ----------- Current: Federal..................................... $2,507,000 $ -- $ 3,251,000 State and other............................. 934,000 82,000 712,000 ---------- ---------- ----------- 3,441,000 82,000 3,963,000 ---------- ---------- ----------- Deferred: Federal..................................... -- 1,345,000 (70,000) State and other............................. -- -- (1,193,000) ---------- ---------- ----------- -- 1,345,000 (1,263,000) ---------- ---------- ----------- $3,441,000 $1,427,000 $ 2,700,000 ========= ========= ==========
A reconciliation of the provision (benefit) for income taxes to amounts computed at the federal statutory rates of 34% for fiscal 1992 and 1993 and 35% for fiscal 1994 is as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ----------- ----------- ---------- Federal income taxes at statutory rate on loss before provision for income taxes and extraordinary charges...................... $(8,689,000) $(8,818,000) $ -- State and other taxes, net of federal tax benefit.................................... 934,000 82,000 (1,000) Alternative minimum tax...................... 2,507,000 -- -- Effect of permanent differences resulting primarily from amortization of goodwill.... 2,706,000 2,850,000 2,820,000 Accounting limitation (recognition) of deferred tax benefit....................... 5,983,000 7,313,000 (119,000) ----------- ----------- ---------- $ 3,441,000 $ 1,427,000 $2,700,000 ========== ========== =========
F-41 197 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for deferred taxes consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ------------ ----------- ----------- Depreciation....................................... $ 6,282,000 $ 7,756,000 $ 2,536,000 Difference between book and tax basis of assets sold............................................. 2,514,000 3,198,000 (4,223,000) Deferred revenues and allowances................... (7,028,000) 40,000 (2,349,000) Pre-opening costs.................................. 1,072,000 (512,000) 174,000 Accounts receivable reserves....................... -- (270,000) 249,000 Unicap............................................. (124,000) (5,000) (536,000) Capital lease obligation........................... (2,010,000) (1,385,000) 2,792,000 Self-insurance reserves............................ (13,558,000) (4,082,000) (535,000) Inventory shrink reserve........................... (528,000) 777,000 (869,000) LIFO............................................... 7,104,000 (554,000) (1,010,000) Closed store reserve............................... 964,000 1,092,000 440,000 Accrued expense.................................... -- -- (582,000) Accrued payroll and related liabilities............ (2,656,000) 193,000 1,721,000 Damaged inventory reimbursement.................... 1,195,000 -- -- Acquisition costs.................................. 4,974,000 2,626,000 1,397,000 Sales tax reserves................................. -- (715,000) (418,000) Deferred rent subsidy.............................. -- (483,000) (624,000) Net operating loss usage........................... -- -- 5,782,000 Tax credits benefited.............................. -- (1,392,000) (4,477,000) Accounting limitation (recognition) of deferred tax benefit 1,588,000 (4,591,000) (1,085,000) Other, net......................................... 211,000 (348,000) 354,000 ------------ ----------- ----------- $ -- $ 1,345,000 $(1,263,000) =========== ========== ==========
F-42 198 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The significant components of the Company's deferred tax assets (liabilities) are as follows:
JUNE 26, JUNE 25, 1993 1994 ------------ ------------ Deferred tax assets: Accrued payroll and related liabilities............... $ 4,064,000 $ 2,448,000 Other accrued liabilities............................. 13,488,000 13,953,000 Property and equipment................................ 9,674,000 2,997,000 Self-insurance liabilities............................ 30,907,000 27,744,000 Loss carryforwards.................................... 27,863,000 20,675,000 Tax credit carryforwards.............................. 1,392,000 5,869,000 Other................................................. 1,223,000 580,000 ------------ ------------ Gross deferred tax assets.......................... 88,611,000 74,266,000 Valuation allowance................................... (45,008,000) (31,149,000) ------------ ------------ Net deferred tax assets............................ $ 43,603,000 $ 43,117,000 ------------ ------------ Deferred tax liabilities: Inventories........................................... $(20,243,000) $(16,738,000) Property and equipment................................ (38,298,000) (30,516,000) Obligations under capital leases...................... (5,802,000) (8,733,000) Other................................................. (1,689,000) (1,870,000) ------------ ------------ Gross deferred tax liability....................... (66,032,000) (57,857,000) ------------ ------------ Net deferred tax liability......................... $(22,429,000) $(14,740,000) =========== ===========
The Company recorded a valuation allowance to reserve a portion of its gross deferred tax assets at June 25, 1994 due primarily to financial and tax losses in recent years. Under SFAS 109, this valuation allowance will be adjusted in future periods as appropriate. However, the timing and extent of such future adjustments to the allowance cannot be determined at this time. At June 25, 1994, approximately $8,864,000 of the valuation allowance for deferred tax assets will reduce goodwill when the allowance is no longer required. At June 25, 1994, the Company has net operating loss carryforwards for federal income tax purposes of $59,071,000, which expire in 2007 through 2008. The Company has federal and state Alternative Minimum Tax ("AMT") credit carryforwards of approximately $4,090,000 which are available to reduce future regular taxes in excess of AMT. Currently, there is no expiration date for these credits. FFL files a consolidated federal income tax return, under which the federal income tax liability of FFL and its subsidiaries (which since June 23, 1989 include the Company) is determined on a consolidated basis. FFL has entered into a federal income tax sharing agreement with the Company and certain of its subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides that in any year in which the Company is included in any consolidated tax liability of FFL and has taxable income, the Company will pay to FFL the amount of the tax liability that the Company would have had on such due date if it had been filing a separate return. Conversely, if the Company generates losses or credits which actually reduce the consolidated tax liability of FFL and its other subsidiaries, FFL will credit to the Company the amount of such reduction in the consolidated tax liability. These credits are passed between FFL and the Company in the form of cash payments. In the event any state and local income taxes are determinable on a combined or consolidated basis, the Tax Sharing Agreement provides for a similar allocation between FFL and the Company of such state and local taxes. F-43 199 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company currently has an Internal Revenue Service examination in process covering its 1990 and 1991 fiscal years. The Internal Revenue Service has not yet made any additional tax assessments related to these years. (8) RELATED PARTY TRANSACTIONS The Company has a five-year consulting agreement with an affiliated company effective June 17, 1991 for management, financing, acquisition and other services. The agreement is automatically renewed on January 1 of each year for the five-year term unless ninety (90) days' notice is given by either party. The contract provides for annual management fees equal to $2 million plus an additional amount based on the Company's performance and advisory fees for acquisition and financing transactions. Fees paid or accrued associated with management services were $2,270,000 during the 52 weeks ended June 25, 1994, $2,000,000 during the 52 weeks ended June 26, 1993, and $2,000,000 during the 52 weeks ended June 27, 1992. Advisory fees paid or accrued were $170,000 during the 52 weeks ended June 25, 1994, $1,795,000 for the 52 weeks ended June 26, 1993, and $116,000 for the 52 weeks ended June 27, 1992. Advisory fees paid or accrued for financing transactions are capitalized and amortized over the term of the related financing. In connection with the acquisitions of Alpha Beta, ABC and the Food Barn Stores, the Company capitalized fees of $8,000,000, $500,000 and $92,000, respectively, which were paid to this affiliated company for acquisition services. (9) COMMITMENTS AND CONTINGENCIES The Company is contingently liable to former stockholders of certain predecessors for any prorated gains which may be realized within ten years of the acquisition of the respective companies resulting from the sale of the Certified stock. Such gains are only payable if Certified is purchased or dissolved, or if the Company sells the shares to Certified within the period noted above. The Company is a partner in a supplier partnership, in which it is contingently liable for the partnership's long-term debt. The Company's portion of such debt is approximately $1,650,000. The Company has entered into lease agreements with the developers of several new sites in which the Company has agreed to provide construction financing. At June 25, 1994, the Company had capitalized construction costs of $10,435,000 on total commitments of $19,250,000. In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against the Company and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in and to fix the price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and December 23, 1992, respectively. To date, the Court has yet to certify any of these classes, while a demurrer to the complaints was denied. The Company will vigorously defend itself in these class action suits. In addition, the Company or its subsidiaries are defendants in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on the Company's financial position or results of operations. The Company self-insures its workers compensation and general liability. For the 52 weeks ended June 25, 1994, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 27, 1992 self-insurance loss provisions were $19,880,000, $38,040,000 and $46,140,000, respectively. The Company discounts its self- insurance liability using a 7% discount rate for all years presented. Management believes that this rate F-44 200 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) aproximates the time value of money over the anticipated payout period (approximately 10 years) for essentially risk free investments. The Company's historical self-insurance liability for the three most recent fiscal years is as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ------------ ------------ ----------- Self-insurance liability.............. $ 95,605,000 $100,773,000 $90,898,000 Less: Discount........................ (13,046,000) (15,279,000) (9,194,000) ------------ ------------ ----------- Net self-insurance liability.......... $ 82,559,000 $ 85,494,000 $81,704,000 =========== =========== ==========
The Company expects that cash payments for claims will aggregate approximately $14 million (unaudited), $20 million (unaudited), $17 million (unaudited), $12 million (unaudited) and $7 million (unaudited) for its fiscal years ending in June 1995, 1996, 1997, 1998 and 1999, respectively. (10) EMPLOYEE BENEFIT PLANS The Company implemented SOP No. 93-6, Employer Accounting for Employee Stock Ownership Plans, effective June 26, 1994. The implementation of SOP No. 93-6 did not have a material effect on the accompanying unaudited consolidated financial statements. The Company and its subsidiaries sponsor several defined contribution benefit plans. The full-time employees of Falley's who are not members of a collective bargaining agreement are covered under a 401(k) plan under which the Company matches certain employee contributions with cash or FFL stock (the "Falley's ESOP"). As part of the original stock sale agreement between FFL and the Falley's ESOP, which has been amended from time to time, an affiliate of the Company has assumed the obligation to purchase any FFL shares as to which terminated plan participants have exercised a put option under the terms of Falley's ESOP. As part of that agreement, the Company may, at its sole discretion, after providing a right of first refusal to the affiliate, purchase FFL shares put under the provisions of the plan. During the year ended June 25, 1994, the Company elected to purchase $1.0 million of FFL shares as to which terminated plan participants had exercised their put option. FFL shares purchased by the Company are classified as treasury stock. As of September 17, 1994, the fair value of the shares allocated which are subject to a repurchase obligation by an affiliate of the Company was approximately $13,286,000 (unaudited). The Company also sponsors two ESOPs for employees of the Company who are members of certain collective bargaining agreements (the "Union ESOPs"). The Union ESOPs provide for annual contributions based on hours worked at a rate specified by the terms of the collective bargaining agreements. The Company contributions are made in the form of Holdings stock or cash for the purchase of Holdings stock and are to be allocated to participants based on hours worked. During the 12 weeks ended September 17, 1994, the Company recorded a charge against operations of approximately $77,000 (unaudited) for benefits under the Union ESOPs. There were no shares issued to the Union ESOPs at September 17, 1994. All other full-time employees of the Company who are not members of a collective bargaining agreement are covered under a separate 401(k) plan (the "Management Plan"). The Management Plan provides for annual contributions which are determined at the discretion of the Company. The Company contributions are allocated to participants based on employee compensation and matching of certain employee contributions. A portion of the Company contribution allocated based on compensation is made in the form of stock or cash for the purchase of stock. Total charges against operations related to all employee benefit plans sponsored by the Company and its subsidiaries were $337,000, $284,000 and $699,000 for the 52 weeks ended June 27, 1992, the 52 weeks ended F-45 201 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) June 26, 1993, and the 52 weeks ended June 25, 1994, respectively. No contributions were made with stock and no stock was acquired by any plans in fiscal 1992, fiscal 1993 or fiscal 1994. The Company contributes to multi-employer pension plans administered by various trustees. Contributions to these plans are based upon negotiated wage contracts. These plans may be deemed to be defined benefit plans. Information related to accumulated plan benefits and plan net assets as they may be allocated to the Company at June 25, 1994 is not available. The Company contributed $78.6 million, $69.4 million and $57.2 million to these plans for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, respectively. Management is not aware of any plans to terminate such plans. The United Food and Commercial Workers health and welfare plans were overfunded and those employers who contributed to the plans are to receive a pro rata share of the excess reserves in these plans through a reduction of current contributions. The Company's share of the excess reserve was $24.2 million, of which $8.1 million was recognized in the 52 weeks ended June 25, 1994, with the remainder to be recognized in future periods as the credits are taken. Offsetting the reduction in employer contributions was a $5.5 million union contract ratification bonus and contractual wage increases. (11) COMMON STOCK On December 31, 1992, concurrent with the sale of the Preferred Stock, the Company sold 121,118 shares of common stock to Holdings. Concurrently, the remaining shares of common stock of the Company were exchanged for shares of Holdings common stock on a one for one basis. (12) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: (a) Cash and Cash Equivalents The carrying amount approximates fair value as a result of the short maturity of these instruments. (b) Short-Term Notes and Other Receivables The carrying amount approximates fair value as a result of the short maturity of these instruments. (c) Investments In and Notes Receivable From Supplier Cooperatives The Company maintains a non-current deposit with Certified in the form of Class B shares of Certified. Certified is not obligated in any fiscal year to redeem more than a prescribed number of the Class B shares issued. Therefore, it is not practicable to estimate the fair value of this investment. The Company maintains a non-current note receivable from A.W.G. There are no quoted market prices for this investment and a reasonable estimate could not be made without incurring excessive costs. Additional information pertinent to the value of this investment is provided in Note 6. (d) Long-Term Debt The fair value of the $175.0 million Senior Notes, the $145.0 million Subordinated Notes and the Bank Term Loan is based on quoted market prices. Market quotes for the fair value of the remainder of the Company's debt are not available, and a reasonable estimate of the fair value could not be made without incurring excessive costs. Additional information pertinent to the value of the unquoted debt is provided in Note 4. F-46 202 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The estimated fair values of the Company's financial instruments are as follows:
JUNE 25, 1994 ------------------------- CARRYING FAIR AMOUNT VALUE ----------- ----------- Cash and cash equivalents................................... $32,996,000 $32,996,000 Short-term notes and other receivables...................... 4,187,000 4,187,000 Investments in and notes receivable from supplier cooperatives.............................................. 12,702,000 -- Long-term debt for which it is: - Practicable to estimate fair values..................... 457,064,000 472,779,000 - Not practicable......................................... 17,194,000 --
(13) OTHER INCOME, NET The components of other income items included in SG&A are as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ---------- ---------- --------- Interest income.................................... $1,266,000 $ 993,000 $ 903,000 Licensing fees..................................... 493,000 246,000 270,000 Other income (expense)............................. 769,000 3,710,000 (177,000) ---------- ---------- --------- $2,528,000 $4,949,000 $ 996,000 ========= ========= =========
(14) SUBSEQUENT EVENT (UNAUDITED) On September 14, 1994, the Company, Holdings, and FFL entered into a definitive Agreement and Plan of Merger (the "Merger") with Ralphs Supermarkets, Inc. ("Ralphs") and the stockholders of Ralphs. Pursuant to the terms of the Merger Agreement, the Company will, subject to certain terms and conditions being satisfied or waived, be merged into Ralphs and Ralphs will become a wholly-owned subsidiary of Holdings. Conditions to the consummation of the Merger include, among other things, receipt of regulatory approvals and other necessary consents and the completion of financing for the transaction. The purchase price for Ralphs is approximately $1.5 billion, including the assumption of debt. Upon the effectiveness of the Merger, each outstanding share of common stock, par value $1.00 per share, of Ralphs will be converted into and become a right to receive (a) approximately $16.61 in cash and (b) approximately $3.91 principal amount of 13% Senior Subordinated Pay-in Kind Debentures due 2006 issued by Holdings (the "Debentures"). This represents an aggregate purchase price, payable to the stockholders of Ralphs, of $425 million in cash and $100 million initial principal amount of Debentures. In addition, the Company will enter into an agreement with a stockholder of Ralphs pursuant to which such stockholder will act as a consultant to the Company with respect to certain real estate and general commercial matters for a period of five years from the closing of the Ralphs Merger in exchange for the payment of a consulting fee. The financing required to complete the Merger will include the issuance of significant additional equity by FFL, the issuance of new debt securities by the Company and Holdings and the incurrence of additional bank financing by the Company. The equity issuance would be made to a group of investors led by Apollo Advisors, L.P., which has committed to purchase up to $150 million in FFL stock, and the bank financing would be made pursuant to a commitment by Bankers Trust Company to provide up to $1,225 million in such financing. In connection with the receipt of new financing, the Company and Holdings will also be required to F-47 203 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) complete certain exchange offers, consent solicitations and or other transactions with the holders of their currently outstanding debt securities. As of July 17, 1994, Ralphs had outstanding indebtedness of approximately $990 million. Ralphs had sales of $2,730 million, operating income of $152.1 million and earnings before income taxes of $30.3 million for its most recent fiscal year ended January 30, 1994. Upon consummation of the Merger, the operations and activities of the Company will be significantly impacted due to conversions of the Company's existing Southern California conventional stores to either Ralphs or Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. This consolidation may result in a restructuring charge and, in conjunction with the Merger, the Company intends to determine if there is any impairment of the value of the Company's existing assets and goodwill. The amount of the restructuring charge is not presently determinable due to various factors, including uncertainties inherent in the completion of the Merger; however, the restructuring charge may be material in relation to the stockholder's equity and financial position of the Company at June 25, 1994. (15) RESTATEMENT The Company has restated the statements of operations for its fiscal years ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 12 weeks ended September 18, 1993 to classify certain buying, occupancy and labor costs associated with making its products available for sale as cost of sales. These amounts were previously classified as selling, general, administrative, and other net, and depreciation and amortization of property and equipment and totalled $236,152,000, $224,469,000, $219,548,000 and $50,910,000 (unaudited) for the fiscal years ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 12 weeks ended September 18, 1993, respectively. The Company has also classified a portion of its self-insurance costs as interest expense that was previously recorded in selling, general, administrative and other, net. These amounts were $4,960,000, $5,865,000, $5,836,000 and $1,389,000 (unaudited) for the fiscal years 1992, 1993 and 1994 and the 12 weeks ended September 18, 1993, respectively. Depreciation and amortization costs not classified in cost of sales are included in selling, general, administrative and other, net. The change in classification did not affect the net loss, loss before provision for income taxes and extraordinary charges or loss per common share. F-48 204 APPENDIX A COMPARISON OF OLD F4L SENIOR NOTES AND NEW F4L SENIOR NOTES The following is a brief comparison of the principal features of the Old F4L Senior Notes and the New F4L Senior Notes. The terms of the New F4L Senior Notes differ from the current (unamended) terms of the Old F4L Senior Notes in certain significant respects, including those described below. The summary comparisons set forth below do not purport to be complete and are qualified in their entirety by reference to the Old F4L Senior Note Indenture, the Old F4L Senior Notes, the New F4L Senior Note Indenture, the New F4L Senior Notes, the "Description of the New F4L Notes" and "The Proposed Amendments" and the related definitions contained therein.
OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ ISSUER ISSUER Food 4 Less. The Company, as successor by merger to Food 4 Less. PRINCIPAL AMOUNT OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING As of November 1, 1994, $175 million. The up to $175 million principal amount of New F4L Senior Notes offered hereby will be part of an issue of up to $575 million aggregate principal amount of New F4L Senior Notes, up to $400 million principal amount of which will be issued pursuant to the Public Offering. INTEREST RATE INTEREST RATE The Old F4L Senior Notes bear interest at the rate of The New F4L Senior Notes will bear interest at a fixed 10.45% per annum. rate per annum equal to the greater of (a) 11% and (b) the Applicable Treasury Rate (as hereinafter defined) plus 375 basis points (3.75 percentage points); provided, however, that in no event will the New F4L Senior Notes bear interest at a rate per annum that is less than the interest rate on the New F4L Senior Notes offered pursuant to the Public Offering. The "Applicable Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by and published in the most recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the average life to stated maturity of the New F4L Senior Notes; provided, that if the average life to stated maturity of the New F4L Senior Notes is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of the year) from the weekly average yields of the United States Treasury securities for which such yields are given. INTEREST PAYMENT DATES INTEREST PAYMENT DATES April 15 and October 15. March 1 and September 1, commencing on September 1, 1995. FINAL MATURITY DATE FINAL MATURITY DATE April 15, 2000. March 1, 2004. OPTIONAL REDEMPTION OPTIONAL REDEMPTION The Old F4L Senior Notes are redeemable, at the option The New F4L Senior Notes are redeemable, at the option of Food 4 Less, in whole at any time or in part from of the Company, in whole at any time or in part from time to time, on or after April 15, 1996, at the time to time, on or after March 1, 2000, at the following redemption prices if redeemed during the following redemption prices if redeemed during the twelve-month period commencing on April 15 of the years twelve-month period commencing on March 1 of the years set forth below: set forth below: 1996..........................................104.48% 2000..........................................104.125% 1997..........................................102.99% 2001..........................................102.750% 1998..........................................101.49% 2002..........................................101.375% 1999 and thereafter............................100.00% 2003 and thereafter............................100.000% in each case plus accrued and unpaid interest to the in each case plus accrued and unpaid interest to the date of redemption. date of redemption. In the event the interest rate on the New F4L Senior Notes is greater than 11%, the above redemption prices will be correspondingly adjusted. In addition, on or prior to March 1, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the New F4L Senior Notes originally issued, at a redemption price equal to 111% of the principal amount
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ thereof if redeemed during the 12 months commencing on March 1, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on March 1, 1996 and 108.25% of the principal amount thereof if redeemed duringthe 12 months commencing on March 1, 1997, in each case plus accrued and unpaid interest to the redemption date. MANDATORY REDEMPTION MANDATORY REDEMPTION Food 4 Less will make a mandatory sinking fund payment The New F4L Senior Notes are not subject to a mandatory of $87.5 million on April 15, 1999, sufficient to sinking fund requirement. retire 50% of the Old F4L Senior Notes originally issued, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. Food 4 Less may, at its option, receive credit against such sinking fund payment for 100% of the principal amount of any Old F4L Senior Notes previously acquired by Food 4 Less and surrendered to the Old F4L Senior Note Trustee for cancellation or redeemed at the option of Food 4 Less and which, in each case, were not previously used for or as a credit against any other required payment pursuant to the Old F4L Senior Note Indenture. Food 4 Less may use the same Old F4L Senior Note as a credit only once. Food 4 Less intends to credit Old F4L Senior Notes tendered into the Exchange Offer against its sinking fund obligation. RANKING RANKING The Old F4L Senior Notes are general unsecured senior The New F4L Senior Notes will be senior unsecured obligations of Food 4 Less and are senior to all obligations of the Company and will be senior to all Subordinated Indebtedness of Food 4 Less, including the Subordinated Indebtedness. The New F4L Senior Notes Old F4L Subordinated Notes. The Old F4L Senior Notes will rank pari passu in right of payment with all rank pari passu in right of payment with all borrowings unsubordinated Indebtedness and other liabilities of and other obligations of Food 4 Less and its the Company. Such borrowings and obligations under the subsidiaries under the Credit Agreement. Such Credit Agreement and the related guarantees are secured borrowings and obligations under the Credit Agreement by substantially all of the assets of the Company and and related guarantees are secured by substantially all its subsidiaries, whereas the New F4L Senior Notes are of the assets of Food 4 Less and its subsidiaries, senior unsecured obligations of the Company and its whereas the Old F4L Senior Notes are senior unsecured subsidiaries. obligations of Food 4 Less and its subsidiaries. GUARANTEES GUARANTEES Each Subsidiary Guarantor has unconditionally Each Subsidiary Guarantor will unconditionally guaranteed, jointly and severally, the complete and guarantee, jointly and severally, the complete and prompt performance of Food 4 Less' obligations under prompt performance of the Company's obligations under the Old F4L Senior Note Indenture and the Old F4L the New F4L Senior Note Indenture and New F4L Senior Senior Notes. See "Guarantees of Certain Indebtedness" Notes. See "Guarantees of Certain Indebtedness" below. below. "Subsidiary Guarantor" means (i) each of Alpha Beta "Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bell Markets, Inc., Cala Co., Cala Foods, Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Falley's, Inc., Food 4 Less of California, Inc., Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Food 4 Less Merchandising, Inc., Food 4 Less GM, Inc. Less of California, Inc., Food 4 Less Merchandising, and Food 4 Less of Southern California, Inc., (ii) each Inc., Food 4 Less GM, Inc., Food 4 Less of Southern of Food 4 Less' subsidiaries which becomes a guarantor California, Inc., (ii) upon consummation of the Merger, of the Old F4L Senior Notes in compliance with the Crawford Stores, Inc., (iii) each of the Company's provisions set forth under "Guarantees of Certain subsidiaries which becomes a guarantor of the New F4L Indebtedness," and (iii) each of Food 4 Less' Senior Notes in compliance with the provisions set subsidiaries executing a supplemental indenture in forth under "Guarantees of Certain Indebtedness," and which such subsidiary agrees to be bound by the terms (iv) each of the Company's subsidiaries executing a of the Old F4L Senior Note Indenture. supplemental indenture in which such subsidiary agrees to be bound by the terms of the New F4L Senior Notes Indenture. CHANGE OF CONTROL CHANGE OF CONTROL Upon the occurrence of a Change of Control, each holder The New F4L Senior Note Indenture will provide that if will have the right to require the repurchase of such a Change of Control occurs, each holder will have the holder's Old F4L Senior Notes at a purchase price equal right to require the Company to repurchase such to 101% of the principal amount thereof plus accrued holder's New F4L Senior Notes pursuant to a Change of and unpaid interest to the date of repurchase. Control Offer at 101% of the principal amount thereof plus accrued and unpaid interest to the date of "Change of Control" means the acquisition after the repurchase. Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the "Change of Control" means (i) the acquisition after the Exchange Act) by (i) any person or entity (other than Issue Date, in one or more transactions, of beneficial any Permitted Holder) or (ii) any group of persons or ownership (within the meaning of Rule 13d-3 under the entities (excluding any Permitted Holders) who Exchange Act) by (a) any person or entity (other than constitute a group (within the meaning of Sec- any Permitted Holder) or (b) any group of persons or entities (excluding any Permitted
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ tion 13(d)(3) of the Exchange Act), in either case, of Holders) who constitute a group (within the meaning of any securities of FFL or of Food 4 Less such that, as a Section 13(d)(3) of the Exchange Act), in either case, result of such acquisition, such person, entity or of any securities of New Holdings or the Company such group either (A) beneficially owns (within the meaning that, as a result of such acquisition, such person, of Rule 13d-3 under the Exchange Act), directly or entity or group either beneficially owns (within the indirectly, 51% or more of Food 4 Less' then meaning of Rule 13d-3 under the Exchange Act), directly outstanding voting securities entitled to vote on a or indirectly, 40% or more of the then outstanding regular basis for a majority of the board of directors voting securities entitled to vote on a regular basis of Food 4 Less (but only to the extent that such for a majority of the board of directors of the Company beneficial ownership is not shared with any Permitted (but only to the extent that such beneficial ownership Holder who has the power to direct the vote thereof) or is not shared with any Permitted Holder who has the (B) otherwise has the ability to elect, directly or power to direct the vote thereof), provided, however, indirectly, a majority of the members of Food 4 Less' that no such Change of Control shall be deemed to have board of directors. occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of "Permitted Holder" means (i) Food 4 Less Equity such voting securities than such other person, entity Partners, L.P., The Yucaipa Companies or any entity or group or (B) at the time of such acquisition, the controlled thereby, (ii) an employee benefit plan of Permitted Holders (or any of them) possess the ability Food 4 Less, or any participant therein or any of its (by contract or otherwise) to elect, or cause the subsidiaries, (iii) a trustee or other fiduciary election, of a majority of the members of the Company's holding securities under an employee benefit plan of board of directors. Food 4 Less or any of its subsidiaries or (iv) any Permitted Transferee of any of the foregoing persons. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., and The Yucaipa Companies, or any "Permitted Transferees" means, with respect to any entity controlled thereby or any of the partners person, (i) any affiliates of such person, (ii) the thereof, (ii) Apollo Advisors, L.P., Lion Advisors, heirs, executors, administrators, testamentary L.P. or any entity controlled thereby or any of the trustees, legatees or beneficiaries of any such person, partners thereof, (iii) an employee benefit plan of the and (iii) a trust the beneficiaries of which, or a Company, or any participant therein or any of its corporation of partnership, the stockholders or general subsidiaries, (iv) a trustee or other fiduciary holding or limited partners of which, include only such person securities under an employee benefit plan of the or his or her spouse or lineal descendents, in each Company or any of its subsidiaries or (v) any Permitted case to whom such person has transferred securities of Transferee of any of the foregoing persons. Food 4 Less. "Permitted Transferees" means, with respect to any IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD person, (i) any Affiliate of such person, (ii) the F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE heirs, executors, administrators, testamentary THIS COVENANT AND CERTAIN RELATED DEFINITIONS. trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of the Company, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person and (v) any investment fund or investment entity that is a subsidiary of such person or a Permitted Transferee of such person. CERTAIN COVENANTS CERTAIN COVENANTS LIMITATION ON RESTRICTED PAYMENTS. Pursuant to the LIMITATION ON RESTRICTED PAYMENTS. Pursuant to the New Old F4L Senior Note Indenture, Food 4 Less shall not, F4L Senior Note Indenture, the Company shall not, and and shall cause each of its subsidiaries not to, shall cause each of its subsidiaries not to, directly directly or indirectly, make any Restricted Payment if, or indirectly, make any Restricted Payment if, at the at the time of such Restricted Payment, or after giving time of such proposed Restricted Payment, or after effect thereto, (a) a Default or an Event of Default giving effect thereto, (a) a Default or an Event of (as defined below) shall have occurred and be continu- Default shall have occurred and be continuing, (b) the ing, (b) the net worth of Food 4 Less on the last day Company could not incur $1.00 of additional Indebted- of the full fiscal quarter immediately preceding the ness (other than Permitted Indebtedness) pursuant to date of such Restricted Payment (pro forma to give the covenant described below under "Limitation on effect thereto) is not greater than $115 million, (c) Incurrences of Additional Indebtedness" or (c) the Food 4 Less' Operating Coverage Ratio, calculated on a aggregate amount expended for all Restricted Payments, pro forma basis as if such Restricted Payment had been including such proposed Restricted Payment (the amount made at the beginning of the pro forma period, shall be of any Restricted Payment, if other than cash, to be less than 2.25 to 1.0 or (d) the aggregate amount the fair market value thereof at the date of payment as expended for all Restricted Payments, including such determined in good faith by the board of directors of Restricted Payment (the amount of any Restricted the Company), subsequent to the Issue Date, shall Payment, if other than cash, to be the fair market exceed the sum of (i) 50% of the aggregate Consolidated value thereof at the date of payment as determined in Net Income (or if such aggregate Consolidated Net good faith by the board of directors of Food 4 Less Income is a loss, minus 100% of such loss) of the which determination shall be evidenced by a board Company earned subsequent to the Issue Date and on or resolution), subsequent to the Issue Date, shall exceed prior to the date of the proposed Restricted Payment the sum of (i) 25% of the aggregate Consolidated Net (the "Reference Date") plus (ii) 100% of the aggregate Income (or if such aggregate Consolidated Net Income is net proceeds received by the Company from any person a loss, minus 100% of such loss) of Food 4 Less earned (other than a subsidiary of the Company) from the subsequent to the Issue Date and prior to the date the issuance and sale (including upon exchange or Restricted Payment occurs (the "Reference Date") plus conversion for other securities of the Company) (ii) 100% of the aggregate net proceeds received by subsequent to the Issue Date and on or prior to the Food 4 Less from any person (other than a subsidiary) Reference Date of Qualified Capital Stock (excluding from the issuance and
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ sale (including upon exchange or conversion for other (A) Qualified Capital Stock paid as a dividend on any securities of Food 4 Less) subsequent to the Issue Date capital stock or as interest on any Indebtedness and, and on or prior to the Reference Date of Qualified (B) any net proceeds from issuances and sales financed Capital Stock (excluding (A) Qualified Capital Stock directly or indirectly using funds borrowed from the paid as a dividend on any capital stock or as interest Company or any subsidiary, until and to the extent such on any Indebtedness and (B) any net proceeds from borrowing is repaid, plus (iii) 100% of the aggregate issuances and sales financed directly or indirectly net cash proceeds received by the Company as capital using funds borrowed from Food 4 Less or any subsidiary, contributions to the Company after the Issue Date plus until and to the extent such borrowing is repaid).) (iv) $25 million. Notwithstanding the foregoing, if no Default or Event Notwithstanding the foregoing, if no Default or Event of Default shall have occurred and be continuing as a of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the the payment of any dividend within 60 days after the date of its declaration if the dividend would have been date of its declaration if the dividend would have been permitted on the date of declaration, (2) the permitted on the date of declaration, (2) the acquisition of any shares of capital stock of Food 4 acquisition of any shares of capital stock of the Less or the repayment of any Indebtedness of Food 4 Company or the repurchase, redemption or other Less in exchange for or solely out of the proceeds of repayment of any Subordinated Indebtedness in exchange the substantially concurrent sale (other than to a for or solely out of the proceeds of the substantially subsidiary) of shares of Qualified Capital Stock, (3) concurrent sale (other than to a subsidiary) of shares the repurchase or redemption of (a) Old F4L Notes in of Qualified Capital Stock of the Company, (3) the accordance with the provisions of (i) Section 5.04 repurchase, redemption or other repayment or redemption ("Maintenance of Net Worth"), (ii) Section 5.16 of any Subordinated Indebtedness in exchange for or ("Limitation on Change of Control") and (iii) Section solely out of the proceeds of the substantially 5.17 ("Limitation on Disposition of Assets") set forth concurrent sale (other than to a subsidiary) of in the Old F4L Subordinated Note Indenture or (b) any Subordinated Indebtedness of the Company with an other Indebtedness of Food 4 Less in exchange for or Average Life equal to or greater than the then solely out of the proceeds of the substantially remaining Average Life of the Subordinated Indebtedness concurrent sale (other than to a Subsidiary) of repurchased or redeemed, and (4) Permitted Payments; Indebtedness which is subordinated in right of payment provided, however, that the declaration of each to the Old F4L Senior Notes with no scheduled or dividend paid in accordance with clause (1) above, each required maturity or scheduled or required repayment of acquisition, repurchase, redemption or other repayment principal or sinking fund payment prior to the final made in accordance with, or of the type set forth in, maturity of the Old F4L Senior Notes, or (4) Permitted clause (2) above, and each payment described in clause Payments; provided that the declaration of each (iii), (iv), (v), (vi), (vii) or (ix) of the definition dividend paid in accordance with clause (1) above, each of the term "Permitted Payments" shall each be counted acquisition or repayment made in accordance with, or of for purposes of computing amounts expended pursuant to the type set forth in, clause (2) above, each subclause (c) in the immediately preceding paragraph, repurchase of Old F4L Subordinated Notes pursuant to and no amounts expended pursuant to clause (3) above or clause (3)(a)(i) and each payment described in clause pursuant to clause (i), (ii) or (viii) of the (iii) or (iv) of the definition of "Permitted Payments" definition of the term "Permitted Payments" shall be so shall each be counted for purposes of computing amounts counted, provided, further that to the extent any expended pursuant to subclause (d) in the immediately payments made pursuant to clause (vii) of the preceding paragraph, and no payment described in clause definition of the term "Permitted Payments" are (3) above (other than clause (3)(a)(i)) or pursuant to deducted for purposes of computing the Consolidated Net clause (i) or (ii) of the definition of "Permitted Income of the Company, such payments shall not be Payments" shall be so counted. counted for purposes of computing amounts expended as Restricted Payments pursuant to subclause (c) in the "Restricted Payment" means any (i) Stock Payment, immediately preceding paragraph. (ii) Investment (other than a Permitted Investment) or (iii) Restricted Debt Prepayment. "Restricted Payment" means any (i) Stock Payment, (ii) Investment (other than a Permitted Investment) or (iii) "Stock Payment" means, with respect to any person, Restricted Debt Prepayment. (a) the declaration or payment by such person, either in cash or in property, of any dividend on (except, in "Stock Payment" means, with respect to any person, (a) the case of Food 4 Less, dividends payable solely in the declaration or payment by such person, either in Qualified Capital Stock of Food 4 Less), or the making cash or in property, of any dividend on (except, in the by such person or any of its subsidiaries of any other case of the Company, dividends payable solely in distribution in respect of, such person's Qualified Qualified Capital Stock of the Company), or the making Capital Stock or any warrants, rights or options to by such person or any of its subsidiaries of any other purchase or acquire shares of any class of such capital distribution in respect of, such person's Qualified stock (other than exchangeable or convertible Capital Stock or any warrants, rights or options to Indebtedness of such person), or (b) the redemption, purchase or acquire shares of any class of such capital repurchase, retirement or other acquisition for value stock (other than exchangeable or convertible by such person or any of its subsidiaries, directly or Indebtedness of such person), or (b) the redemption, indirectly, of such person's Qualified Capital Stock repurchase, retirement or other acquisition for value (and, in the case of a subsidiary, Qualified Capital by such person or any of its subsidiaries, directly or Stock of Food 4 Less) or any warrants, rights or indirectly, of such person's Qualified Capital Stock options to purchase or acquire shares of any class of (and, in the case of a subsidiary, Qualified Capital such capital stock (other than exchangeable or Stock of the Company) or any warrants, rights or convertible Indebtedness of such person), other than, options to purchase or acquire shares of any class of in the case of Food 4 Less, through the issuance in such capital stock (other than exchangeable or exchange therefor solely of Qualified Capital Stock of convertible Indebtedness of such person), other than, Food 4 Less; provided, however, that in the case of a in the case of the Company, through the issuance in subsidiary, the term "Stock Payment" shall not include exchange therefor solely of Qualified Capital Stock of any such payment with respect to its capital stock or the Company; provided, however, that in the case of a warrants, rights or options to purchase or acquire subsidiary, the term "Stock Payment" shall not include shares of any class of its capital stock that are owned any such payment with respect to its capital stock or solely by Food 4 Less or a wholly-owned subsidiary. warrants, rights or options to purchase or acquire shares of any
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ "Investment" by any person in any other person means class of its capital stock that are owned solely by the any investment by such person in such other person, Company or a wholly-owned subsidiary. whether by a purchase of assets, in any transaction or series of related transactions, individually or in the "Investment" by any person in any other person means aggregate, in an amount greater than $5 million, share any investment by such person in such other person, purchase, capital contribution, loan, advance (other whether by a purchase of assets, in any transaction or than reasonable loans and advances to employees for series of related transactions, individually or in the moving and travel expenses, as salary advances, or to aggregate, in an amount greater than $5 million, share permit the purchase of Qualified Capital Stock of Food purchase, capital contribution, loan, advance (other 4 Less and other similar customary expenses incurred, than reasonable loans and advances to employees for in each case in the ordinary course of business moving and travel expenses, as salary advances, or to consistent with past practice) or similar credit permit the purchase of Qualified Capital Stock of the extension constituting Indebtedness of such other Company and other similar customary expenses incurred, person, and any guarantee of Indebtedness of any other in each case in the ordinary course of business person. consistent with past practice) or similar credit extension constituting Indebtedness of such other "Permitted Investment" by any person means (i) any person, and any guarantee of Indebtedness of any other Related Business Investment, (ii) Investments in person. securities not constituting cash or cash equivalents and received in connection with an Asset Sale made "Permitted Investment" by any person means (i) any pursuant to the provisions of the Old F4L Senior Note Related Business Investment, (ii) Investments in Indenture summarized under "Limitation on Disposition securities not constituting cash or cash equivalents of Assets" or any other disposition of assets not and received in connection with an Asset Sale made constituting an Asset Sale by reason of the $250,000 pursuant to the provisions of the covenant described threshold contained in the definition thereof, (iii) under "Limitation on Asset Sales" or any other dispo- cash and cash equivalents, (iv) Investments existing on sition of assets not constituting an Asset Sale by June 17, 1991, (v) Investments specifically permitted reason of the $500,000 threshold contained in the by and made in accordance with the provisions of the definition thereof, (iii) cash and cash equivalents, Old F4L Senior Note Indenture summarized under (iv) Investments existing on the Issue Date, (v) "Limitation on Restricted Payments," "Limitation on Investments specifically permitted by and made in Transactions with Affiliates" and "Limitation on accordance with the provisions of the covenant Incurrences of Additional Indebtedness," and (vi) described under "Limitation on Transactions with Investments by Subsidiary Guarantors in other Affiliates", (vi) Investments by Subsidiary Guarantors Subsidiary Guarantors and Investments by subsidiaries in other Subsidiary Guarantors and Investments by which are not Subsidiary Guarantors in other subsid- subsidiaries which are not Subsidiary Guarantors in iaries which are not Subsidiary Guarantors. other subsidiaries which are not Subsidiary Guarantors, and (vii) additional Investments in an aggregate amount not exceeding $5 million. "Restricted Debt Prepayment" means any purchase, "Restricted Debt Prepayment" means any purchase, redemption, defeasance (including, but not limited redemption, defeasance (including, but not limited to, to, in-substance or legal defeasance) or other in substance or legal defeasance) or other acquisition acquisition or retirement for value, directly or or retirement for value, directly or indirectly, by the indirectly, by Food 4 Less or a subsidiary, prior to Company or a subsidiary, prior to the scheduled the scheduled maturity or prior to any scheduled maturity or prior to any scheduled repayment of repayment of principal or sinking fund payment, as the principal or sinking fund payment, as the case may be, case may be, in respect of Indebtedness of Food 4 Less in respect of Subordinated Indebtedness. that is subordinate in right of payment to the Old F4L Senior Subordinated Notes; provided, however, that any "Permitted Payments" means (i) any payment by the Com- such acquisition shall be deemed not to be a Restricted pany or any subsidiary to The Yucaipa Companies or the Debt Prepayment to the extent it is made (x) in principals thereof for consulting, management, exchange for or with the proceeds from the investment banking or similar advisory services during substantially concurrent issuance of Qualified Capital such period pursuant to that certain Consulting Stock or (y) in exchange for or with the proceeds from Agreement, dated as of the Issue Date among Food 4 the substantially concurrent issuance of Indebtedness, Less, New Holdings and The Yucaipa Companies, (as such in a principal amount (or, if such Indebtedness payments would be calculated under such Consulting provides for an amount less than the principal amount Agreement as in effect on the Issue Date) (ii) any thereof to be due and payable upon the acceleration payment by the Company or any subsidiary pursuant to thereof, with an original issue price) not to exceed the Amended and Restated Tax Sharing Agreement, dated the sum of (A) the lesser of (i) the principal amount as of June 17, 1991, between Food 4 Less and certain of Indebtedness being acquired in exchange therefor (or subsidiaries, as such Tax Sharing Agreement may be with the proceeds therefrom) and (ii) if such amended from time to time, so long as the payment Indebtedness being acquired was issued at an original thereunder by the Company and its subsidiaries shall issue discount, the original issue price thereof plus not exceed the amount of taxes the Company would be amortization of the original issue discount at the time required to pay if it were the filing person for all of the incurrence of the Indebtedness being issued in applicable taxes, (iii) any payment by the Company or exchange therefor (or the proceeds of which will any subsidiary pursuant to the Transfer and Assumption finance such acquisition), and (B) the amount of Agreement, dated as of June 23, 1989, between Food 4 penalties, fees and expenses actually incurred with Less and Holdings, as in effect on the Issue Date, (iv) respect thereto, and provided further that (x) any such any payment by the Company or any subsidiary (a) in Indebtedness shall have an average life not less than connection with repurchases of outstanding shares of the average life of the Indebtedness being acquired, the Company's or New Holdings' common stock following and shall contain subordination and default provisions the death, disability or termination of employment of no less favorable, in any material respect, to holders management stockholders, and (b) of amounts required to of the Old F4L Senior Subordinated Notes than those be paid by New Holdings, the Company or any of its contained in such Indebtedness being acquired (y) any subsidiaries to participants in employee benefit plans such Indebtedness that repays the F4L Senior upon termination of employment by such participants, as Subordinated Notes shall not have any fixed mandatory provided in the documents related thereto, in an redemption or sinking fund requirement in an amount aggregate amount (for both clauses (a) and (b)) not to greater than or at a time prior to the amounts and exceed $10 million in any yearly period (provided that times specified in the F4L Senior Subordinated Notes or any unused amounts may be carried over to any any Indebtedness refinancing the F4L Senior Subordi- subsequent yearly period subject to a maximum amount of nated Notes, as the case may be, unless any such $20 million in any yearly period), (v) from and after requirement applies on a date after the Maturity Date. June 30, 1998, payments of cash
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ "Permitted Payments" means any payment by Food 4 Less dividends to New Holdings in an amount sufficient to or any subsidiary (i) to The Yucaipa Companies or the enable New Holdings to make payments of interest principals thereof for consulting, investment banking required to be made in respect of the Holdings Discount or similar services during such period pursuant to that Notes in accordance with the terms thereof in effect on certain Amended and Restated Consulting Agreement, the Issue Date, (vi) from and after March 1, 2000, dated as of June 17, 1991, among Food 4 Less, Yucaipa payments of cash dividends to New Holdings in an amount Management Company and The Yucaipa Companies, as such sufficient to enable New Holdings to make payments of amounts would be calculated under such Consulting interest required to be made in respect of the Seller Agreement as in effect on the Issue Date, (ii) pursuant Debentures in accordance with the terms thereof in to the Amended and Restated Tax Sharing Agreement, effect on the Issue Date, (vii) dividends or other dated as of June 17, 1991, between Food 4 Less and payments to New Holdings sufficient to permit New certain subsidiaries, as such Tax Sharing Agreement may Holdings to perform accounting, legal, corporate and be amended from time to time, so long as the payment administrative functions in the ordinary course of thereunder by Food 4 Less and its subsidiaries shall business or to pay required fees and expenses in not exceed the amount of taxes Food 4 Less would be connection with the Merger, the Reincorporation Merger required to pay if it were the filing person for all and the registration under applicable laws and applicable taxes, (iii) pursuant to the Transfer and regulations of its debts and securities, (viii) Assumption Agreement, dated as of June 23, 1989, dividends or other distributions by the Company to New between Food 4 Less and FFL, as in effect on the Issue Holdings on the Issue Date of shares of New Holdings Date, and (iv) (a) in connection with repurchases of common stock owned by the Company and (ix) dividends by outstanding shares of Food 4 Less' common stock the Company to New Holdings of the Net Cash Proceeds of following the death, disability or termination of an Asset Sale to the extent that (x) neither the employment of management stockholders, and (b) of Company nor any of the Subsidiaries is required, or may amounts required to be paid by FFL, Food 4 Less or any be required, pursuant to the documents governing any of its subsidiaries to participants in employee benefit outstanding Indebtedness of the Company or any of the plans upon any termination of employment by such Subsidiaries to utilize such Net Cash Proceeds to repay participants, as provided in the documents related (or offer to repay) such Indebtedness, (y) such Net thereto, in an aggregate amount (for both clauses (a) Cash Proceeds have not been utilized to repay and (b)) not to exceed $5 million in any yearly period outstanding Indebtedness of the Company or any of the (provided that any unused amounts may be carried over Subsidiaries and (z) New Holdings is required pursuant to any subsequent yearly period subject to a maximum to the documents governing any outstanding Indebtedness amount of $10 million in any yearly period). of New Holdings to utilize such Net Cash Proceeds to repay (or offer to repay) such Indebtedness.. "Consolidated Net Income," means, with respect to any person, for any period, the aggregate of the net income "Consolidated Net Income" means, with respect to any (or loss) of such person and its subsidiaries for such person, for any period, the aggregate of the net income period, on a consolidated basis, determined in (or loss) of such person and its subsidiaries for such accordance with GAAP; provided that (a) the net income period, on a consolidated basis, determined in of any other person in which such person or any of its accordance with GAAP; provided that (a) the net income subsidiaries has an interest (which interest does not of any other person in which such person or any of its cause the net income of such other person to be subsidiaries has an interest (which interest does not consolidated with the net income of such person and its cause the net income of such other person to be subsidiaries in accordance with GAAP) shall be included consolidated with the net income of such person and its only to the extent of the amount of dividends or subsidiaries in accordance with GAAP) shall be included distributions actually paid to such person or such only to the extent of the amount of dividends or subsidiary by such other person in such period; (b) the distributions actually paid to such person or such net income of any subsidiary of such person that is subsidiary by such other person in such period; (b) the subject to any Payment Restriction shall be excluded to net income of any subsidiary of such person that is the extent such Payment Restriction actually prevented subject to any Payment Restriction shall be excluded to the payment of an amount that otherwise could have been the extent such Payment Restriction actually prevented paid to, or received by, such person or a subsidiary of the payment of an amount that otherwise could have been such person not subject to any Payment Restriction; and paid to, or received by, such person or a subsidiary of (c)(i) the net income (or loss) of any other person such person not subject to any Payment Restriction; and acquired in a pooling of interests transaction for any (c)(i) the net income (or loss) of any other person period prior to the date of such acquisition, (ii) all acquired in a pooling of interests transaction for any gains and losses realized on any Asset Sale or in period prior to the date of such acquisition, (ii) all connection with the closure of the Long Beach gains and losses realized on any Asset Sale, (iii) all Warehouse, (iii) all gains realized upon or in gains realized upon or in connection with or as a connection with or as a consequence of the issuance of consequence of the issuance of the capital stock of the capital stock of such person or any of its such person or any of its subsidiaries and any gains on subsidiaries and any gains on pension reversions pension reversions received by such person or any of received by such person or any of its subsidiaries, its subsidiaries, (iv) all gains and losses realized on (iv) all gains and losses realized on the purchase or the purchase or other acquisition by such person or any other acquisition by such person or any of its of its subsidiaries of any securities of such person or subsidiaries of any securities of such person or any of any of its subsidiaries, (v) all gains and losses its subsidiaries, (v) all gains and losses resulting resulting from the cumulative effect of any accounting from the cumulative effect of any accounting change change pursuant to the application of Accounting pursuant to the application of Accounting Principles Principles Board Opinion No. 20, as amended, (vi) all Board Opinion No. 20, as amended, (vi) all other other extraordinary gains and losses, (vii) all extraordinary gains and losses, and (vii) with respect non-cash charges incurred by the Company or any of its to Food 4 Less all deferred financing costs written off subsidiaries in connection with the Merger, including, in connection with the early extinguishment of any without limitation, the divestiture of the Excluded Indebtedness shall each be excluded. Assets, (viii) losses incurred by the Company and its subsidiaries resulting from earthquakes and (ix) with IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD respect to the Company, all deferred financing costs F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE written off in connection with the early extinguishment THIS COVENANT AND CERTAIN RELATED DEFINITIONS. of any Indebtedness, shall each be excluded. "Subordinated Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ which is subordinated in right of payment to the New F4L Senior Notes or the guarantee of such Subsidiary Guarantor, as the case may be. LIMITATION ON INCURRENCES OF ADDITIONAL LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS. Pursuant to the Old F4L Senior Note INDEBTEDNESS. Pursuant to the New F4L Senior Note Indenture, Food 4 Less shall not, and shall not permit Indenture, the Company shall not, and shall not permit any of its subsidiaries, directly or indirectly, to any of its subsidiaries, directly or indirectly, to incur, assume, guarantee, become liable, contingently incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") responsible for the payment of (collectively "incur") any Indebtedness; provided, however, that (i) Food 4 any Indebtedness other than Permitted Indebtedness; Less may incur Indebtedness if (A) no Default with provided, however, that if no Default with respect to respect to payment of principal of, or interest on, the payment of principal of, or interest on, the New F4L Old F4L Senior Notes or Event of Default shall have Senior Notes issued under the New F4L Senior Note occurred and be continuing at the time or as a Indenture or Event of Default under the New F4L Senior consequence of the incurrence of any such Indebtedness Note Indenture shall have occurred and be continuing at and (B) on the date of the incurrence of such the time or as a consequence of the incurrence of any Indebtedness the Operating Coverage Ratio of Food 4 such Indebtedness, the Company may incur Indebtedness Less would be greater than 2.2. to 1.0 if such date is if immediately before and immediately after giving after June 15, 1994 and prior to June 15, 1996; and effect to the incurrence of such Indebtedness the greater than 2.4 to 1.0 thereafter; and (ii) a Operating Coverage Ratio of the Company would be subsidiary may incur Acquired Indebtedness to the greater than 2.0 to 1.0; provided, further, that a extent such Indebtedness could have been incurred by subsidiary may incur Acquired Indebtedness to the Food 4 Less pursuant to the preceding clause (i). extent such Indebtedness could have been incurred by the Company pursuant to the immediately preceding The foregoing limitation shall not apply to (a) proviso. Indebtedness of Food 4 Less and its subsidiaries pursuant to (i) the Term Facility under or pursuant to In addition, the New F4L Senior Note Indenture will the Loan Documents in an aggregate principal amount at provide that neither the Company nor any Subsidiary any time outstanding not to exceed $301.7 million, less Guarantor will, directly or indirectly, in any event the aggregate amount of all principal repayments incur any Indebtedness that by its terms (or by the thereunder out of the net proceeds of the offering of terms of any agreement governing such Indebtedness) is the Old F4L Senior Notes, and less any future subordinated to any other Indebtedness of the Company repayments subsequent to the Issue Date, (ii) the or such Subsidiary Guarantor, as the case may be, Subsidiary Letter of Credit Obligations (and Food 4 unless such Indebtedness is also by its terms (or by Less and each subsidiary (to the extent it is not an the terms of any agreement governing such Indebtedness) obligor) may guarantee such Indebtedness) not to exceed made expressly subordinate to the New F4L Senior Notes $55 million at any time outstanding and (iii) the or the guarantee of such Subsidiary Guarantor, as the Revolving Facility under the Loan Documents (and Food 4 case may be, to the same extent and in the same manner Less and each subsidiary (to the extent it is not an as such Indebtedness is subordinated pursuant to obligor) may guarantee such Indebtedness) in an subordination provisions that are most favorable to the aggregate principal amount at any time outstanding not holders of any other Indebtedness of the Company or to exceed $70 million, less all permanent reductions of such Subsidiary Guarantor, as the case may be. the unused portion under the Revolving Facility, (b) the Old F4L Senior Notes; (c) certain intercompany "Indebtedness" means, with respect to any person, Indebtedness; (d) Indebtedness incurred by Food 4 Less without duplication, (i) all liabilities, contingent or or any subsidiary in connection with the purchase or otherwise, of such person (a) for borrowed money improvement of property (real or personal) or equipment (whether or not the recourse of the lender is to the or other capital expenditures in the ordinary course of whole of the assets of such person or only to a portion business (including for the purchase of assets or stock thereof), (b) evidenced by bonds, notes, debentures, of any retail grocery store or business) or consisting drafts accepted or similar instruments or letters of of capitalized lease obligations, in aggregate not to credit or representing the balance deferred and unpaid exceed $25 million in any yearly period (provided that of the purchase price of any property (other than any any unused amounts may be carried over to the next (but such balance that represents an account payable or any not any subsequent) yearly period); (e) Indebtedness of other monetary obligation to a trade creditor (whether Food 4 Less under certain Foreign Exchange Agreements or not an affiliate) created, incurred, assumed or and Interest Swap Obligations; (f) Permitted Guarantees guaranteed by such person in the ordinary course of of Indebtedness in aggregate not to exceed $25 million business of such person in connection with obtaining at any time outstanding in addition to those goods, materials or services and due within twelve outstanding on the date of the Alpha Beta Acquisition; months (or such longer period for payment as is (g) guarantees by Food 4 Less and its subsidiaries of customarily extended by such trade creditor) of the Indebtedness incurred by a wholly-owned subsidiary incurrence thereof, which account is not overdue by provided that the incurrence of such Indebtedness by more than 90 days, according to the original terms of such wholly-owned subsidiary is permitted under the sale, unless such account payable is being contested in terms of the Old F4L Senior Note Indenture; (h) good faith), or (c) for the payment of money relating Refinancing Indebtedness; (i) Indebtedness in to a capitalized lease obligation; (ii) the maximum connection with the acquisition of the La Habra fixed repurchase price of all Disqualified Capital Facility and Option Stores if, after giving effect to Stock of such person; (iii) reimbursement obligations such incurrence, the Operating Coverage Ratio of Food 4 of such person with respect to letters of credit; (iv) Less would be greater than 2.0 to 1.0; (j) Indebtedness obligations of such person with respect to Interest for letters of credit relating to workers' compensation Swap Obligations and Foreign Exchange Agreements; (v) claims and self-insurance or similar requirements in all liabilities of others of the kind described in the the ordinary course of business; (k) the Old F4L preceding clause (i), (ii), (iii) or (iv) that such Subordinated Notes and related guarantees; and (l) person has guaranteed or that is otherwise its legal additional Indebtedness of Food 4 Less and its liability; and (vi) all obligations of others secured Subsidiary Guarantors in an amount not to exceed $75 by a lien to which any of the properties or assets million at any time outstanding. (including, without limitation, leasehold interests and any other tangible or intangible property rights) of "Indebtedness" means with respect to any person, such person are subject, whether or not the obligations without duplication, (i) all liabilities, contingent or secured thereby shall have been assumed by such person otherwise, of such or shall otherwise be such person's legal liability
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ person (a) for borrowed money (whether or not the (provided that if the obligations so secured have not recourse of the lender is to the whole of the assets of been assumed by such person or are not otherwise such such person or only to a portion thereof), (b) person's legal liability, such obligations shall be evidenced by bonds, notes, debentures, drafts accepted deemed to be in an amount equal to the fair market or similar instruments or letters of credit or value of such properties or assets, as determined in representing the balance deferred and unpaid of the good faith by the board of directors of such person, purchase price of any property (other than any such which determination shall be evidenced by a board balance that represents an account payable or any other resolution). For purposes of the preceding sentence, monetary obligation to a trade creditor (whether or not the "maximum fixed repurchase price" of any an affiliate) created, incurred, assumed or guaranteed Disqualified Capital Stock that does not have a fixed by such person in the ordinary course of business of repurchase price shall be calculated in accordance with such person in connection with obtaining goods, the terms of such Disqualified Capital Stock as if such materials or services and due within twelve months (or Disqualified Capital Stock were purchased on any date such longer period for payment as is customarily on which Indebtedness shall be required to be extended by such trade creditor) of the incurrence determined pursuant to this Indenture, and if such thereof, which account is not overdue by more than 90 price is based upon, or measured by, the fair market days, according to the original terms of sale, unless value of such Disqualified Capital Stock (or any equity such account payable is being contested in good faith), security for which it may be exchanged or converted), or (c) for the payment of money relating to a such fair market value shall be determined in good capitalized lease obligation; (ii) the maximum fixed faith by the board of directors of such person, which repurchase price of all Disqualified Capital Stock of determination shall be evidenced by a board resolution. such person; (iii) reimbursement obligations of such For purposes of the New F4L Senior Note Indenture, person with respect to letters of credit; (iv) Indebtedness incurred by any person that is a general obligations of such person with respect to Interest partnership (other than non-recourse Indebtedness) Swap Obligations and Foreign Exchange Agreements; (v) shall be deemed to have been incurred by the general all liabilities of others of the kind described in the partners of such partnership pro rata in accordance preceding clause (i), (ii), (iii) or (iv) that such with their respective interests in the liabilities of person has guaranteed or that is otherwise its legal such partnership unless any such general partner shall, liability; and (vi) all obligations of others secured in the reasonable determination of the board of by a lien to which any of the properties or assets directors of the Company, be unable to satisfy its pro (including, without limitation, leasehold interests and rata share of the liabilities of the partnership, in any other tangible or intangible property rights) of which case the pro rata share of any Indebtedness such person are subject, whether or not the obligations attributable to such partner shall be deemed to be secured thereby shall have been assumed by such person incurred at such time by the remaining general partners or shall otherwise be such person's legal liability on a pro rata basis in accordance with their interests. (provided that if the obligations so secured have not been assumed by such person or are not otherwise such "Permitted Indebtedness" means (a) Indebtedness of the person's legal liability, such obligations shall be Company and its Subsidiaries pursuant to (i) the Term deemed to be in an amount equal to the fair market value Loans or any Loan Documents in an aggregate principal of such properties or assets, as determined in good amount at any time outstanding not to exceed $750 faith by the board of directors of such person, which million, less the aggregate amount of all principal determination shall be evidenced by a board repayments thereunder pursuant to and in accordance resolution). For purposes of the preceding sentence, with the covenant described under "-- Certain Cove- the "maximum fixed repurchase price" of any nants -- Limitation on Asset Sales" above subsequent to Disqualified Capital Stock that does not have a fixed the Issue Date, and (ii) the revolving credit facility repurchase price shall be calculated in accordance with under the Credit Agreement or any Loan Documents (and the terms of such Disqualified Capital Stock as if such the Company and each Subsidiary (to the extent it is Disqualified Capital Stock were purchased on any date not an obligor) may guarantee such Indebtedness) in an on which Indebtedness shall be required to be aggregate principal amount at any time outstanding not determined pursuant to the Old F4L Senior Note to exceed $325 million, less all permanent reductions Indenture, and if such price is based upon, or measured thereunder pursuant to and in accordance with the by, the fair market value of such Disqualified Capital covenant described under "-- Certain Stock (or any equity security for which it may be Covenants -- Limitation on Asset Sales" above, (b) exchanged or converted), such fair market value shall Indebtedness of the Company or a Subsidiary Guarantor be determined in good faith by the board of directors owed to and held by the Company or a Subsidiary of such person, which determination shall be evidenced Guarantor; (c) Indebtedness incurred by the Company or by a board resolution. For purposes of the Old F4L any Subsidiary in connection with the purchase or Senior Note Indenture, Indebtedness incurred by any improvement of property (real or personal) or equipment person that is a general partnership (other than or other capital expenditures in the ordinary course of non-recourse Indebtedness) shall be deemed to have been business (including for the purchase of assets or stock incurred by the general partners of such partnership of any retail grocery store or business) or consisting pro rata in accordance with their respective interests of Capitalized Lease Obligations provided that (i) at in the liabilities of such partnership unless any such the time of the incurrence thereof, such indebtedness, general partner shall, in the reasonable determination together with any other Indebtedness incurred during of the board of directors of Food 4 Less, be unable to the most recently completed four fiscal quarter period satisfy its pro rata share of the liabilities of the in reliance upon this clause (c) does not exceed, in partnership, in which case the pro rata share of any the aggregate, 3% of net sales of the Company and its Indebtedness attributable to such partner shall be Subsidiaries during the most recently completed four deemed to be incurred at such time by the remaining fiscal quarter period on a consolidated basis general partners on a pro rata basis in accordance with (calculated on a pro forma basis if the date of their interests. incurrence is prior to the first anniversary of the Merger) and (ii) such Indebtedness, together with all "Operating Coverage Ratio" means, with respect to any then outstanding Indebtedness incurred in reliance upon person, the ratio of (1) EBDIT of such person for the this clause (c) does not exceed, in the aggregate, 3% period (the "Pro Forma Period") consisting of the most of the aggregate net sales of the Company and its recent four full fiscal quarters for which financial Subsidiaries during the most recently completed twelve information in respect thereof is available immediately fiscal quarter period on a consolidated basis (calcu- prior to the date of the transaction giving rise to the lated on a pro forma basis if the date of incurrence is need to calculate the Operating Coverage Ratio (the prior to the third anniversary of the Merger); (d) "Transaction Date") to (2) the aggregate Fixed Charges Indebtedness incurred by the Company or any subsidiary of such person for the fiscal quarter in which the in connection with capital ex- Transaction Date occurs and the three fiscal quarters immediately subsequent to such
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ fiscal quarter (the "Forward Period") reasonably penditures in an aggregate principal amount not anticipated by the board of directors of such person to exceeding $150 million in the aggregate, provided that become due from time to time during such period. For such capital expenditures relate solely to the purposes of this definition, if the Transaction Date integration of the operations of RSI, Food 4 Less and occurs prior to the first anniversary of the Alpha Beta their respective subsidiaries, as described in this Acquisition, "EBDIT" for the Pro Forma Period shall be Prospectus and Solicitation Statement; (e) Indebtedness calculated, in the case of Food 4 Less, after giving of the Company incurred under certain Foreign Exchange effect on a pro forma basis to the Alpha Beta Agreements and Interest Swap Obligations; (f) Acquisition as if it had occurred on the first day of guarantees incurred in the ordinary course of business the Pro Forma Period. In addition to, but without by the Company or a Subsidiary of Indebtedness of any duplication of, the foregoing, for purposes of this other person in aggregate not to exceed $25.0 million definition, "EBDIT" shall be calculated after giving at any time outstanding; (g) guarantees by the Company effect (without duplication), on a pro forma basis for or a Subsidiary Guarantor of Indebtedness incurred by a the Pro Forma Period (but no longer), to (a) any wholly-owned Subsidiary Guarantor so long as the Investment, during the period commencing on the first incurrence of such Indebtedness incurred by such day of the Pro Forma Period to and including the wholly-owned Subsidiary Guarantor is permitted under Transaction Date (the "Reference Period"), in any other the terms of the applicable New Indenture; (h) person that, as a result of such Investment, becomes a Refinancing Indebtedness; (i) Indebtedness for letters subsidiary of such person, (b) the acquisition, during of credit relating to workers' compensation claims and the Reference Period (by merger, consolidation or self-insurance or similar requirements in the ordinary purchase of stock or assets) of any business or assets, course of business; (j) other Indebtedness outstanding which acquisition is not prohibited by the Old F4L on the Issue Date (after giving effect to the Merger); Senior Note Indenture, and (c) any sales or other (k) Indebtedness arising from guarantees of dispositions of assets (other than sales of inventory Indebtedness of the Company or any Subsidiary or other in the ordinary course of business) occurring during agreements of the Company or a Subsidiary providing for the Reference Period, in each case as if such indemnification, adjustment of purchase price or incurrence, Investment, repayment, acquisition or similar obligations, in each case, incurred or assumed asset sale had occurred on the first day of the in connection with the disposition of any business, Reference Period. In addition, for purposes of this assets or Subsidiary, other than guarantees of definition, "Fixed Charges" shall be calculated after Indebtedness incurred by any person acquiring all or giving effect (without duplication), on a pro forma any portion of such bonuses, assets or Subsidiary for basis for the Forward Period, to any Indebtedness the purpose of financing such acquisition, provided incurred or repaid on or after the first day of the that the maximum aggregate liability in respect of all Forward Period and prior to the Transaction Date. such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its subsidiaries in connection with such disposition; (l) "Refinancing Indebtedness" means, with respect to any obligations in respect of performance bonds and person, Indebtedness of such person issued in exchange completion guarantees provided by the Company or any for, or the proceeds from the issuance and sale or Subsidiary in the ordinary course of business; and (m) disbursement of which are used to substantially additional Indebtedness of the Company and the concurrently repay, redeem, refund, refinance, Subsidiary Guarantors in an amount not to exceed $200 discharge or otherwise retire for value, in whole or in million at any time outstanding. part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral "Operating Coverage Ratio" means, with respect to any or renewal of (collectively, an "amendment"), any person, the ratio of (1) EBDIT of such person for the Indebtedness of such person existing on the Issue Date period (the "Pro Forma Period") consisting of the most or Indebtedness (other than Permitted Indebtedness, recent four full fiscal quarters for which financial except Permitted Indebtedness incurred pursuant to information in respect thereof is available immediately clauses (a), (c), (d), (h), (j) and (k) of the prior to the date of the transaction giving rise to the definition thereof) incurred in accordance with the need to calculate the Operating Coverage Ratio (the applicable New Indenture (a) in a principal amount (or, "Transaction Date") to (2) the aggregate fixed charges if such Refinancing Indebtedness provides for an amount of such person for the fiscal quarter in which the less than the principal amount thereof to be due and Transaction Date occurs and the three fiscal quarters payable upon the acceleration thereof, with an original immediately subsequent to such fiscal quarter (the issue price) not in excess of (without duplication) (i) "Forward Period") reasonably anticipated by the board the principal amount or the original issue price, as of directors of such person to become due from time to the case may be, of the Indebtedness so refinanced (or, time during such period. For purposes of this if such Refinancing Indebtedness refinances definition, if the Transaction Date occurs prior to the Indebtedness under a revolving credit facility or other first anniversary of the Merger, "EBDIT" for the Pro agreement providing a commitment for subsequent Forma Period shall be calculated, in the case of the borrowings, with a maximum commitment not to exceed the Company, after giving effect on a pro forma basis to maximum commitment under such revolving credit facility the Merger as if it had occurred on the first day of or other agreement) plus (ii) unpaid accrued interest the Pro Forma Period. In addition to, but without on such Indebtedness plus (iii) premiums, penalties, duplication of, the foregoing, for purposes of this fees and expenses actually incurred by such person in definition, "EBDIT" shall be calculated after giving connection with the repayment or amendment thereof and effect (without duplication), on a pro forma basis for (b) with respect to Refinancing Indebtedness that the Pro Forma Period (but no longer), to (a) any repays or constitutes an amendment to Subordinated Investment, during the period commencing on the first Indebtedness, such Refinancing Indebtedness (x) shall day of the Pro Forma Period to and including the not have any fixed mandatory redemption or sinking fund Transaction Date (the "Reference Period"), in any other requirement in an amount greater than or at a time person that, as a result of such Investment, becomes a prior to the amounts and times specified in such repaid subsidiary of such person, (b) the acquisition, during or amended Subordinated Indebtedness, except to the the Reference Period (by merger, consolidation or extent that any such requirement applies on a date purchase of stock or assets) of any business or assets, after the Maturity Date of the New F4L Senior Notes and which acquisition is not prohibited by the New F4L (y) shall contain subordination and default provisions Senior Note Indenture, and (c) any sales or other no less favorable in any material respect to holders of dispositions of assets (other than sales of inventory the New Senior F4L Notes than those contained in such in the ordinary course of business) occurring during repaid or amended Subordinated Indebtedness. the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset "Loan Documents" means the Credit Agreement and all sale had occurred on the first day of the Reference promissory notes, guarantees, security agreements, Period. In addition, for purposes of this definition, pledge agreements, deeds of trust, mortgages, letters "Fixed Charges" shall be calculated after giving effect of credit and other (without duplication), on a pro forma basis for
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ instruments, agreements and documents executed pursuant the Forward Period, to any Indebtedness incurred or thereto or in connection therewith, including all repaid on or after the first day of the Forward Period amendments, supplements, extensions, renewals, and prior to the Transaction Date. If such person or restatements, replacements or refinancings thereof, or any of its subsidiaries directly or indirectly other modifications (in whole or in part, and without guarantees any Indebtedness of a third person, the limitation as to amount, terms, conditions, covenants Operating Coverage Ratio shall give effect to the or other provisions) thereof from time to time. incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed "Credit Agreement" means the Credit Agreement, dated Indebtedness. as of June 17, 1991, by and among Food 4 Less, certain of its subsidiaries, the Lenders and Designated Issuers "Credit Agreement" means the Credit Agreement, dated as of the Lenders referred to therein, Bankers Trust of the Issue Date, by and among Food 4 Less, certain of Company, Citicorp North America, Inc., and its subsidiaries, the Lenders referred to therein, Manufacturers Hanover Trust Company, as Co-Agents, and Bankers Trust Company, as administrative agent, as the Citicorp North America, Inc., as Administrative Agent, case may be, as amended, extended, renewed, restated, as amended, extended, renewed, restated, supplemented supplemented or otherwise modified (in whole or in or otherwise modified (in whole or in part, and without part, and without limitation as to amount, terms, limitation as to amount, terms, conditions and other conditions, covenants and other provisions) from time provisions) from time to time, and any agreement to time, and any agreement governing Indebtedness in- governing Indebtedness required to refund or refinance curred to refund or refinance the entirety of the the entirety of the borrowings and commitments then borrowings and commitments then outstanding or outstanding or permitted to be outstanding under such permitted to be outstanding under such Credit Agreement Credit Agreement or such agreement. Food 4 Less shall or such agreement. promptly notify the Old F4L Senior Note Trustee of any such refunding or refinancing of the Credit Agreement. "Acquired Indebtedness" means (i) with respect to any person that becomes a subsidiary of the Company (or is "Acquired Indebtedness" means Indebtedness of a merged into the Company or any of its subsidiaries) person or any of its subsidiaries existing at the time after the Issue Date, Indebtedness of, such person or such person becomes a subsidiary or assumed in any of its subsidiaries existing at the time such connection with the acquisition of assets from such person becomes a subsidiary of the Company (or is person and not incurred by such person in connection merged into the Company or any of its subsidiaries) with, or in anticipation or contemplation of, such and which was not incurred in connection with, or in person becoming a subsidiary or such acquisition. contemplation of, such person becoming a subsidiary of the Company (or being merged into the Company or "Permitted Guarantees" means (i) guarantees in effect any of its subsidiaries) and (ii) with respect to on the Issue Date and (ii) guarantees incurred in the the Company or any of its subsidiaries, any ordinary course of business, by Food 4 Less or a Indebtedness assumed by the Company or any of its subsidiary, of Indebtedness of any other person. subsidiaries in connection with the acquisition of any assets from another person (other than the Company or "Refinancing Indebtedness" means Indebtedness of Food any of its subsidiaries), and which was not incurred by 4 Less or a subsidiary (i) issued in exchange for, or such other person in connection with, or in contem- the proceeds from the issuance and sale or disbursement plation of, such acquisition. of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise "EBDIT" means, with respect to any person, for any retire for value, in whole or in part (collectively, period, the Consolidated Net Income of such person for "repay"), or constituting an amendment, modification or such period, plus, in each case to the extent deducted supplement to, or a deferral or renewal of in computing Consolidated Net Income of such person for (collectively, an "amendment"), any Indebtedness of such period (without duplication( (i) provisions for Food 4 Less or a subsidiary (and any penalties, fees income taxes or similar charged recognized by such and expenses actually incurred by Food 4 Less or such person and its consolidated subsidiaries accrued during subsidiary in connection with the repayment or such period, (ii) depreciation and amortization expense amendment thereof) existing immediately after the of such person and its consolidated subsidiaries original issuance of the Old F4L Senior Notes or accrued during such period (but only to the extent not incurred pursuant to the Operating Coverage Ratio test included in fixed charges), (iii) fixed charges of such set forth under "Limitation on the Incurrence of person and its consolidated subsidiaries for such Additional Indebtedness," or pursuant to certain other period, (iv) LIFO charges (credits) of such person and exceptions thereunder, in a principal amount (or, if its consolidated subsidiaries for such period, (v) the such Refinancing Indebtedness provides for an amount amount of any restructuring reserve or charge recorded less than the principal amount thereof to be due and during such period in accordance with GAAP, including payable upon the acceleration thereof, with an original any such reserve or charge related to the Merger, and issue price) not in excess of (1) the principal amount (vi) any other non-cash charges reducing Consolidated of the Indebtedness so refinanced (or, if such Net Income for such period (excluding any such charge Refinancing Indebtedness refinances Indebtedness under which requires an accrual of or a cash reserve for cash a revolving credit facility or other agreement charges for any future period), less, without providing a commitment for subsequent borrowings, with duplication, (i) non-cash items increasing Consolidated a maximum commitment not to exceed the maximum Net Income of such person for such period in each case commitment under such revolving credit facility or determined in accordance with GAAP and (ii) the amount other agreement) plus (2) unpaid accrued interest on of all cash payments made by such person or its such Indebtedness plus (3) penalties, fees and ex- subsidiaries during such period to the extent that such penses actually incurred by Food 4 Less or such cash payment has been provided for in a restructuring subsidiary, as the case may be, in connection with the reserve or charge referred to in clause (v) above (and repayment or amendment thereof; or (ii) in an amount were not otherwise deducted in the computation of permitted to be incurred at the time of such incurrence Consolidated Net Income of such person for such by Food 4 Less or such subsidiary, as the case may be, period). under the Credit Agreement pursuant to "Limitation on the Incurrence of Additional Indebtedness"; provided "Permitted Guarantees" means (i) guarantees in effect that (for both clauses (i) and (ii) above) (A) on the Issue Date and (ii) guarantees incurred in the Refinancing Indebtedness of any subsidiary shall not be ordinary course of business, by the Company or a used to repay outstanding Indebtedness of Food 4 Less, subsidiary, of Indebtedness of any other person. (B) Refinancing Indebtedness of Food 4 Less that repays or constitutes an amendment to Indebtedness of Food 4 "Refinancing Indebtedness" means, with respect to any Less (other than any of the Old F4L Senior Notes) person, Indebtedness of such person issued in exchange ranking junior in right of payment to, the Old F4L for, or the proceeds from the issuance and sale or Senior Notes disbursement of which are used to substantially concurrently repay, redeem, refund, refi-
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ shall not have an average life less than the nance, discharge or otherwise retire for value, in Indebtedness to be so refinanced at the time of such whole or in part (collectively, "repay"), or incurrence; provided, however, Refinancing Indebtedness constituting an amendment, modification or supplement of Food 4 Less that repays or constitutes an amendment to, or a deferral or renewal of (collectively, an to the Old F4L Subordinated Notes or any Indebtedness "amendment"), any Indebtedness of such person existing refinancing the Old F4L Subordinated Notes shall not on the Issue Date or Indebtedness (other than Permitted have any fixed mandatory redemption or sinking fund re- Indebtedness, except Permitted Indebtedness incurred quirement in an amount greater than or at a time prior pursuant to clauses (c), (d), (h) and (j) of the to the amounts and times specified in the Old F4L definition thereof) incurred in accordance with the Subordinated Notes or any Indebtedness refinancing the applicable New Indenture (a) in a principal amount (or, Old F4L Subordinated Notes, as the case may be, unless if such Refinancing Indebtedness provides for an amount any such requirement applies on a date after the final less than the principal amount thereof to be due and maturity of the Old F4L Senior Notes; and, in any case, payable upon the acceleration thereof, with an original shall contain subordination and default provisions no issue price) not in excess of (without duplication) (i) less favorable in any material respect to holders of the principal amount or the original issue price, as the Old F4L Senior Notes than those contained in such the case may be, of the Indebtedness so refinanced (or, repaid or amended Indebtedness, and (C) notwithstanding if such Refinancing Indebtedness refinances In- the foregoing, any Refinancing Indebtedness incurred to debtedness under a revolving credit facility or other repay all of the Old F4L Senior Notes then outstanding agreement providing a commitment for subsequent shall not be limited in principal amount or otherwise borrowings, with a maximum commitment not to exceed the if Food 4 Less irrevocably deposits with the Old F4L maximum commitment under such revolving credit facility Senior Note Trustee or Paying Agent an amount of the or other agreement) plus (ii) unpaid accrued interest proceeds of such Refinancing Indebtedness sufficient to on such Indebtedness plus (iii) premiums, penalties, redeem the outstanding principal amount of the Old F4L fees and expenses actually incurred by such person in Senior Notes on the date fixed for the repayment connection with the repayment or amendment thereof and thereof. (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date of the New F4L Senior Subordinated Notes and (y) shall contain subordination and default provisions no less favorable in any material respect to holders of the New Senior Subordinated F4L Notes than those contained in such repaid or amended Subordinated Indebtedness. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE THIS COVENANT AND CERTAIN RELATED DEFINITIONS. LIMITATION ON LIENS. Pursuant to the Old F4L Senior LIMITATION ON LIENS. Pursuant to the New F4L Senior Note Indenture, Food 4 Less shall not and shall not Note Indenture, the Company shall not and shall not permit any subsidiary to create, incur, assume or permit any subsidiary to create, incur, assume or suffer to exist any liens upon any of their respective suffer to exist any liens upon any of their respective assets unless the Old F4L Senior Notes are equally and assets unless the New F4L Senior Notes issued ratably secured by the liens covering such assets, thereunder are equally and ratably secured by the liens except for (i) existing and future liens securing covering such assets, except for (i) liens on assets of Indebtedness and other obligations of Food 4 Less its the Company securing Senior Indebtedness and liens on subsidiaries under the Loan Documents and related assets of a Subsidiary Guarantor which, at the time of documents or any refinancing or replacement thereof in incurrence, secure Guarantor Senior Indebtedness, (ii) whole or in part, (ii) Permitted Liens, (iii) liens existing and future liens securing Indebtedness and securing Acquired Indebtedness; provided that such other obligations of the Company and its subsidiaries liens (x) are not incurred in connection with, or in under the Loan Documents or any refinancing or contemplation of the acquisition of the property or replacement thereof in whole or in part permitted under assets acquired and (y) do not extend to or cover any the New F4L Senior Note Indenture, (iii) Permitted property or assets of Food 4 Less or any subsidiary Liens, (iv) liens securing Acquired Indebtedness; other than the property or assets so acquired, (iv) provided that such liens (x) are not incurred in liens securing Indebtedness to the extent incurred to connection with, or in contemplation of the acquisition refinance secured Indebtedness outstanding as of the of the property or assets acquired and (y) do not Issue Date; provided that such refinancing Indebtedness extend to or cover any property or assets of the shall be secured solely by the assets securing such Company or any subsidiary other than the property or currently outstanding Indebtedness, (v) liens to secure assets acquired, (v) liens to secure capitalized lease certain Indebtedness that is otherwise permitted under obligations and certain other Indebtedness that is the Old F4L Senior Note Indenture; provided that (A) otherwise permitted under the New F4L Senior Note any such lien is created solely for the purpose of Indenture; provided that (A) any such lien is created securing Indebtedness representing, or incurred to solely for the purpose of securing such other finance, refinance or refund, the cost (including sales Indebtedness representing, or incurred to finance, and excise taxes, installation and delivery charges and refinance or refund, the cost (including sales and other direct costs of, and other direct expenses paid excise taxes, installation and delivery charges and or charged in connection with, the purchase (whether other direct costs of, and other direct expenses paid through stock or asset purchase, merger or otherwise) or charged in connection with, the purchase (whether or construction) of the property subject thereto, (B) through stock or asset purchase, merger or otherwise) the principal amount of the Indebtedness secured by or construction) or improvement of the property subject such lien does not exceed 100% of such costs and (C) thereto (whether real or personal, including fixtures such lien does not extend to or cover any other and other equipment), (B) the principal amount of the property other than such item of property and any Indebtedness secured by such lien does not exceed 100% improvements on such item; (vi) liens existing of such costs and (C) such lien does not extend to or cover any
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ on the Issue Date; (vii) liens in favor of the Old F4L other property other than such item of property and any Senior Note Trustee; (viii) liens securing Indebtedness improvements on such item; (vi) liens existing on the permitted by clauses (d), (h) or (k) above of Issue Date (after giving effect to the Merger); (vii) "Limitation on Incurrences of Additional Indebtedness," liens in favor of the New F4L Senior Note Trustee under provided that, in the case of Indebtedness permitted by the New F4L Senior Note Indenture and any substantially clause (h) above, the principal amount of the equivalent lien granted to any trustee or similar Indebtedness secured by liens does not exceed 100% of institution under any indenture for Indebtedness the purchase price of the La Habra Facility or the permitted to be incurred under the New F4L Senior Note Option Stores, as the case may be; and (ix) any Indenture; and (viii) any replacement, extension or replacement, extension or renewal, in whole or in part, renewal, in whole or in part, of any lien described in of any lien described in this or the foregoing clauses this or the foregoing clauses including in connection including in connection with any refinancing of the with any refinancing of the Indebtedness, in whole or Indebtedness, in whole or in part, secured by any such in part, secured by any such lien provided that to the lien provided that to the extent any such clause limits extent any such clause limits the amount secured or the the amount secured or the assets subject to such liens, assets subject to such liens, no extension or renewal no extension or renewal shall increase the amount of shall increase the amount or the assets subject to such the assets subject to such liens, except to the extent liens, except to the extent that the liens associated that the liens associated with such additional assets with such additional assets are otherwise permitted are otherwise permitted hereunder. hereunder. "Permitted Liens" shall mean (i) liens for taxes, "Permitted Liens" shall mean (i) liens for taxes, assessments and governmental charges to the extent assessments and governmental charges or claims not yet not required to be paid under the Old F4L Senior Note due or which are being contested in good faith by Indenture; (ii) statutory liens of landlords and appropriate proceedings promptly instituted and carriers, warehousemen, mechanics, suppliers, ma- diligently conducted and if a reserve or other terialmen, repairmen or other like liens arising in the appropriate provision, if any, as shall be required in ordinary course of business and with respect to amounts conformity with GAAP shall have been made therefor; not yet delinquent or being contested in good faith by (ii) statutory liens of landlords and carriers, an appropriate process of law, and for which a reserve warehouseman, mechanics, suppliers, materialmen, or other appropriate provision, if any, as shall be repairmen or other like liens arising in the ordinary required by GAAP shall have been made; (iii) pledges or course of business, deposits made to obtain the release deposits in the ordinary course of business to secure of such liens, and with respect to amounts not yet lease obligations or nondelinquent obligations under delinquent for a period of more than 60 days or being workers' compensation, unemployment insurance or contested in good faith by an appropriate process of similar legislation; (iv) liens to secure the law, and for which a reserve or other appropriate performance of public statutory obligations that are provision, if any, as shall be required by GAAP shall not delinquent, appeal bonds, performance bonds or have been made; (iii) liens incurred or pledges or other obligations of a like nature (other than for deposits made in the ordinary course of business to borrowed money); (v) easements, rights-of-way, secure obligations under workers' compensation, restrictions, minor defects or irregularities in title unemployment insurance and other types of social and other similar charges or encumbrances not security or similar legislation; (iv) liens incurred or interfering in any material respect with the business deposits made to secure the performance of tenders, of Food 4 Less or any of its subsidiaries incurred in bids, leases, statutory obligations, surety and appeal the ordinary course of business; (vi) purchase money bonds, government contracts, performance and return of liens upon or in any real or personal property money bonds and other obligations of a like nature (including fixtures and other equipment) acquired or incurred in the ordinary course of business (exclusive held by Food 4 Less or any subsidiary in the ordinary of obligations for the payment of borrowed money); (v) course of business to secure the purchase price of such easements, rights-of-way, zoning or other restrictions, property or to secure Indebtedness incurred solely for minor defects or irregularities in title and other the purpose of financing or refinancing the acquisition similar charges or encumbrances not interfering in any or improvement of such property, or liens existing on material respect with the business of the Company or such property at the time of its acquisition (other any of its Subsidiaries incurred in the ordinary course than any such lien created in contemplation of such of business; (vi) liens upon specific items of acquisition) provided that (x) no such lien shall inventory or other goods and proceeds of any person extend to or cover any property other than the property securing such person's obligations in respect of being acquired or improved and (y) any such bankers' acceptances issued or created for the account Indebtedness would be permitted to be incurred pursuant of such person to facilitate the purchase, shipment or to "Limitation on Incurrences of Additional storage of such inventory or other goods in the Indebtedness"; (vii) liens upon specific items of ordinary course of business; (vii) liens securing inventory or other goods and proceeds of any person reimbursement obligations with respect to letters of securing such person's obligations in respect of credit which encumber documents and other property bankers' acceptances issued or created for the account relating to such letters of credit and the products and of such person to facilitate the purchase, shipment or proceeds thereof; (viii) liens in favor of customs and storage of such inventory or other goods in the revenue authorities arising as a matter of law to ordinary course of business; (viii) liens securing secure payment of nondelinquent customs duties in reimbursement obligations with respect to letters of connection with the importation of goods; (ix) judgment credit which encumber documents and other property and attachment liens not giving rise to a Default or relating to such letters of credit and the products and Event of Default; (x) leases or subleases granted to proceeds thereof; (ix) liens in favor of customs and others not interfering in any material respect with the revenue authorities arising as a matter of law to business of the Company or any Subsidiary; (xi) liens secure payment of nondelinquent customs duties in encumbering customary initial deposits and margin connection with the importation of goods; (x) judgment deposits, and other liens incurred in the ordinary and attachment liens not giving rise to a Default or course of business that are within the general Event of Default; (xi) leases or subleases granted to parameters customary in the industry, in each case others not interfering in any material respect with the securing Indebtedness under interest swap obligations business of Food 4 Less or any subsidiary; (xii) liens and foreign exchange agreements and forward contracts, encumbering customary initial deposits and margin option futures contracts, futures options or similar deposits, and other liens incurred in the ordinary agreements or arrangements designed to protect the course of business that are within the general Company or any Subsidiary from fluctuations in the parameters customary in the industry, in each case price of commodities; (xii) liens encumbering deposits securing Indebtedness under Interest Swap Obligations made in the ordinary course of business to secure and Foreign Exchange Agreements and forward contracts, nondelinquent obligations arising from statutory, option futures contracts, futures options or similar regulatory, con- agreements or arrangements designed to protect Food 4 Less or any subsidiary from fluctua-
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ tions in the price of commodities; (xiii) liens tractual or warranty requirements of the Company or its encumbering deposits made in the ordinary course of Subsidiaries for which a reserve or other appropriate business to secure nondelinquent obligations arising provision, if any, as shall be required by GAAP shall from statutory, regulatory, contractual or warranty have been made; (xiii) liens arising out of consignment requirements of Food 4 Less or its subsidiaries for or similar arrangements for the sale of goods entered which a reserve or other appropriate provision, if any, into by the Company or any Subsidiary in the ordinary as shall be required by GAAP shall have been made; course of business in accordance with past practices; (xiv) liens arising out of consignment or similar (xiv) any interest or title of a lessor in the property arrangements for the sale of goods entered into by Food subject to any lease, whether characterized as 4 Less or any subsidiary in the ordinary course of capitalized or operating other than any such interest business in accordance with past practices; (xv) any or title resulting from or arising out of a default by interest or title of a lessor in the property subject the Company or any Subsidiary of its obligations under to any lease, whether characterized as capitalized or such lease; and (xv) liens arising from filing UCC operating other than any such interest or title financing statements for precautionary purposes in resulting from or arising out of a default by Food 4 connection with true leases of personal property that Less or any subsidiary of its obligations under such are otherwise permitted under the applicable Indenture lease; and (xvi) liens arising from filing UCC and under which the Company or any Subsidiary is financing statements for precautionary purposes in lessee; (xvi) liens on assets of the Company securing connection with true leases of personal property that Indebtedness which would constitute Senior Indebted- are otherwise permitted under the Old F4L Senior Note ness but for the provisions of clause (c) in the third Indenture and under which Food 4 Less or any subsidiary sentence of the definition of Senior Indebtedness and is a lessee. liens on assets of a Subsidiary Guarantor securing Indebtedness which would constitute Guarantor Senior IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD Indebtedness but for the provisions of clause (c) in F4L SENIOR NOTE INDENTURES WILL BE MODIFIED TO the third sentence of the definition of Guarantor ELIMINATE THIS PROVISION AND CERTAIN RELATED LIENS. Senior Indebtedness; and (xvii) additional liens securing Indebtedness at any one time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the aggregate Consolidated Net Income of the Company earned subsequent to the Issue Date and on or prior to such time. "Loan Documents" means the Credit Agreement and all promissory notes, guarantees, security agreements, pledge agreements, deeds of trust, mortgages, letters of credit and other instruments, agreements and documents executed pursuant thereto or in connection therewith, and all amendments, supplements, extensions, renewals, restatements, replacements or refinancings thereof (in each case, in whole or in part, and without limitation as to amount, number, terms, conditions, covenants or other provisions) or other modifications thereof from time to time (whether or not any such replacement or refinancing replaces or refinances the entirety of the borrowings then outstanding under the Credit Agreement) and including all subsequent amendments, supplements, extensions, renewals, re- statements, replacements, or refinancings of any such Loan Documents (in each case, in whole or in part, and without limitation as to amount, number, terms, conditions, covenants or other provisions) LIMITATION ON DISPOSITIONS OF ASSETS. Pursuant to the LIMITATION ON ASSET SALES. Pursuant to the New F4L Old F4L Senior Note Indenture, Food 4 Less will not, Senior Note Indenture, the Company, will not, and will and will not permit any of its subsidiaries to make any not permit any of its subsidiaries to make any Asset Asset Sale unless (a) Food 4 Less or its applicable Sale unless (a) the Company or the applicable subsidiary receives consideration at the time of such subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of and at least the assets sold and (b) upon consummation of an Asset 75% of the consideration so received by Food 4 Less or Sale, the Company will within 365 days of the receipt such subsidiary is in the form of cash; provided, of the proceeds therefrom either: (i) apply or cause however, that the amount of (i) any liabilities (as its subsidiary to apply the net cash proceeds of any shown on Food 4 Less' or such subsidiary's most recent Asset Sale to (A) a Related Business Investment, (B) an balance sheet or in the notes thereto) of Food 4 Less investment in properties and assets that replace the or any subsidiary that are assumed by the transferee in properties and assets that are the subject of such any such transaction and (ii) any cash equivalents or Asset Sale or (C) an investment in properties and notes or other obligations received by Food 4 Less or assets that will be used in the business of the Company any subsidiary from such transferee that are and its subsidiaries existing on the Issue Date or in immediately converted by Food 4 Less or such subsidiary businesses reasonably related thereto; (ii) apply or into cash, shall both be deemed to be cash, solely to cause to be applied such net cash proceeds to the the extent of the cash received in the case of this permanent repayment of Pari Passu Indebtedness; pro- clause (ii), for the purposes of this provision; vided, however, that any repayment of any revolving provided, further, however, that the 75% limitation loan (under the Credit Agreement or otherwise) shall referred to above shall not apply to (A) any Asset Sale result in a permanent reduction in the commitment in which the cash portion of the consideration received thereunder; (iii) use such net cash proceeds to secure therefor, determined in accordance with the foregoing Letter of Credit Obligations to the extent the related clause, is equal to or greater than what the net letters of credit have not been drawn upon or returned after-tax proceeds would have been had such Asset Sale undrawn; or (iv) after such time as the accumulated net complied with the aforementioned 75% limitation and (B) cash proceeds equals or exceeds $20 million, apply or any Asset Sale in which the consideration received by cause to be applied such net cash proceeds to the Food 4 Less or any of its subsidiaries is purchase of New F4L
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ less than $5 million; and (b) the net cash proceeds Senior Notes tendered to the Company for purchase at a received by Food 4 Less or such subsidiary, as the case price equal to 100% of the principal amount thereof may be, will within 180 days of such Asset Sale, at the plus accrued interest thereon to the date of purchase election of Food 4 Less, either (i) invest or cause to pursuant to an offer to purchase made by the Company as be invested in a manner that would constitute a Related set forth below (a "Net Proceeds Offer"); provided, Business Investment; (ii) apply or cause to be applied however, that the Company shall have the right to to the payment of Indebtedness under the Credit exclude from the foregoing provisions Asset Sales Agreement or used to secure Letter of Credit subsequent to the Issue substantially Date, (x) the Obligations to the extent the related letters of credit proceeds of which are derived from the sale and have not been drawn upon or returned undrawn; provided, concurrent lease- back of a supermarket and/or related however, that any repayment of Indebtedness under the assets which are acquired or constructed by the Company Revolving Facility under the Loan Documents shall or a subsidiary subsequent to the Issue Date, provided result in a permanent reduction in the commitment that such sale and substantially concurrent lease-back thereunder; or (iii) after such time as the accumulated occurs within 180 days following such acquisition or net cash proceeds equals or exceeds $2.5 million, apply the completion of such construction, as the case may or cause to be applied such net cash proceeds to the be, and (y) the proceeds of which in the aggregate do purchase of Old F4L Senior Notes tendered to Food 4 not exceed $20 million; provided, further, that pending Less for purchase at a price equal to 100% of the the utilization of any Net Cash Proceeds in the manner principal amount thereof plus accrued interest thereon (and within the time period) described above, the to the date of purchase pursuant to an offer to Company may use any such Net Cash Proceeds to repay purchase made by Food 4 Less as set forth below (a "Net revolving loans (under the Credit Agreement or Proceeds Offer"); provided, however, that Food 4 Less otherwise) without a permanent reduction of the shall have the right to exclude Asset Sales subsequent commitment thereunder. to the Issue Date, the proceeds of which in the aggregate do not exceed $10 million, from the foregoing Pursuant to the New F4L Senior Note Indenture, not- provisions. withstanding the foregoing, prior to the mailing of the Net Proceeds Offer, the Company shall purchase Pursuant to the Old F4L Senior Note Indenture, each all New F4L Senior Notes (or permitted refinancings Net Proceeds Offer will be mailed to the record holders thereof) which it is required to purchase by reason of of the Old F4L Senior Notes as shown on the register of such Asset Sale pursuant to the provisions of the New holders of Old F4L Senior Notes not less than 140 nor F4L Senior Note Indenture. more than 180 days after the relevant Asset Sale, with a copy to the Old F4L Senior Note Trustee and the Pursuant to the New F4L Senior Note Indenture, each Credit Agent. Such notice shall state, among other Net Proceeds Offer will be mailed to the record holders things, the purchase date (which shall be no earlier of New F4L Senior Notes as shown on the register of than 30 days nor later than 40 days from the date such holders of New F4L Senior Notes not less than 325 nor notice is mailed) and shall otherwise comply with the more than 365 days after the relevant Asset Sale, with procedures set forth in the Old F4L Senior Note a copy to the New F4L Senior Note Trustee and the Indenture. Upon receiving notice of the Net Proceeds Credit Agent. Such notice shall state, among other Offer, holders of the Old F4L Senior Notes may elect to things, the purchase date (which shall be no earlier tender their Old F4L Senior Notes in whole on in part than 30 days nor later than 40 days from the date such in integral multiples of $1,000 in exchange for cash. notice is mailed) and shall otherwise comply with the To the extent holders properly tender Old F4L Senior procedures set forth in the New F4L Senior Note Notes in an amount exceeding the Net Proceeds Offer, Indenture. Upon receiving notice of the Net Proceeds Old F4L Senior Notes of tendering holders will be Offer, holders may elect to tender their New F4L Senior repurchased on a pro rata basis (based on amounts Notes in whole or in part in integral multiples of tendered). $1,000 in exchange for cash. To the extent holders properly tender New F4L Senior Notes in an amount Pursuant to the Old F4L Senior Note Indenture, Food 4 exceeding the Net Proceeds Offer, New F4L Senior Notes Less will comply with the requirements of Rule 14e-1 of tendering holders will be repurchased on a pro rata under the Exchange Act and any other securities laws basis (based on amounts tendered). and regulations thereunder to the extent such laws and regulations are applicable in connection with Pursuant to the New F4L Senior Note Indenture, the the repurchase of Old F4L Senior Notes pursuant to a Company will comply with the requirements of Rule Net Proceeds Offer. 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such "Asset Sale" means, for any person, any sale, laws and regulations are applicable in connection transfer or other disposition or series of sales, with the repurchase of New F4L Senior Notes pursuant transfers or other dispositions (including, without to a Net Proceeds Offer. limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise) "Asset Sale" means, with respect to any person, any made by such person or any of its subsidiaries to any sale, transfer or other disposition or series of sales, person other than such person or one of its transfers or other dispositions (including, without wholly-owned subsidiaries (or, in the case of a sale, limitation, by merger or consolidation or by exchange transfer or other disposition by a subsidiary, to any of assets and whether by operation of law or otherwise) person other than Food 4 Less or a directly or made by such person or any of its subsidiaries to any indirectly wholly-owned subsidiary) of any assets of person other than such person or one of its such person or any of its subsidiaries including, wholly-owned subsidiaries (or, in the case of a sale, without limitation, assets consisting of any capital transfer or other disposition by a subsidiary, to any stock or other securities held by such person, or any person other than the Company or a directly or of its subsidiaries, and any capital stock issued by indirectly wholly-owned subsidiary) of any assets of any subsidiary of such person, outside of the ordinary such person or any of its subsidiaries including, course of business, excluding, however, any sale, without limitation, assets consisting of any capital transfer or other disposition, or series of related stock or other securities held by such person or any of sales, transfers or other dispositions, having a its subsidiaries, and any capital stock issued by any purchase price or transaction value, as the case may subsidiary of such person, in each case, outside of the be, of $250,000 or less. ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of "Related Business Investment" means (i) any related sales, transfers or other dispositions (i) Investment by a person in any other person a majority involving only excluded assets, (ii) resulting in net of whose revenues are derived from the operation of one proceeds to the Company and the subsidiaries of or more retail grocery stores or supermarkets or any $500,000 or less or (iii) pursuant to any foreclosure other line of business engaged in by Food 4 Less or any of of its subsidiaries as of the Issue Date; (ii) any
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ Investment by such person in any cooperative or other assets or other remedy provided by applicable law to a supplier, including, without limitation, any joint creditor of the Company with a Lien on such assets, venture which is intended to supply any product or which lien is permitted under the New F4L Senior Note service useful to the business of Food 4 Less and its Indenture, provided that such foreclosure or other subsidiaries as it is conducted as of the Issue Date remedy is conducted in a commercially reasonable manner and as such business may thereafter evolve or change; or in accordance with any Bankruptcy Law. and (iii) any capital expenditure or Investment (without regard to the $5 million threshold in the "Related Business Investment" means (i) any Investment definition thereof), in each case reasonably related to by a person in any other person a majority of whose the business of Food 4 Less and its subsidiaries as it revenues are derived from the operation of one or more is conducted as of the Issue Date and as such business retail grocery stores or supermarkets or any other line may thereafter evolve or change. of business engaged in by the Company or any of its subsidiaries as of the Issue Date; (ii) any Investment IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD by such person in any cooperative or other supplier, F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE including, without limitation, any joint venture which THIS PROVISION AND CERTAIN RELATED DEFINITIONS. 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 (without regard to the $5 million threshold in the definition thereof), in each case reasonably related to the business of the Company and its subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS SUBSIDIARIES. Pursuant to the Old F4L Senior Note AFFECTING SUBSIDIARIES. Pursuant to the New F4L Senior Indenture, Food 4 Less shall not, and shall not permit Note Indenture, the Company shall not, and shall not any subsidiary to, directly or indirectly, create or permit any subsidiary to, directly or indirectly, suffer to exist, or allow to become effective any create or suffer to exist, or allow to become effective consensual Payment Restriction with respect to any of any consensual Payment Restriction with respect to any its subsidiaries, except for (a) any such restrictions of its subsidiaries, except for (a) any such contained in (i) the Loan Documents as in effect on the restrictions contained in (i) the Loan Documents and Issue Date as any such payment restriction may apply to related documents as in effect on the Issue Date as any any present or future subsidiary, (ii) Indebtedness of such payment restriction may apply to any present or Food 4 Less and any subsidiary existing on the Issue future subsidiary, (ii) the New F4L Senior Note Date, (iii) the Old F4L Senior Note Indenture, (iv) Indenture and any agreement in effect at or entered Indebtedness of a person existing at the time such into on the Issue Date, (iii) Indebtedness of a person person becomes a subsidiary (provided that (x) such existing at the time such person becomes a subsidiary Indebtedness is not incurred in connection with, or in (provided that (x) such Indebtedness is not incurred in contemplation of, such person becoming a subsidiary, connection with, or in contemplation of, such person (y) such restriction is not applicable to any person, becoming a subsidiary, (y) such restriction is not or the properties or assets of any person, other than applicable to any person, or the properties or assets the person so acquired and (z) such Indebtedness is of any person, other than the person so acquired and otherwise permitted to be incurred pursuant to the (z) such Indebtedness is otherwise permitted to be provisions of "Limitation on Incurrences of Additional incurred pursuant to the provisions described above Indebtedness"), (v) secured Indebtedness otherwise under "Limitation on Incurrences of Additional permitted to be incurred pursuant to the provisions of Indebtedness"), (iv) secured Indebtedness otherwise "Limitation on Incurrences of Additional Indebtedness" permitted to be incurred pursuant to the provisions and that limits the right of the debtor to dispose of described above under "Limitation on Incurrences of the assets securing such Indebtedness; (b) customary Additional Indebtedness" and "Limitation on Liens" that non-assignment provisions restricting subletting or limit the right of the debtor to dispose of the assets assignment of any lease or assignment of any contract securing such Indebtedness; (b) customary of any subsidiary; (c) customary net worth provisions non-assignment provisions restricting subletting or contained in leases and other agreements entered into assignment of any lease or other agreement entered into by a subsidiary in the ordinary course of business; (d) by a subsidiary; (c) customary net worth provisions customary restrictions with respect to a subsidiary contained in leases and other agreements entered into pursuant to an agreement that has been entered into for by a subsidiary in the ordinary course of business; (d) the sale or disposition of all or substantially all of customary restrictions with respect to a subsidiary the capital stock or assets of such subsidiary; (e) pursuant to an agreement that has been entered into for customary provisions in instruments or agreements the sale or disposition of all or substantially all of relating to a lien permitted to be created, incurred or the capital stock or assets of such subsidiary; (e) assumed pursuant to the provisions of "Limitation on customary provisions in joint venture agreements and Liens" and prohibiting the transfer of the property other similar agreements; and (f) restrictions subject to such lien; (f) customary provisions in joint contained in Indebtedness incurred to refinance, venture agreements and other similar agreements entered refund, extend or renew Indebtedness referred to in into in the ordinary course of business which provide clause (a) above; provided that the restrictions that distributions from such venture may only be made contained therein are not materially more restrictive with the consent of the partners; and (g) restrictions taken as a whole than those provided for in such contained in Indebtedness incurred to refinance, Indebtedness being refinanced, refunded, extended or refund, extend or renew Indebtedness referred to in renewed and (g) Payment Restrictions contained in any clause (a) above or amendments to the Indebtedness other Indebtedness permitted to be incurred subsequent referred to in clause (a) above; provided that the to the Issue Date pursuant to the provisions of the restrictions contained therein relating to the payment covenant described under "-- Limitation on Incurrences of dividends by such subsidiaries are not materially of Additional Indebtedness" above; provided that any more restrictive than those provided for in such such Payment Restrictions are ordinary and customary Indebtedness being refinanced, refunded, extended or with respect to the type of Indebtedness being incurred renewed. (under the relevant circumstances), and, in any event, no more restrictive than the most restrictive Payment "Payment Restriction" means, with respect to a Restrictions in effect on the Issue Date. subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its "Payment Restriction" means, with respect to a charter or by reason of any subsidiary of
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ agreement, instrument, judgment, decree, order, any person, any encumbrance, restriction or limitation, statute, rule or governmental regulation, on the whether by operation of the terms of its charter or by ability of (i) such subsidiary to (a) pay dividends or reason of any agreement, instrument, judgment, decree, make other distributions on its capital stock or make order, statute, rule or governmental regulation, on the payments on any obligation, liability or Indebtedness ability of (i) such subsidiary to (a) pay dividends or owed to such person or any other subsidiary of such make other distributions on its capital stock or make person, (b) make loans or advances to such person or payments on any obligation, liability or Indebtedness any other subsidiary of such person or (c) transfer any owed to such person or any other subsidiary of such of its properties or assets to such person or any other person, (b) make loans or advances to such person or subsidiary of such person, or (ii) such person or any any other subsidiary of such person or (c) transfer any other subsidiary of such person to receive or retain of its properties or assets to such person or any other any such (a) dividends, distributions or payments, (b) subsidiary of such person, or (ii) such person or any loans or advances or (c) transfer of properties or other subsidiary of such person to receive or retain assets any such (a) dividends, distributions or payments, (b) loans or advances or (c) transfer of properties or IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD assets. F4L SENIOR NOTE INDENTURES WILL BE MODIFIED TO ELIMINATE THIS PROVISION, AND CERTAIN RELATED DEFINITIONS. GUARANTEES OF CERTAIN INDEBTEDNESS. Pursuant to the GUARANTEES OF CERTAIN INDEBTEDNESS. Pursuant to the Old F4L Senior Note Indenture, Food 4 Less shall not New F4L Senior Note Indenture, the Company shall not permit any of its subsidiaries, directly or indirectly, permit any of its subsidiaries to (a) incur, guarantee to (a) incur, guarantee or secure through the granting or secure through the granting of liens the payment of of liens the payment of any Indebtedness under the Term any Indebtedness under the Term Loans or any other Facility under the Credit Agreement or refinancings Loan Documents or (b) pledge any intercompany notes related thereto or (b) pledge any intercompany notes representing obligations of any of its subsidiaries, to representing obligations of any of its subsidiaries, to secure the payment of any Indebtedness under the Term secure the payment of any Indebtedness under the Term Loans or any other Loan Documents, in each case unless Facility under the Credit Agreement or refinancings such subsidiary, the Company and the New F4L Senior related thereto, in each case unless such subsidiary, Note Trustee execute and deliver a supplemental Food 4 Less and the Old F4L Senior Note Trustee execute indenture evidencing such subsidiary's guarantee. and deliver a supplemental indenture evidencing such subsidiary's guarantee, such guarantee to be a senior unsecured obligation of such subsidiary. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE THIS PROVISION AND CERTAIN RELATED DEFINITIONS. LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pursuant LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pursuant to the Old F4L Senior Note Indenture, neither Food 4 to the New F4L Senior Note Indenture, neither the Com- Less nor any of its subsidiaries shall (i) sell, lease, pany nor any of its subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties, transfer or otherwise dispose of any of its properties, assets or securities to, (ii) purchase any property, or assets or issue securities (other than equity assets or securities from, (iii) make any Investment securities which do not constitute Disqualified Capi- in, or (iv) enter into or suffer to exist any contract tal Stock) to, (ii) purchase any property, assets or or agreement with or for the benefit of, an affiliate securities (other than equity securities which do not or Significant Stockholder (and any affiliate of such constitute Disqualified Capital Stock) from, (iii) make Significant Stockholder) of Food 4 Less or any any Investment in, or (iv) enter into or suffer to subsidiary (an "Affiliate Transaction"), other than exist any contract or agreement with or for the benefit Affiliate Transactions (including lease transactions) of, an affiliate or Significant Stockholder (or any in the ordinary course of business, that are fair to affiliate of such Significant Stockholder) of the Food 4 Less or such subsidiary, as the case may be, and Company or any subsidiary (an "Affiliate Transaction"), on terms at least as favorable as might reasonably have other than (x) Affiliate Transactions permitted under been obtainable at such time from an unaffiliated the following paragraph and (y) Affiliate Transactions party, unless the board of directors of Food 4 Less or in the ordinary course of business, that are fair to such subsidiary, as the case may be, pursuant to a the Company or such subsidiary, as the case may be, and board resolution, reasonably and in good faith on terms at least as favorable as might reasonably have determines that such Affiliate Transaction is fair to been obtainable at such time from an unaffiliated Food 4 Less or such subsidiary, as the case may be, and party; provided, that (A) with respect to Affiliate is on terms at least as favorable as might reasonably Transactions involving aggregate payments in excess of have been obtainable at such time from an unaffiliated $1 million and less than $5 million, the Company or party. In addition, neither Food 4 Less nor any of its such subsidiary, as the case may be, shall have subsidiaries shall enter into an Affiliate Transaction delivered an officers' certificate to the New F4L or series of related Affiliate Transactions involving Senior Note Trustee certifying that such Affiliate or having a value of more than $15 million unless Food Transactions complies with clause (y) above, (B) with 4 Less or such subsidiary, as the case may be, has respect to Affiliate Transactions involving aggregate received an opinion from an independent financial payments in excess of $5 million and less than $15 advisor to the effect that the financial terms of such million, with respect to which the Company or such Affiliate Transaction are fair to Food 4 Less or such subsidiary, as the case may, shall have delivered an subsidiary from a financial point of view. officers' certificate to the New F4L Senior Note Trustee certifying that such Affiliate Transactions The provisions of the Old F4L Senior Note Indenture complies with clause (y) above and that such Affiliate described in the foregoing paragraph shall not apply to Transactions has received the approval of a majority of (i) any Permitted Payment, (ii) any Restricted Payment the disinterested members of the board of directors of that is made in compliance with the provisions set the Company or the subsidiary, as the case may be, or, forth in "Limitation on Restricted Payments," (iii) in the absence of any such approval by the reasonable and customary fees and compensation paid to, disinterested members of the board of directors of the and indemnity provided on behalf of, officers, Company or that the subsidiary, as the case may be, directors, employees or consultants of Food 4 Less or that an independent financial advisor has reasonably any subsidiary, as determined by the board of directors and in good faith determined that the financial terms of Food 4 Less or any subsidiary or the senior of such Affiliate Transaction are fair to the Company management thereof in good or such subsidiary, as the case may be, or that the terms of such Affiliate Transac-
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ faith, (iv) transactions exclusively between or among tion are at least as favorable as might reasonably have Food 4 Less and any of its wholly-owned subsidiaries or been obtained at such time from an unaffiliated party, exclusively between or among such subsidiaries, and that such Independent Financial Advisor has provided such transactions are not otherwise prohibited provided written confirmation of such determination to by the Old F4L Senior Note Indenture, (v) any agreement the Board of Directors and (C) with respect to as in effect as of the Issue Date or any amendment Affiliate Transactions involving aggregate payments in thereto or any transaction contemplated thereby excess of $15 million, with respect to which the (including pursuant to any amendment thereto) so long Company or such subsidiary, as the case may be, shall as any such amendment is not disadvantageous to the have delivered to the New F4L Senior Note Trustee, a holders of the Old F4L Senior Notes in any material written opinion from an independent financial advisor respect, (vi) the existence of, or the performance by to the effect that the financial terms of such Food 4 Less or any of its subsidiaries of its Affiliate Transaction are fair to the Company or such obligations under the terms of, any stockholders subsidiary, as the case may be, or that the terms of agreement (including any registration rights agreement such Affiliate Transaction are at least as favorable as or purchase agreement related thereto) to which it FFL those that might reasonably have been obtained at the is a party as of the Issue Date and any similar time from an unaffiliated party. agreements which it FFL may enter into thereafter; provided, however, that the existence of, or the per- The provisions of the New F4L Senior Note Indenture formance by Food 4 Less or any subsidiaries of described in the foregoing paragraph shall not apply to obligations under any future amendment to, any such (i) any Permitted Payment, (ii) any Restricted Payment existing agreement or under any similar agreement that is made in compliance with the provisions entered into after the Issue Date shall only be described herein under "Limitation on Restricted permitted by this clause (vi) to the extent that the Payments," (iii) reasonable and customary fees and terms of any such amendment or new agreement are not compensation paid to, and indemnity provided on behalf otherwise disadvantageous to the holders of the Old F4L of, officers, directors, employees or consultants of Senior Notes in any material respect, (vii) the Company or any subsidiary, as determined by the transactions permitted by, and complying with, the board of directors of the Company or any subsidiary or provisions set forth in "Limitation on Merger and the senior management thereof in good faith, (iv) Certain Other Transactions," and (viii) transactions transactions exclusively between or among the Company with Certified Grocers of California, Inc., Affiliated and any of its wholly-owned subsidiaries or exclusively Wholesale Grocers of Kansas City, Inc. or their between or among such wholly-owned subsidiaries, subsidiaries or other suppliers in the ordinary course provided such transactions are not otherwise prohibited of business (including, without limitation, pursuant to by the New F4L Senior Note Indenture, (v) any agreement joint venture arrangements with such persons) and as in effect as of the Issue Date or any amendment otherwise in compliance with the terms of the Old F4L thereto or any transaction contemplated thereby Senior Note Indenture. (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the "Significant Stockholder" means, with respect to any holders of the New F4L Senior Notes in any material person, any other person who is the beneficial owner respect, (vi) the existence of, or the performance by (within the meaning of Rule 13d-3 under the Exchange the Company or any of its subsidiaries of its Act) of more than 10% of any class of equity securities obligations under the terms of, any stockholders of such person that are entitled to vote on a regular agreement (including any registration rights agreement basis for the election of directors of such person. or purchase agreement related thereto) to which it (or New Holdings) is a party as of the Issue Date and any IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD similar agreements which it (or New Holdings) may enter F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE into thereafter; provided, however, that the existence THIS PROVISION AND CERTAIN RELATED DEFINITIONS. of, or the performance by the Company or any subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the holders of the New F4L Senior Notes in any material respect, (vii) transactions permitted by, and complying with, the provisions described below under "Limitation on Merg- ers and Certain Other Transactions," and (viii) purchases or sales of goods or services or other transactions with suppliers in each case, in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the applicable New F4L Senior Note Indenture which are fair to the Company, in the reasonable determination of the board of directors, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. LIMITATION ON CHANGE OF CONTROL. Pursuant to the Old LIMITATION ON CHANGE OF CONTROL. The New F4L Subordi- F4L Senior Note Indenture, upon the occurrence of a nated Note Indenture will provide that if a Change of Change of Control, each holder will have the right to Control occurs, each holder will have the right to require the repurchase of such holder's Old F4L Senior require the Company to repurchase such holder's New F4L Notes pursuant to the offer described below (the Senior Notes pursuant to a Change of Control Offer at "Change of Control Offer"), at a purchase price equal 101% of the principal amount thereof plus accrued and to 101% of the principal amount thereof plus accrued unpaid interest to the date of repurchase. interest, if any, to the date of purchase. Within 10 days after any Change of Control Date requiring Food 4 The New F4L Senior Note Indenture will further Less to make a Change provide that, notwithstanding the foregoing, prior to the mailing of the notice
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ of Control Offer Food 4 Less shall so notify the Old of a Change of Control Offer referred to above, the F4L Senior Note Trustee and the Credit Agent. Food 4 Company shall within 30 days following any change of Less must comply with Rule 14e-1 under the Securities control either (a) repay in full and terminate all Exchange Act of 1934, as amended, and any other commitments under Indebtedness under the Credit applicable provisions of the federal securities laws in Agreement to the extent the terms thereof require connection with a Change of Control Offer. repayment upon a Change of Control (or offer to repay in full and terminate all commitments under all Pursuant to the Old F4L Senior Note Indenture, within Indebtedness under the Credit Agreement and repay the 30 days following any Change of Control Date, Food 4 Indebtedness owed to each lender which has accepted Less must send, by first class mail, a notice to each such offer), or (b) obtain the requisite consents under holder, with copies to the Credit Agent and the Old F4L the Credit Agreement, the terms of which require Senior Subordinated Note Trustee, which notice shall repayment upon a Change of Control, to permit the govern the terms of the Change of Control Offer. Such repurchase of the New F4L Senior Notes as provided notice shall state, among other things, the purchase above. The Company shall first comply with the covenant date, which must be no earlier than 30 days nor later in the immediately preceding sentence before it shall than 40 days from the date such notice is mailed, other be required to repurchase New F4L Senior Notes pursuant than as may be required by law (the "Change of Control to the provisions described below. The Company's Payment Date"). Holders electing to have a Old F4L failure to comply with the covenants described in this Senior Note purchased pursuant to a Change of Control paragraph shall constitute an Event of Default under Offer will be required to surrender the Old F4L Senior the New F4L Senior Note Indenture. Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Old F4L Senior In addition, the New F4L Senior Subordinated Note Subordinated Note completed, to the Paying Agent at the Indenture will provide that prior to purchasing New F4L address specified in the notice prior to the close of Senior Subordinated Notes tendered in a Change of business on the business day prior to the Change of Control Offer, the Company shall purchase all Senior Control Payment Date. F4L Notes (or permitted refinancings thereof) which it is required to purchase by reason of such Change of IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD Control pursuant to the provisions of the indenture F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE under which such New Senior F4L Notes are issued, as in THIS COVENANT AND CERTAIN RELATED DEFINITIONS. effect on the Issue Date. LIMITATION ON MERGER AND CERTAIN OTHER LIMITATION ON MERGER AND CERTAIN OTHER TRANSACTIONS. Pursuant to the Old F4L Senior Note TRANSACTIONS. Pursuant to the New F4L Senior Note Indenture, Food 4 Less, in a single transaction or Indenture, the Company, in a single transaction or through a series of related transactions, shall not (i) through a series of related transactions, shall not (i) consolidate with or merge with or into any other consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties otherwise) all or substantially all of its properties and assets as an entirety or substantially as an and assets as an entirety or substantially as an entirety to another person or group of affiliated entirety to another person or group of affiliated persons or (ii) adopt a plan of liquidation, unless, in persons or (ii) adopt a plan of liquidation, unless, in either case, (1) either Food 4 Less shall be the either case, (1) either the Company shall be the continuing person, or the person (if other than Food 4 continuing person, or the person (if other than the Less) formed by such consolidation or into which Food 4 Company) formed by such consolidation or into which the Less is merged or to which all or substantially all of Company is merged or to which all or substantially all the properties and assets of Food 4 Less as an entirety of the properties and assets of the Company as an or substantially as an entirety are transferred (or, in entirety or substantially as an entirety are the case of a plan of liquidation, any person to which transferred (or, in the case of a plan of liquidation, assets are transferred) (Food 4 Less or such other any person to which assets are transferred) (the person being hereinafter referred to as the "Surviving Company or such other person being hereinafter referred Person") shall be a corporation organized and validly to as the "Surviving Person") shall be a corporation existing under the laws of the United States, any state organized and validly existing under the laws of the thereof or the District of Columbia, and shall United States, any state thereof or the District of expressly assume, by an indenture supplement, all the Columbia, and shall expressly assume, by an indenture obligations of Food 4 Less under the Old F4L Senior supplement, all the obligations of the Company under Notes and the Old F4L Senior Note Indenture; (2) the New F4L Senior Note Indenture and the New F4L immediately after and giving effect of such transaction Senior Notes; (2) immediately after and giving effect and the assumption contemplated by clause (1) above and to such transaction and the assumption contemplated by the incurrence or anticipated incurrence of any In- clause (1) above and the incurrence or anticipated debtedness to be incurred in connection therewith, (A) incurrence of any Indebtedness to be incurred in the surviving person shall have a Net Worth equal to or connection therewith, (A) the Surviving Person shall greater than the Net Worth of Food 4 Less immediately have a Consolidated Net Worth equal to or greater than preceding the transaction, (B) the surviving person the Consolidated Net Worth of the Company immediately could incur at least $1 of Indebtedness pursuant to preceding the transaction and (B) the Surviving Person provisions of the Old F4L Senior Note Indenture could incur at least $1.00 of additional Indebtedness described in the first paragraph under the heading (other than Permitted Indebtedness) pursuant to the "Limitation on the Incurrence of Additional provisions described herein under "Limitation on Indebtedness" and (C) if the Operating Coverage Ratio Incurrences of Additional Indebtedness;" (3) of Food 4 Less immediately preceding the transaction is immediately before and immediately after and giving within a range set forth under column X below, then the effect to such transaction and the assumption of the Surviving Person shall have an Operating Coverage Ratio obligations as set forth in clause (1) above and the at least equal to the greater of (i) the actual incurrence or anticipated incurrence of any Operating Coverage Ratio of Food 4 Less multiplied by Indebtedness to be incurred in connection therewith, no the appropriate percentage set forth in column Y and Default or Event of Default shall have occurred and be (ii) the ratio set forth in column Z below: continuing; and (iv) each Subsidiary Guarantor, unless it is the other party to the transaction, shall have by X Y Z supplemental indenture confirmed that its guarantee of the obligations of the Company under the New F4L Senior 1.8:1 to 2.499:1 100% 1.8:1 Notes and the New F4L Senior Note Indenture shall 2.5:1 to 2.999:1 90% 2.5:1 apply, without alteration or amendment as such 3.0:1 or more 80% 2.7:1 guarantee applies on the date it was granted under the New F4L Senior Note Indenture to the obligations of the and provided, further, that if immediately after giving Company under the New F4L Senior Notes Indenture and effect of such transaction on a pro forma basis, the the New F4L Senior Notes to the obligations of Operating Coverage
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ Ratio of Food 4 Less or the surviving entity, as the the Company or such person, as the case may be, under case may be, is 3.2:1 or more, the calculation in the the New F4L Senior Note Indenture and the New F4L preceding proviso shall be inapplicable and such Senior Notes, after the consummation of such transaction shall be deemed to have complied with the transaction. Notwithstanding the foregoing, the requirements of such provision; (3) immediately before consummation of the Merger on the Issue Date need only and immediately after and giving effect to such comply with clauses (1) and (3) of the foregoing. transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or "Consolidated Net Worth" means, with respect to any anticipated incurrence of any Indebtedness to be person, the total stockholders' equity (exclusive of incurred in connection therewith, no Default or Event any Disqualified Capital Stock) of such person and its of Default shall have occurred and be continuing. For subsidiaries determined on a consolidated basis in purposes of the foregoing, the transfer (by lease, accordance with GAAP. assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more subsidiaries, the capital stock of which constitutes all or substantially all of the properties and assets of Food 4 Less shall be deemed to be the transfer of all or substantially all of the properties and assets of Food 4 Less. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD F4L SENIOR NOTE INDENTURES WILL BE MODIFIED TO ELIMINATE THE SUBSECTIONS OF THIS PROVISION WHICH REQUIRE THAT IMMEDIATELY AFTER GIVING EFFECT TO SUCH TRANSACTION AND THE INCURRENCE OF ANY INDEBTEDNESS IN CONNECTION THEREWITH, FOOD 4 LESS OR THE SURVIVING ENTITY, AS THE CASE MAY BE, HAS A NET WORTH OR OPERATING COVERAGE RATIO THAT MEETS THE STANDARDS SET FORTH THEREIN. MAINTENANCE OF NET WORTH. Pursuant to the Old F4L MAINTENANCE OF NET WORTH. THE NEW F4L SENIOR NOTE Senior Subordinated Note Indenture, if Food 4 Less' INDENTURE WILL NOT CONTAIN A COVENANT REQUIRING THE Net Worth at the end of each of any two consecutive MAINTENANCE OF A MINIMUM NET WORTH. fiscal quarters (the last day of the second fiscal quarter being referred to as the "Acceleration Date") is equal to or less than $50 million (the "Minimum Net Worth"), then Food 4 Less shall make an offer to all holders (an "Offer") to purchase, on a pro rata basis, on or before the last day of the next following fiscal quarter or, in the event that the Acceleration Date is the last day of Food 4 Less' fiscal year, the forty-fifth day after the last day of the next following fiscal quarter (the "Accelerated Payment Date"), $17.5 million aggregate principal amount of Old F4L Senior Subordinated Notes (an "Accelerated Payment") at a purchase price equal to 100% of principal amount plus accrued but unpaid interest to the Accelerated Payment Date. Food 4 Less may credit against the principal amoount of Old F4L Senior Subordinated Notes to be acquired in any Accelerated Payment 100% of the principal amount of Old F4L Senior Subordinated Notes acquired by Food 4 Less through purchase, optional redemption, exchange or otherwise during the 180-day period ending on the Acceleration Date and surrendered for cancellation. Food 4 Less, however, may not credit Old F4L Senior Subordinated Notes against an Accelerated Payment if such Old F4L Senior Subordinated Notes were previously used as a credit against any other required payment under the Old F4L Senior Subordinated Note Indenture. In no event shall the failure of Food 4 Less' Net Worth to equal or exceed $50 million at the end of any fiscal quarter be counted toward the making of more than one Offer. "Net Worth" as of any date means, with respect to any person, the amount of the equity of the holders of capital stock of such person that would appear on the balance sheet of such person as of such date, determined in accordance with GAAP, adjusted to exclude (to the extent included in such equity), (i) the amount of equity attributable to Disqualified Capital Stock and (ii) with respect to Food 4 Less, the effect of (a) all non-cash charges reducing such equity amount and attributable to the early extinguishment of, or acceleration of costs of, the financing of the Alpha Beta Acquisition (other than amortization of original issue discount), (b) prepayment penalties or other charges incurred in connection with the retirement of certain Indebtedness of a subsidiary of Food 4 Less existing immediately prior to the Alpha Beta Acquisition and (c) the recognition of deferred losses, in an amount not to exceed $3 million, on the Long Beach Warehouse. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE THIS COVENANT AND CERTAIN RELATED DEFINITIONS.
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ --------------------------------------------------------- LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. Pursuant Old F4L Senior Note Indenture does not have a to the New Senior Note Indenture, the Company will not covenant providing for the limitation on the issuance permit any of its Subsidiaries to issue any Preferred of preferred stock of subsidiaries. Stock (other than to the Company or to a wholly-owned Subsidiary) or permit any person (other than the Company or a wholly-owned subsidiary) to own any Preferred Stock of any subsidiary. EVENTS OF DEFAULT EVENTS OF DEFAULT Under the terms of the Old F4L Senior Note Indenture Under the terms of the New F4L Senior Note Indenture, the following events constitute "Events of Default:" the following events constitute "Events of Default": (i) failure to make any interest payment on the Old F4L (i) failure to make any interest payment on the New F4L Senior Notes when due and the continuance of such Senior Notes when due and the continuance of such default for a period of 30 days; (ii) failure to pay default for a period of 30 days; (ii) failure to pay principal of the Old F4L Senior Notes when due, whether principal of, or premium, if any, on the New F4L Senior at maturity, upon acceleration, redemption or Notes when due, whether at maturity, upon accelera- otherwise; (iii) failure to comply with any other tion, redemption, required repurchase or otherwise; agreement contained in the Old F4L Senior Notes or the (iii) failure to comply with any other agreement Old F4L Senior Note Indenture, if such failure contained in the New F4L Senior Notes or the New F4L continues unremedied for 30 days after written notice Senior Note Indenture, if such failure continues given by the Old F4L Senior Note Trustee or the holders unremedied for 30 days after written notice given by of at least 25% in principal amount of the Old F4L the New F4L Senior Note Trustee or the holders of at Senior Notes then outstanding (except in the case of a least 25% in principal amount of the New F4L Senior default with respect to the covenants set forth in the Notes then outstanding (except in the case of a default Old F4L Senior Note Indenture, and described herein with respect to the covenants set forth in the New F4L under the headings "Limitation on Restricted Payments," Senior Note Indenture, and described herein under the "Maintenance of Net Worth," "Limitations on headings "Limitation on Restricted Payments," Dispositions of Assets," "Change of Control," and "Limitations on Asset Sales," "Change of Control," and "Limitations on Merger and Certain Other Transactions," "Limitations on Merger and Certain Other Transactions," which shall constitute Events of Default with notice which shall constitute Events of Default with notice but without passage of time); (iv) a default under any but without passage of time); (iv) a default under any Indebtedness of Food 4 Less or its subsidiaries, Indebtedness of the Company or its subsidiaries, whether such Indebtedness now exists or shall whether such Indebtedness now exists or shall hereinafter be created, if both (A) such default either hereinafter be created, if both (A) such default either (1) results from the failure to pay any such (1) results from the failure to pay any such Indebtedness at its stated final maturity or (2) Indebtedness at its stated final maturity or (2) relates to an obligation other than the obligation to relates to an obligation other than the obligation to pay any principal of such Indebtedness at its stated pay such Indebtedness at its stated final maturity and maturity and results in the holder or holders of such results in the holder or holders of such Indebtedness Indebtedness causing such Indebtedness to become due causing such Indebtedness to become due prior to its prior to its stated maturity and (B) the principal stated maturity and (B) the principal amount of such amount of such Indebtedness, together with the Indebtedness, together with the principal amount of any principal amount of any other such Indebtedness in other such Indebtedness in default for failure to pay default for failure to pay principal at maturity or the principal at stated final maturity or the maturity of maturity of which has been so accelerated, aggregate which has been so accelerated, aggregate $20 million or $20 million or more at any one time outstanding; (v) more at any one time outstanding; (v) any final any final judgment or order for payment of money in judgment or order for payment of money in excess of $20 excess of $20 million shall be entered against Food 4 million shall be entered against the Company or any Less or any Significant Subsidiary and shall not be Significant Subsidiary and shall not be discharged for discharged for a period of 60 days after such judgment a period of 60 days after such judgment becomes final becomes final and nonappealable; (vi) either Food 4 and nonappealable; (vi) either the Company or any Less or any Significant Subsidiary pursuant to or Significant Subsidiary pursuant to or within the within the meaning of any Bankruptcy Law: (a) commences meaning of any Bankruptcy Law: (a) commences a a voluntary case or proceeding; (b) consents to the voluntary case or proceeding; (b) consents to the entry entry of an order for relief against it in an of an order for relief against it in an involuntary involuntary case or proceeding; (c) consents to the case or proceeding; (c) consents to the appointment of appointment of a custodian of it or for all or a custodian of it or for all or substantially all substantially all of its property; or (d) makes a of its property; or (d) makes a general assignment for general assignment for the benefit of its creditors; the benefit of its creditors; (vii) a court of (vii) a court of competent jurisdiction enters an order competent jurisdiction enters an order or decree under or decree in an involuntary case or proceeding under any Bankruptcy Law that: (a) is for relief against the any Bankruptcy Law that: (a) is for relief against Food Company or any Significant Subsidiary, in an invol- 4 Less or any Significant Subsidiary; (b) appoints a untary case or proceeding; (b) appoints a custodian of custodian of Food 4 Less or any Significant Subsidiary, the Company or any Significant Subsidiary, or for all or for all or any substantial part of their respective or any substantial part of their respective properties; properties; or (c) orders the liquidation of Food 4 or (c) orders the liquidation of the Company or any Less or any Significant Subsidiary, and in each case Significant Subsidiary, and in each case the order or the order or decree remains unstayed and in effect for decree remains unstayed and in effect for 60 days; 60 days; and (viii) the lenders under the Loan (viii) the lenders under the Credit Agreement shall Documents shall commence judicial proceedings to commence judicial proceedings to foreclose upon any foreclose upon any material portion of the assets of material portion of the assets of the Company and its Food 4 Less and its subsidiaries. In the event of a subsidiaries; or (ix) any of the guarantees shall be declaration or acceleration because an Event of Default declared or adjudged invalid in a final judgment or set forth in clause (iv) above has occurred and is order issued by any court of governmental authority. In continuing, such declaration of acceleration shall be the event of a declaration of acceleration because an automatically rescinded and annulled if either (i) the Event of Default set forth in clause (iv) above has holders of the Indebtedness which is the subject of occurred and is continuing, such declaration of such Event of Default have waived such failure to pay acceleration shall be automatically rescinded and at maturity or have rescinded the acceleration in annulled if either (i) the holders of the 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
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ has occurred during such 90-day period which has not Indebtedness which is the subject of such Event of been cured or waived, or (ii) such Indebtedness shall Default have waived such failure to pay at maturity or have been discharged or the maturity thereof shall have have rescinded the acceleration in respect of such been extended such that it is not then due and payable, Indebtedness within 90 days of such maturity or or the underlying default has been cured, within 90 declaration of acceleration, as the case may be, and no days of such maturity or declaration of acceleration, other Event of Default has occurred during such 90-day as the case may be. period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity Pursuant to the Old F4L Senior Note Indenture, if an thereof shall have been extended such that it is not Event of Default (other than an Event of Default then due and payable, or the underlying default has resulting from bankruptcy, insolvency, receivership or been cured, within 90 days of such maturity or reorganization of Food 4 Less) occurs and is declaration of acceleration, as the case may be. continuing, the Old F4L Senior Note Trustee or the holders of at least 25% in principal amount of the Old Pursuant to the New F4L Senior Note Indenture, if an F4L Senior Notes then outstanding may declare Event of Default (other than an Event of Default immediately due and payable all unpaid principal plus resulting from bankruptcy, insolvency, receivership or accrued and unpaid interest on the Old F4L Senior Notes reorganization of the Company or a Subsidiary then outstanding. If an Event of Default resulting from Guarantor) occurs and is continuing, the New F4L Senior certain events of bankruptcy, insolvency, receivership Note Trustee or the holders of at least 25% in or reorganization of Food 4 Less shall occur, all principal amount of the then outstanding New F4L Senior unpaid principal and accrued interest shall be Notes may declare due and payable all unpaid principal immediately due and payable without any declaration or and interest accrued and unpaid on the then outstanding other act on the part of the Old F4L Senior Note New F4L Senior Notes issued under such New F4L Senior Trustee or any of the holders. Subject to certain Note Indenture by notice in writing to the Company and conditions, the holders of a majority in principal the applicable New F4L Senior Note Trustee specifying amount of the Old F4L Senior Notes then outstanding, by the respective Event of Default and that it is a notice to the Old F4L Senior Note Trustee, may rescind "notice of acceleration" (the "Acceleration Notice"), such declaration if all existing Events of Default are and the same (i) shall become immediately due and remedied. In certain cases the holders of a majority in payable or (ii) if there are any amounts outstanding principal amount of outstanding Old F4L Senior Notes under the Credit Agreement, shall become due and may waive any past default and its consequences, except payable upon the first to occur of an acceleration a default in the payment of principal of or interest on under the Credit Agreement, or five business days after any of the Old F4L Senior Notes. receipt by the Company and the administrative agent under the Credit Agreement of such Acceleration Notice. The Old F4L Senior Note Indenture provides that if a If an Event of Default resulting from certain events of Default or Event of Default occurs and is continuing bankruptcy, insolvency, receivership or reorganization and if it is known to the Old F4L Senior Note Trustee, of the Company or a Subsidiary Guarantor shall occur, the Old F4L Senior Note Trustee shall mail to each all unpaid principal of and accrued interest on all holder notice of the uncured Default or Event of then outstanding New F4L Senior Notes shall be Default within 90 days after such Default or Event of immediately due and payable without any declaration or Default occurs; provided, however, that, except in the other act on the part of the New F4L Senior case of a Default or Event of Default in the payment of Note Trustee or any of the holders. After a declaration the principal of or interest on any of the Old F4L of acceleration, subject to certain conditions, the Senior Notes, including the failure to make payment on holders of a majority in principal amount of the then the Change of Control Payment Date pursuant to a Change outstanding New F4L Senior Notes, by notice to the New of Control Offer, payment when due pursuant to a Net F4L Senior Note Trustee, may rescind such declaration Proceeds Offer or payment when due pursuant to an Offer if all existing Events of Default are remedied. In described above under "Maintenance of Net Worth," the certain cases the holders of a majority in principal Old F4L Senior Note Trustee may withhold such notice if amount of outstanding New F4L Senior Notes may waive a it in good faith determines that withholding such past default under the New F4L Senior Note Indenture notice is in the interest of the holders. and its consequences, except a default in the payment The Old F4L Senior Note Indenture provides that no of or interest on any of the New F4L Senior Notes. holder may pursue any remedy thereunder unless the Old F4L Senior Note Trustee (i) shall have failed to act The New F4L Senior Note Indenture provides that if a for a period of 60 days after receiving written notice Default or Event of Default occurs and is continuing of a continuing Event of Default by such holder and a and if it is known to the New F4L Senior Note Trustee, request to act by holders of at least 25% in principal the New F4L Senior Note Trustee shall mail to each amount of Old F4L Senior Notes and (ii) has received holder of New F4L Senior Notes notice of the Default or indemnification satisfactory to it; provided, however, Event of Default within 90 days after such Default or that such provision does not affect the right of any Event of Default occurs; provided, however, that, holder to sue for enforcement of any overdue payment of except in the case of a Default or Event of Default in Old F4L Senior Notes. the payment of the principal of or interest on any New Under the Old F4L Senior Note Indenture, two officers F4L Senior Notes, including the failure to make payment of Food 4 Less are required to certify to the Old F4L on a Change of Control Payment Date pursuant to a Senior Note Trustee within 120 days after the end of Change of Control Offer or payment when due pursuant to each fiscal year of Food 4 Less whether or not they a Net Proceeds Offer the New F4L Senior Note Trustee know of any Default that occurred during such fiscal may withhold such notice if it in good faith determines year and if applicable, describe such Default and the that withholding such notice is in the interest of the status thereof. holders. The New F4L Senior Note Indenture provides that no holder of New F4L Senior Notes may pursue any remedy thereunder unless the New F4L Senior Note Trustee (i) shall have failed to act for a period of 60 days after receiving written notice of a continuing Event of Default by such holder and a request to act by holders of at least 25% in principal amount of New F4L
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES - - ------------------------------------------------------ ------------------------------------------------------ Senior Notes and (ii) has received indemnification satisfactory to it; provided, however, that such provision does not affect the right of any holder to sue for enforcement of any overdue payment of New F4L Senior Notes. Under the New F4L Senior Note Indenture, two officers of the Company are required to certify to the New F4L Senior Note Trustee within 120 days after the end of each fiscal year of New F4L Senior Note whether or not they know of any Default that occurred during such fiscal year and, if applicable, describe such Default and the status thereof. MODIFICATION OF THE OLD F4L SENIOR NOTE INDENTURE MODIFICATION OF THE NEW F4L SENIOR NOTE INDENTURE Pursuant to the terms of the Old F4L Senior Note Pursuant to the terms of the New F4L Senior Note Indenture, the Old F4L Senior Note Indenture and the Indenture, the New F4L Senior Note Indenture and the Old F4L Senior Notes may be amended or supplemented New F4L Senior Notes may be amended or supplemented (and compliance with any provision thereof may be (and compliance with any provision thereof may be waived) by Food 4 Less, the Old F4L Senior Note Trustee waived) by the Company, the Subsidiary Guarantors, the and the holders of not less than a majority in New F4L Senior Note Trustee and the holders of not less aggregate principal amount of the Old F4L Senior Notes than a majority in aggregate principal amount of New then outstanding, except that without the consent of F4L Senior Notes then outstanding, except that without each holder affected, no such amendment, supplement or the consent of each holder of New F4L Senior Notes waiver may (1) change the principal amount of Old F4L affected, no such amendment, supplement or waiver may Senior Notes whose holders must consent to an (1) change the principal amount of the New F4L Senior amendment, supplement or waiver of any provision of the Notes the holders of which must consent to an Old F4L Senior Note Indenture or the Old F4L Senior amendment, supplement or waiver of any provision of the Notes; (2) reduce the rate or extend the time for New F4L Senior Note Indenture, the New F4L Senior Notes payment of interest on any Old F4L Senior Note; (3) or the guarantees, (2) reduce the rate or extend the reduce the principal amount of any Old F4L Senior Note; time for payment of interest on any New F4L Senior (4) change the date of maturity of any Old F4L Senior Notes, (3) reduce the principal amount of any New F4L Note or alter the redemption provisions in a manner Senior Notes, (4) change the date of maturity of any adverse to any holder; (5) make any changes in the New F4L Senior Notes or the Change of Control Date or provisions concerning waivers of Defaults or Events of alter the redemption provisions in the New F4L Senior Default by holders or the rights of holders to recover Note Indenture or the New F4L Senior Notes or the the principal of, interest on or redemption payment purchase price in connection with any repurchase of New with respect to any Old F4L Senior Note; and (6) make F4L Senior Notes pursuant to the covenant described the principal of, or interest on, any Old F4L Senior under change of control above in a manner adverse to Note payable with anything or in any manner other than any holder, (5) make any changes in the provisions as provided for in the Old F4L Senior Note Indenture concerning waivers of Defaults or Events of Default by and the Old F4L Senior Notes. holders or the rights of holders to recover the principal of, interest on or redemption payment with In addition, pursuant to the Old F4L Senior Note respect to any New F4L Senior Notes, Indenture, Food 4 Less and the Old F4L Senior Note (6) make the principal of, or interest on, any New F4L Trustee may amend the Old F4L Senior Note Indenture and Senior Notes payable with anything or in any manner other the Old F4L Senior Notes (a) to cure any ambiguity, than as provided for in the New F4L Senior Note Indenture, defect or inconsistency therein; provided that such the New F4L Senior Notes and the guarantees, (7) waive amendment or supplement does not adversely affect the any Default or Event of Default resulting from a rights of any holder or (b) to make any other change failure to comply with the covenant described above that does not adversely affect the rights of any under "Limitation on Change of Control" or (8) without holder. the Consent of holders of not less than two-thirds in aggregate principal amount of such New F4L Senior Notes then outstanding, no such amendment, supplement or waiver may release any Subsidiary Guarantor from any of its Obligations under its guarantee or the New F4L Senior Note Indenture other than in accordance with the terms of such guarantee and the New F4L Senior Note Indenture. In addition, pursuant to the New F4L Senior Note Indenture, the New F4L Senior Notes, the New F4L Senior Notes and the related guarantees may be amended by the Company, the Subsidiary Guarantors and the New F4L Senior Note Trustee (a) to cure any ambiguity, defect or inconsistency therein; provided that such amendment or supplement does not adversely affect the rights of any holder thereof or (b) to make any other change that does not adversely affect the rights of any holder thereunder in any material respect.
A-22 226 APPENDIX B COMPARISON OF OLD F4L SENIOR SUBORDINATED NOTES AND NEW F4L SENIOR SUBORDINATED NOTES The following is a brief comparison of the principal features of the Old F4L Senior Subordinated Notes to the New F4L Senior Subordinated Notes. The terms of the New F4L Senior Subordinated Notes differ from the current (unamended) terms of the Old F4L Senior Subordinated Notes in certain significant respects, including those discussed below. The summary comparisons set forth below do not purport to be complete and are qualified in their entirety by reference to the Old F4L Senior Subordinated Note Indenture, the Old F4L Senior Subordinated Notes, the New F4L Senior Subordinated Note Indenture, the New F4L Senior Subordinated Notes, the "Description of the New F4L Notes" and "The Proposed Amendments" and the related definitions contained therein.
OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ ISSUER ISSUER Food 4 Less. The Company, as successor by merger to Food 4 Less. PRINCIPAL AMOUNT OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING As of November 1, 1994, $145 million. Up to $145 million. INTEREST RATE INTEREST RATE The Old F4L Senior Subordinated Notes bear interest at The New F4L Senior Subordinated Notes will bear the rate of 13 3/4% per annum. interest at the rate of 13.75% per annum. INTEREST PAYMENT DATES INTEREST PAYMENT DATES June 15 and December 15. March 1 and September 1, commencing on September 1, 1995. FINAL MATURITY DATE FINAL MATURITY DATE June 15, 2001. March 1, 2005. OPTIONAL REDEMPTION OPTIONAL REDEMPTION The Old F4L Senior Subordinated Notes are redeemable, The New F4L Senior Subordinated Notes are redeemable, at the option of Food 4 Less, in whole at any time or at the option of the Company in whole at any time or in in part from time to time, on or after June 15, 1996, part from time to time, on or after June 15, 1996, at at the following redemption prices if redeemed during the following redemption prices if redeemed during the the twelve-month period commencing on June 15 of the twelve-month period commencing on June 15 of the years years set forth below: set forth below: 1996..........................................106.111% 1996..........................................106.111% 1997..........................................104.583% 1997..........................................104.583% 1998..........................................103.056% 1998..........................................103.056% 1999..........................................101.528% 1999..........................................101.528% 2000 and thereafter...........................100.000% 2000 and thereafter...........................100.000% in each case plus accrued and unpaid interest to the in each case plus accrued and unpaid interest to the date of redemption. date of redemption. In the event of a Change of Control, the Old F4L Senior Subordinated Notes may be redeemed on or after June 15, 1994 and prior to June 15, 1996, at the option of Food 4 Less, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, together with accrued and unpaid interest to the date of redemption, if redeemed during the 12 months commencing on June 15 in the years set forth below: YEAR PERCENTAGE - - ---- ---------- 1994..........................................109.167% 1995..........................................107.639% MANDATORY REDEMPTION MANDATORY REDEMPTION Food 4 Less will make a mandatory sinking fund payment The New F4L Senior Subordinated Notes are not subject on June 15, 2000, sufficient to retire 50% of the Old to a mandatory sinking fund requirement. F4L Senior Subordinated Notes originally issued, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. Food 4 Less may, at its option, receive credit against such sinking fund payment for 100% of the principal amount of any Old F4L Senior Subordinated Notes previously acquired by Food 4 Less in the open market and surrendered to the Old F4L Senior Subordinated Note Trustee for cancellation or redeemed at the option of Food 4 Less and which, in each case, were not previously used for or as a credit against any other required payment pursuant to the Old F4L
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ Senior Subordinated Note Indenture. Food 4 Less may use the same Old F4L Senior Subordinated Note as a credit only once. Food 4 Less intends to credit Old F4L Senior Subordinated Notes tendered into the Exchange Offer against its sinking fund obligation. RANKING RANKING The Old F4L Senior Subordinated Notes are unsecured The New F4L Senior Subordinated Notes will be unsecured general obligations of Food 4 Less and are general obligations of the Company and will be subordinated to all Senior Indebtedness of Food 4 Less, subordinated to all Senior Indebtedness of the Company, including the Old F4L Senior Notes and the borrowings including the Company's obligations under the Credit and other obligations under the Credit Agreement. As of Agreement and the indebtedness under the New F4L Senior September 17, 1994, the Senior Indebtedness of Food 4 Notes and the Old F4L Senior Notes, if any. The New F4L Less was approximately $1,244.0 million. Senior Subordinated Notes will rank senior to, or pari passu with, all subordinated indebtedness of the Company. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the New F4L Senior Subordinated Notes. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include (x) the principal of, premium, if any, and interest on all obligations of every nature of the Company from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal of and interest on, and all fees and expenses payable under the Credit Agreement and the Letter of Credit Obligations, and (y) interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (vi) or (vii) under "-- Events of Default" relating to the Company, whether or not the claim for such interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the New F4L Senior Subordinated Notes, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of the Company, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company, (d) Indebtedness which is represented by Disqualified Capital Stock, (e) Obligations for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables, (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services rendered to the Company, (g) any liability for federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the Company, and (i) that portion of any Indebtedness which is incurred by the Company in violation of the New F4L Senior Subordinated Note Indenture. GUARANTEES GUARANTEES Each Subsidiary Guarantor has unconditionally Each Subsidiary Guarantor will unconditionally guaranteed, jointly and severally, the full and guarantee, jointly and severally, the full and prompt prompt performance of Food 4 Less' obligations under performance of the Company's obligations under the New the Old F4L Senior Subordinated Note Indenture and the F4L Senior Subordinated Note Indenture and the New F4L Old F4L Subordinated Notes. Senior Subordinated Notes. "Subsidiary Guarantor" means (i) Cala Co., Cala "Subsidiary Guarantor" means (i) each of Alpha Beta Foods, Inc., Bell Markets, Inc., Food 4 Less of Company, Bay Area Warehouse Stores, Inc., Bell Markets, Southern California, Inc., Alpha Beta Company, Food 4 Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Falley's, Inc., and Food 4 Less of California, Inc., Food 4 Less Merchandising, Less Merchandising, Inc., (ii) each of the Food 4 Less' Inc., Food 4 Less GM, Inc., Food 4 Less of Southern subsidiaries that becomes a guarantor of the Old F4L California, Inc. (ii) upon consummation of the Mergers, Senior Subordinated Notes pursuant to the provisions of Crawford Stores, Inc., (iii) each of the Company's the Old F4L Senior Subordinated Note Indenture subsidiaries which becomes a guarantor of the New F4L summarized under "Guarantees of Certain Indebtedness" Senior Subordinated Notes in compliance with the and (iii) each of Food 4 Less's subsidiaries executing provisions set forth under "Guarantees of Certain a supplemental indenture in which such subsidiary Indebtedness," and (iv) each of the Company's agrees to be bound by the provisions of the Old F4L subsidiaries executing a supplemental indenture in Senior Subordinated Note Indenture. See "Guarantees which such subsidiary agrees to be bound by
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ of Certain Indebtedness" below. the terms of the New F4L Senior Subordinated Indenture. See "Guarantees of Certain Indebtedness" below. CHANGE OF CONTROL CHANGE OF CONTROL Under the occurrence of a Change of Control, each Under the occurrence of a Change of Control, each holder will have the right to require the repurchase holder will have the right to require the repurchase of of such holder's Old F4L Senior Subordinated Notes at a such holder's New F4L Senior Subordinated Notes at a purchase price equal to 101% of the principal amount purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of thereof plus accrued and unpaid interest to the date of repurchase. See "Limitation on Change of Control" repurchase. See "Limitation on Change of Control" below. below. "Change of Control" means the acquisition, in one or "Change of Control" means (i) the acquisition after the more transactions, of beneficial ownership (within the Issue Date, in one or more transactions, of beneficial meaning of Rule 13d-3 under the Exchange Act) by (i) ownership (within the meaning of Rule 13d-3 under the any person or entity other than any Permitted Holder Exchange Act) by (a) any person or entity (other than (as defined below) or (ii) any group of persons or any Permitted Holder) or (b) any group of persons or entities (excluding any Permitted Holders) who entities (excluding any Permitted Holders) who constitute a group (within the meaning of section constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any 13(d)(3) of the Exchange Act), in either case, of any securities of FFL or Food 4 Less such that, as a result securities of New Holdings or the Company such that, as of such acquisition, such person, entity or group a result of such acquisition, such person, entity or either (A) beneficially owns (within the meaning of group either beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) 51% or more of Food Rule 13d-3 under the Exchange Act), directly or 4 Less's then outstanding voting securities entitled to indirectly, 40% or more of the then outstanding voting vote on a regular basis for a majority of the board of securities entitled to vote on a regular basis for a directors of Food 4 Less (to the extend such beneficial majority of the board of directors of the Company (but ownership is not shared with any Permitted Holder who only to the extent that such beneficial ownership is has the power to direct the vote thereof), or (B) not shared with any Permitted Holder who has the power otherwise has the ability to elect a majority of the to direct the vote thereof), provided, however, that no members of Food 4 Less's board of directors. such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the "Permitted Holder" means (i) Food 4 Less Equity aggregate, at such time, a greater percentage of such Partners, L.P., The Yucaipa Companies or any entity voting securities than such other person, entity or controlled thereby, (ii) an employee benefit plan of group or (B) at the time of such acquisition, the Food 4 Less, or any participant therein or any of its Permitted Holders (or any of them) possess the ability subsidiaries, (iii) a trustee or other fiduciary (by contract or otherwise) to elect, or cause the holding securities under an employee benefit plan of election, of a majority of the members of the Company's Food 4 Less or any of its subsidiaries or (iv) any board of directors. Permitted Transferee of any of the foregoing persons. "Permitted Holder" means (i) Food 4 Less Equity "Permitted Transferee" means, with respect to any Partners, L.P., and The Yucaipa Companies or any entity person, (i) any affiliate of such person, (ii) the controlled thereby or any of the partners thereof, (ii) heirs, executors, administrators, testamentary Apollo Advisors, L.P., Lion Advisors, L.P. or any trustees, legatees or beneficiaries of any such person, entity controlled thereby or any of the partners and (iii) a trust, the beneficiaries of which, or a thereof, (iii) an employee benefit plan of the Company, corporation or partnership, the stockholders or general or any participant therein or any of its subsidiaries, or limited partners of which, include only such person (iv) a trustee or other fiduciary holding securities or his or her spouse or lineal descendants, in each under an employee benefit plan of the Company or any of case to whom such person has transferred securities of its subsidiaries or (v) any Permitted Transferee of any Food 4 Less. of the foregoing persons. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD "Permitted Transferees" means, with respect to any F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED person, (i) any Affiliate of such person, (ii) the TO ELIMINATE THIS COVENANT AND CERTAIN RELATED heirs, executors, administrators, testamentary DEFINITIONS. trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of the Company, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person and (v) any investment fund or investment entity that is a subsidiary of such person or a Permitted Transferee of such person. CERTAIN COVENANTS CERTAIN COVENANTS LIMITATION ON RESTRICTED PAYMENTS. Pursuant to the LIMITATION ON RESTRICTED PAYMENTS. Pursuant to the New Old F4L Senior Subordinated Note Indenture, Food 4 F4L Senior Subordinated Note Indenture, the Company Less shall not, and shall cause each of its shall not, and shall cause each of its subsidiaries not subsidiaries not to, directly or indirectly, make any to, directly or indirectly, make any Restricted Payment Restricted Payment if, at the time of such Restricted if, at the time of such proposed Restricted Payment, or Payment, or after giving effect thereto, (a) a Default after giving effect thereto, (a) a Default or an Event or an Event of Default shall have occurred and be of Default shall have occurred and be continuing, (b) continuing, (b) the Net Worth of Food 4 Less on the the Company could not incur $1.00 of additional last day of the full fiscal quarter immediately Indebtedness (other than Permitted Indebtedness) preceding the date of such Restricted Payment (pro pursuant to the covenant described under "-- Limitation forma to give effect thereto) is not greater than $115 on Incurrences of Additional Indebtedness" below or (c) million, (c) Food 4 Less's Operating Coverage Ratio, the aggregate amount calculated on a pro
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ forma basis as if such Restricted Payment had been made expended for all Restricted Payments, including such at the beginning of the Pro Forma Period, shall be less proposed Restricted Payment (the amount of any than 2.25 to 1.0 or (d) the aggregate amount expended Restricted Payment, if other than cash, to be the fair for all Restricted Payments, including such Restricted market value thereof at the date of payment as Payment (the amount of any Restricted Payment, if other determined in good faith by the board of directors of than cash, to be the fair market value thereof at the the Company), subsequent to the Issue Date, shall date of payment as determined in good faith by the exceed the sum of (i) 50% of the aggregate Consolidated board of directors of Food 4 Less), subsequent to June Net Income (or if such aggregate Consolidated Net 17, 1991, shall exceed the sum of (i) 25% of the Income is a loss, minus 100% of such loss) of the aggregate Consolidated Net Income (or if such Company earned subsequent to the Issue Date and on or Consolidated Net Income is a loss, minus 100% of such prior to the date of the proposed Restricted Payment loss) of Food 4 Less earned subsequent to June 17, 1991 (the "Reference Date") plus (ii) 100% of the aggregate and on or prior to the date the Restricted Payment net proceeds received by the Company from any person occurs (the "Reference Date") plus (ii) 100% of the (other than a subsidiary of the Company) from the aggregate net proceeds received by Food 4 Less from any issuance and sale (including upon exchange or person (other than a subsidiary) from the issuance and conversion for other securities of the Company) sale subsequent to June 17, 1991 and on or prior to the subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any (A) Qualified Capital Stock paid as a dividend on any capital stock or as interest on any Indebtedness and capital stock or as interest on any Indebtedness, and (B) any net proceeds from issuances and sales financed (B) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from Food 4 directly or indirectly using funds borrowed from the Less or any subsidiary, until and to the extent such Company or any subsidiary, until and to the extent such borrowing is repaid). borrowing is repaid plus (iii) 100% of the aggregate net cash proceeds received by the Company as capital Notwithstanding the foregoing, if no Default or Event contributions to the Company after the Issue Date plus of Default shall have occurred and be continuing as a (iv) $25 million. consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) Notwithstanding the foregoing, if no Default or Event the payment of any dividend within 60 days after the of Default shall have occurred and be continuing as a date of its declaration if the dividend would have been consequence thereof, the provisions set forth in the permitted on the date of declaration, (2) the immediately preceding paragraph will not prevent (1) acquisition of any shares of capital stock of Food 4 the payment of any dividend within 60 days after the Less or the repayment of any Indebtedness of Food 4 date of its declaration if the dividend would have been Less in exchange for or solely out of the proceeds of permitted on the date of declaration, (2) the the substantially concurrent sale (other than to a acquisition of any shares of capital stock of the subsidiary) of shares of Qualified Capital Stock or the Company or the repurchase, redemption or other repayment of any Indebtedness of Food 4 Less in ex- repayment of any Subordinated Indebtedness in exchange change for or solely out of the proceeds of the for or solely out of the proceeds of the substantially substantially concurrent sale (other than to a concurrent sale (other than to a subsidiary) of shares subsidiary) of Indebtedness subordinated in right of of Qualified Capital Stock of the Company, (3) the payment to the Old F4L Senior Subordinated Notes with repurchase, redemption or other repayment of any no scheduled or required maturity or scheduled or Subordinated Indebtedness in exchange for or solely out required repayment of principal or sinking fund payment of the proceeds of the substantially concurrent sale prior to the date of maturity, (3) Permitted Payments; (other than to a subsidiary) of Subordinated provided, however, that the declaration of each Indebtedness of the Company with an Average Life equal dividend paid in accordance with clause (1) above, and to or greater than the then remaining Average Life of each acquisition made in accordance with clause (2) the Subordinated Indebtedness repurchased or redeemed, above, and each payment described in clause (ii), (iii) and (4) Permitted Payments; provided, however, that the or (iv) of the definition of "Permitted Payments" shall declaration of each dividend paid in accordance with each be counted for purposes of computing amounts clause (1) above, each acquisition or repayment made in expended pursuant to subclause (d) in the immediately accordance with, or of the type set forth in, clause preceding paragraph, and no amounts expended pursuant (2) above, and each payment described in clause (iii), to clause (i) or (v) of the definition of "Permitted (iv), (v), (vi), (vii) or (ix) of the definition of the Payments" shall be so counted. term "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to "Restricted Payment" means any (i) Stock Payment, subclause (c) in the immediately preceding paragraph, (ii) Investment (other than a Permitted Investment) or and no amounts expended pursuant to clause (3) above or (iii) Restricted Debt Prepayment (each as defined pursuant to clause (i), (ii) or (viii) of the below). definition of the term "Permitted Payments" shall be so counted; provided, further that to the extent any "Stock Payment" means, with respect to any person, payments made pursuant to clause (vii) of the (a) the declaration or payment by such person, either definition of the term "Permitted Payments" are in cash or in property, of any dividend on (except, in deducted for purposes of computing the Consolidated Net the case of Food 4 Less, dividends payable solely in Income of the Company, such payments shall not be Qualified Capital Stock of Food 4 Less), or the making counted for purposes of computing amounts expended as by such person or any of its subsidiaries of any other Restricted Payments pursuant to subclause (c) in the distribution in respect of, such person's Qualified immediately preceding paragraph. Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of such capital "Restricted Payment" means any (i) Stock Payment, (ii) stock (other than exchangeable or convertible Investment (other than a Permitted Investment) or (iii) Indebtedness of such person), or (b) the redemption, Restricted Debt Prepayment (each as defined below). repurchase, retirement or other acquisition for value by such person or any of its subsidiaries, directly or "Stock Payment" means, with respect to any person, (a) indirectly, of such person's Qualified Capital Stock the declaration or payment by such person, either in (and, in the case of a subsidiary, Qualified Capital cash or in property, of any dividend on (except, in the Stock of Food 4 Less) or any warrants, rights or case of the Company, dividends payable solely in options to purchase or acquire shares of any class of Qualified Capital Stock of the Company), or the making such capital stock (other than exchangeable or by such person or any of its subsidiaries of any other convertible Indebtedness of such person), other than, distribution in respect of, such person's Qualified in the case of Food 4 Less, through the issuance in exchange therefor solely of Qualified Capital Stock of Food 4 Less; provided, however,
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ that in the case of a subsidiary, the term "Stock Capital Stock or any warrants, rights or options to Payment" shall not include any such payment with purchase or acquire shares of any class of such capital respect to its capital stock or warrants, rights or stock (other than exchangeable or convertible options to purchase or acquire shares of any class of Indebtedness of such person), or (b) the redemption, its capital stock that are owned solely by Food 4 Less repurchase, retirement or other acquisition for value or a wholly-owned subsidiary. by such person or any of its subsidiaries, directly or indirectly, of such person's Qualified Capital Stock "Investment" by any person in any other person means (and, in the case of a subsidiary, Qualified Capital any investment by such person in such other person, Stock of the Company) or any warrants, rights or whether by a purchase of assets, in any transaction or options to purchase or acquire shares of any class of series of related transactions, individually or in the such capital stock (other than exchangeable or aggregate, in an amount greater than $5 million, share convertible Indebtedness of such person), other than, purchase, capital contribution, loan, advance (other in the case of the Company, through the issuance in than reasonable loans and advances to employees for exchange therefor solely of Qualified Capital Stock of moving and travel expenses, as salary advances, or to the Company; provided, however, that in the case of a permit the purchase of Qualified Capital Stock of Food subsidiary, the term "Stock Payment" shall not include 4 Less and other similar customary expenses incurred, any such payment with respect to its capital stock or in each case in the ordinary course of business warrants, rights or options to purchase or acquire consistent with past practice) or similar credit shares of any class of its capital stock that are owned extension constituting Indebtedness of such other solely by the Company or a wholly-owned subsidiary. person, and any guarantee of Indebtedness of any other "Investment" by any person in any other person means any "Permitted Investment" by any person means (i) any investment by such person in such other person, whether Related Business Investment, (ii) Investments in by a purchase of assets, in any transaction or series securities not constituting cash or cash equivalents of related transactions, individually or in the and received in connection with an Asset Sale made aggregate, in an amount greater than $5 million, share pursuant to the provisions of the Old F4L Senior purchase, capital contribution, loan, advance (other Subordinated Note Indenture summarized under "Limi- than reasonable loans and advances to employees for tation on Disposition of Assets" or any other moving and travel expenses, as salary advances, or to disposition of assets not constituting an Asset Sale by permit the purchase of Qualified Capital Stock of the reason of the $250,000 threshold contained in the Company and other similar customary expenses incurred, definition thereof, (iii) cash and cash equivalents, in each case in the ordinary course of business (iv) Investments existing on June 17, 1991, (v) consistent with past practice) or similar credit Investments specifically permitted by and made in extension constituting Indebtedness of such other accordance with the provisions of the Old F4L Senior person, and any guarantee of Indebtedness of any other Subordinated Note Indenture summarized under person. "Limitation on Restricted Payments," "Limitation on Transactions with Affiliates" and "Limitation on "Permitted Investment" by any person means (i) any Incurrences of Additional Indebtedness," and (vi) Related Business Investment, (ii) Investments in Investments by Subsidiary Guarantors in other securities not constituting cash or cash equivalents Subsidiary Guarantors and Investments by subsidiaries and received in connection with an Asset Sale made which are not Subsidiary Guarantors in other pursuant to the provisions of the covenant described subsidiaries which are not Subsidiary Guarantors. under "Limitation on Asset Sales" or any other dispo- sition of assets not constituting an Asset Sale by "Restricted Debt Prepayment" means any purchase, reason of the $500,000 threshold contained in the redemption, defeasance (including, but not limited to, definition thereof, (iii) cash and cash equivalents, in-substance or legal defeasance) or other acquisition (iv) Investments existing on the Issue Date, (v) or retirement for value, directly or indirectly, by Investments specifically permitted by and made in Food 4 Less or a subsidiary, prior to the scheduled accordance with the provisions of the covenant maturity or prior to any scheduled repayment of described under "Limitation on Transactions with principal or sinking fund payment, as the case may be, Affiliates", (vi) Investments by Subsidiary Guarantors in respect of Indebtedness of Food 4 Less that is in other Subsidiary Guarantors and Investments by subordinate in right of payment to the Old F4L Senior subsidiaries which are not Subsidiary Guarantors in Subordinated Notes; provided, however, that any such other subsidiaries which are not Subsidiary Guarantors acquisition shall be deemed not to be a Restricted Debt and (vii) additional investments in an aggregate amount Prepayment to the extent it is made (x) in exchange for not exceeding $5 million. or with the proceeds from the substantially concurrent issuance of Qualified Capital Stock or (y) in exchange "Restricted Debt Prepayment" means any purchase, for or with the proceeds from the substantially redemption, defeasance (including, but not limited to, concurrent issuance of Indebtedness, in a principal in substance or legal defeasance) or other acquisition amount (or, if such Indebtedness provides for an amount or retirement for value, directly or indirectly, by the less than the principal amount thereof to be due and Company or a subsidiary, prior to the scheduled payable upon the acceleration thereof, with an original maturity or prior to any scheduled repayment of issue price) not to exceed the sum of (A) the lesser of principal or sinking fund payment, as the case may be, (i) the principal amount of Indebtedness being acquired in respect of Subordinated Indebtedness. in exchange therefor (or with the proceeds therefrom) and (ii) if such Indebtedness being acquired was issued "Permitted Payments" means (i) any payment by the Com- at an original issue discount, the original issue price pany or any subsidiary to The Yucaipa Companies or the thereof plus amortization of the original issue principals thereof for consulting, management, discount at the time of the incurrence of the investment banking or similar advisory services during Indebtedness being issued in exchange therefor (or the such period pursuant to that certain Consulting proceeds of which will finance such acquisition), and Agreement, dated as of the Issue Date, among Food 4 (B) the amount of penalties, fees and expenses actually Less, New Holdings and The Yucaipa Companies, (as such incurred with respect thereto, and provided further amounts would be calculated under such Consulting that any such Indebtedness shall have an average life Agreement as in effect on the Issue Date), (ii) any not less than the average life of the Indebtedness payment by the Company or any subsidiary pursuant to being acquired, and shall contain subordination and the Amended and Restated Tax Sharing Agreement, dated default provisions no less favorable, in any material as of June 17, 1991, between Food 4 Less and certain respect, to holders of the Old F4L Senior Subordinated subsidiaries, as such Tax Sharing Agreement may be Notes than those contained in such Indebtedness being amended from time to time, so long as the payment acquired. thereunder by the Company and its subsidiaries shall not exceed the amount of taxes the Company would be
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ "Permitted Payments" means any payment by Food 4 Less required to pay if it were the filing person for all or any subsidiary (i) to The Yucaipa Companies or the applicable taxes, (iii) any payment by the Company or principals thereof for consulting, investment banking any subsidiary pursuant to the Transfer and Assumption or similar services during such period pursuant to that Agreement, dated as of June 23, 1989, between Food 4 certain Amended and Restated Consulting Agreement, Less and Holdings, as in effect on the Issue Date, (iv) dated as of June 17, 1991, among Food 4 Less, Yucaipa any payment by the Company or any subsidiary (a) in Management Company and The Yucaipa Companies, as such connection with repurchases of outstanding shares of amounts would be calculated under such Consulting the Company's or New Holdings' common stock following Agreement as in effect on the date of the Old F4L the death, disability or termination of employment of Senior Subordinated Note Indenture, (ii) pursuant to management stockholders, and (b) of amounts required to the Amended and Restated Tax Sharing Agreement, dated be paid by New Holdings, the Company or any of its as of June 17, 1991, between Food 4 Less and certain subsidiaries to participants in employee benefit plans subsidiaries, as such Tax Sharing Agreement may be upon termination of employment by such participants, as amended from time to time, so long as the payment provided in the documents related thereto, in an thereunder by Food 4 Less and its subsidiaries shall aggregate amount (for both clauses (a) and (b)) not to not exceed the amount of taxes Food 4 Less would be exceed $10 million in any yearly period (provided that required to pay if it were the filing person for all any unused amounts may be carried over to any applicable taxes, (iii) pursuant to the Transfer and subsequent yearly period subject to a maximum amount of Assumption Agreement, dated as of June 23, 1989, $20 million in any yearly period), (v) from and after between Food 4 Less and FFL, as in effect on June 17, June 30, 1998, payments of cash dividends to New 1991, and (iv) (a) in connection with repurchases of Holdings in an amount sufficient to enable New Holdings outstanding shares of Food 4 Less's common stock to make payments of interest required to be made in following the death, disability or termination of respect of the Holdings Discount Notes in accordance employment of management stockholders, and (b) of with the terms thereof in effect on the Issue Date, amounts required to be paid by FFL, Food 4 Less or any (vi) from and after March 1, 2000, payments of cash of its subsidiaries to participants in employee benefit dividends to New Holdings in an amount sufficient to plans upon any termination of employment by such enable New Holdings to make payments of interest participants, as provided in the documents related required to be made in respect of the Seller Deben- thereto, in an aggregate amount (for both clauses (a) tures in accordance with the terms thereof in effect on and (b)) not to exceed $5 million in any yearly period the Issue Date, (vii) dividends or other payments to (provided that any unused amounts may be carried over New Holdings sufficient to permit New Holdings to to any subsequent yearly period subject to a maximum perform accounting, legal, corporate, and amount of $10 million in any yearly period). administrative functions in the ordinary course of business or to pay required fees and expenses in In addition to the foregoing, the maximum annual fee connection with the Merger, the Reincorporation Merger payable to Yucaipa for management and consulting and the registration under applicable laws and services pursuant to the Amended and Restated regulations of its debt or equity securities, (viii) Consulting Agreement (and thereby allowable as a dividends or other distributions by the Company to New Permitted Payment under the Old F4L Senior Subordinated Holdings on the Issue Date of shares of New Holdings Note Indenture) is either (a) one-tenth of one percent common stock owned by the Company and (ix) dividends by of annual revenues or (b) a fixed annual fee of $2 the Company to New Holdings of the Net Cash Proceeds of million plus 2.5 percent of the excess of (i) earnings an Asset Sale to the extent that (x) neither the before interest, taxes, depreciation and amortization Company nor any of the Subsidiaries is required, or may ("EBITDA") over (ii) a minimum EBITDA threshold of $110 be required, pursuant to the documents governing any million. Yucaipa may elect either method for outstanding Indebtedness of the Company or any of the determining its consulting fee at the beginning of each Subsidiaries to utilize such Net Cash Proceeds to repay fiscal year during the term of the agreement. However, (or offer to repay) such Indebtedness, (y) such Net pursuant to the terms of the 1991 Stockholders Agree- Cash Proceeds have not been utilized to repay ment, Yucaipa's consulting fee is currently limited to outstanding Indebtedness of the Company or any of the an amount not greater than that specified in clause (b) Subsidiaries and (z) New Holdings is required pursuant above. The maximum fee payable to Yucaipa for to the documents governing any outstanding Indebtedness transactional consulting services pursuant to the of New Holdings to utilize such Net Cash Proceeds to Amended and Restated Consulting Agreement (and thereby repay (or offer to repay) such Indebtedness. allowable as a Permitted Payment under the Old F4L Senior Subordinated Note Indenture) is one percent of "Consolidated Net Income," means, with respect to any the cash and noncash consideration paid or received person, for any period, the aggregate of the net income (including assumed indebtedness) by Food 4 Less in any (or loss) of such person and its subsidiaries for such acquisition or disposition transaction, and, without period, on a consolidated basis, determined in duplication of the foregoing, one percent of the accordance with GAAP; provided that (a) the net income maximum principal amount or proceeds of any debt, of any other person in which such person or any of its equity or lease financing by Food 4 Less. subsidiaries has an interest (which interest does not cause the net income of such other person to be "Consolidated Net Income," with respect to any consolidated with the net income of such person and its person, for any period, means the aggregate of the net subsidiaries in accordance with GAAP) shall be included income (or loss) of such person and its subsidiaries only to the extent of the amount of dividends or for such period, on a consolidated basis, determined in distributions actually paid to such person or such accordance with GAAP; provided that (a) the net income subsidiary by such other person in such period; (b) the of any other person in which such person or any of its net income of any subsidiary of such person that is subsidiaries has an interest (which interest does not subject to any Payment Restriction shall be excluded to cause the net income of such other person to be the extent such Payment Restriction actually prevented consolidated with the net income of such person and its the payment of an amount that otherwise could have been subsidiaries in accordance with GAAP) shall be included paid to, or received by, such person or a subsidiary of only to the extent of the amount of dividends or such person not subject to any Payment Restriction; and distributions actually paid to such person or such (c)(i) the net income (or loss) of any other person subsidiary by such other person in such period; (b) the acquired in a pooling of interests transaction for any net income of any subsidiary of such person that is period prior to the date of such acquisition, (ii) all subject to any Payment Restriction shall be excluded to gains and losses realized on any Asset Sale, (iii) all the extent such Payment Restriction actually prevented gains realized upon or in connection with or as a the payment of an amount that otherwise could have been consequence of the issuance of the capital stock of paid to, or received such person or any of its subsidiaries and any
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ by, such person or a subsidiary of such person not gains on pension reversions received by such person or subject to any Payment Restriction; and (c)(i) the net any of its subsidiaries, (iv) all gains and losses income (or loss) of any other person acquired in a realized on the purchase or other acquisition by such pooling of interests transaction for any period prior person or any of its subsidiaries of any securities of to the date of such acquisition, (ii) all gains and such person or any of its subsidiaries, (v) all gains losses-realized on any Asset Sale or in connection with and losses resulting from the cumulative effect of any the closure of the Long Beach Warehouse, (iii) all accounting change pursuant to the application of gains realized upon or in connection with or as a Accounting Principles Board Opinion No. 20, as amended, consequence of the issuance of the capital stock of (vi) all other extraordinary gains and losses, (vii) such person or any of its subsidiaries and any gains on all non-cash charges incurred by the Company or any of pension reversions received by such person or any of its subsidiaries in connection with the Merger, its subsidiaries, (iv) all gains and losses realized on including without limitation the divestiture of the ex- the purchase or other acquisition by such person or any cluded assets, (viii) losses incurred by the Company of its subsidiaries of any securities of such person or and its subsidiaries resulting from earthquakes, and any of its subsidiaries, (v) all gains and losses (ix) with respect to the Company, all deferred resulting from the cumulative effect of any accounting financing costs written off in connection with the change pursuant to the application of Accounting early extinguishment of any Indebtedness, shall each be Principles Board Opinion No. 20, as amended, (vi) all excluded. other extraordinary gains and losses, and (vii) with respect to Food 4 Less, all deferred financing costs "Subordinated Indebtedness" means, with respect to the written off in connection with the early extinguishment Company or any Subsidiary Guarantor, Indebtedness of of any Indebtedness, shall each be excluded. such person which is subordinated in right of payment IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD to the New F4L Senior Subordinated Notes or the senior F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED subordinated note guarantee of such Subsidiary TO ELIMINATE THIS COVENANT AND CERTAIN RELATED Guarantor, as the case may be. DEFINITIONS.
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ LIMITATION ON INCURRENCES OF ADDITIONAL LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS. Pursuant to the Old F4L Senior INDEBTEDNESS. Pursuant to the New F4L Senior Subordinated Note Indenture, Food 4 Less shall not, and Subordinated Note Indenture, the Company shall not, and shall not permit any of its subsidiaries, after the shall not permit any of its subsidiaries, directly or original issuance of the Old F4L Senior Subordinated indirectly, to incur, assume, guarantee, become liable, Notes, directly or indirectly, to incur, assume, contingently or otherwise, with respect to, or guarantee, become liable, contingently or otherwise, otherwise become responsible for the payment of with respect to, or otherwise become responsible for (collectively "incur") any Indebtedness other than the payment of (collectively "incur") any Indebt- Permitted Indebtedness; provided, however, that if no edness; provided, however, that if no Default with Default with respect to payment of principal of, or respect to payment of principal of, or interest on, the interest on, the New F4L Senior Subordinated Notes Old F4L Senior Subordinated Notes or Event of Default issued under the New F4L Senior Subordinated Note shall have occurred and be continuing at the time or as Indenture or Event of Default under the New F4L Senior a consequence of the incurrence of any such Subordinated Note Indenture shall have occurred and be Indebtedness, Food 4 Less (and, in certain circum- continuing at the time or as a consequence of the stances subsidiaries) may incur Indebtedness if on the incurrence of any such Indebtedness, the Company may date of the incurrence of such Indebtedness the incur Indebtedness if immediately before and Operating Coverage Ratio of Food 4 Less would be immediately after giving effect to the incurrence of greater than 2.0 to 1.0 if such date is after June 15, such Indebtedness the Operating Coverage Ratio of 1992 and prior to June 15, 1994; greater than 2.2 to Ralphs Grocery would be greater than 2.0 to 1.0; 1.0 if such date is on or after June 15, 1994 and prior provided, further, a subsidiary may incur Acquired to June 15, 1996; and greater than 2.4 to 1.0 Indebtedness to the extent such Indebtedness could have thereafter. been incurred by the Company pursuant to the immediately preceding proviso. The foregoing limitation shall not apply to (a) certain Indebtedness of Food 4 Less and its "Indebtedness" means with respect to any person, subsidiaries pursuant to (i) the Term Facility under without duplication, (i) all liabilities, contingent or the Loan Documents, (ii) the Subsidiary Letter of otherwise, of such person (a) for borrowed money Credit Obligations, and (iii) the Revolving Facility (whether or not the recourse of the lender is to the under the Loan Documents (and Food 4 Less and each whole of the assets of such person or only to a portion subsidiary (to the extent it is not an obligor) may thereof), (b) evidenced by bonds, notes, debentures, guarantee such Indebtedness, subject to certain drafts accepted or similar instruments or letters of limitations) (b) the Old F4L Senior Subordinated Notes; credit or representing the balance deferred and unpaid (c) certain intercompany Indebtedness; (d) Indebtedness of the purchase price of any property (other than any incurred by Food 4 Less or any subsidiary in connection such balance that represents an account payable or any with the purchase or improvement of property (real or other monetary obligation to a trade creditor (whether personal) or equipment or other capital expenditures in or not an affiliate) created, incurred, assumed or the ordinary course of business (including for the guaranteed by such person in the ordinary course of purchase of assets or stock of any retail grocery store business of such person in connection with obtaining or business) or consisting of capitalized lease goods, materials or services and due within twelve obligations, in aggregate not to exceed $25 million in months (or such longer period for payment as is any yearly period (provided, that any unused amounts customarily extended by such trade creditor) of the may be carried over to the next (but not any subse- incurrence thereof, which account is not overdue by quent) yearly period); (e) Indebtedness of Food 4 Less more than 90 days, according to the original terms of under certain Foreign Exchange Agreements and Interest sale, unless such account payable is being contested in Swap Obligations; (f) certain Permitted Guarantees of good faith), or (c) for the payment of money relating Indebtedness, in aggregate not to exceed $25 million at to a capitalized lease obligation; (ii) the maximum any time outstanding, in addition to Permitted fixed repurchase price of all Disqualified Capital Guarantees outstanding on June 17, 1991; (g) guarantees Stock of such person; (iii) reimbursement obligations by Food 4 Less and its subsidiaries of Indebtedness of such person with respect to letters of credit; (iv) incurred by a wholly-owned subsidiary so long as the obligations of such person with respect to Interest incurrence of such Indebtedness by such wholly-owned Swap Obligations and Foreign Exchange Agreements; (v) subsidiary is permitted under the terms of the Old F4L all liabilities of others of the kind described in the Senior Subordinated Note Indenture; (h) Refinancing preceding clause (i), (ii), (iii) or (iv) that such Indebtedness; (i) Indebtedness in connection with the person has guaranteed or that is otherwise its legal acquisition of the La Habra Facility and Option Stores liability, and (vi) all obligations of others secured if, after giving effect to such incurrence, the by a lien to which any of the properties or assets Operating Coverage Ratio of Food 4 Less would be (including, without limitation, leasehold interests and greater than 2.0 to 1.0; (j) Indebtedness for letters any other tangible or intangible property rights) of of credit relating to workers compensation claims and such person are subject, whether or not the obligations self-insurance and (k) additional Indebtedness of Food secured thereby shall have been assumed by such person 4 Less and Subsidiary Guarantors not to exceed $75 or shall otherwise be such person's legal liability million at any time outstanding. (provided, that if the obligations so secured have not been assumed by such person or are not otherwise such IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD person's legal liability, such obligations shall be F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED deemed to be in an amount equal to the fair market TO ELIMINATE THIS PROVISION AND CERTAIN RELATED value of such properties or assets, as determined in DEFINITIONS. good faith by the board of directors of such person, which determination shall be evidenced by a board "Indebtedness" means with respect to any person, resolution). For purposes of the preceding sentence, without duplication, (i) all liabilities, contingent or the "maximum fixed repurchase price" of any otherwise, of such person (a) for borrowed money Disqualified Capital Stock that does not have a fixed (whether or not the recourse of the lender is to the repurchase price shall be calculated in accordance with whole of the assets of such person or only to a portion the terms of such Disqualified Capital Stock as if such thereof), (b) evidenced by bonds, notes, debentures, Disqualified Capital Stock were purchased on any date drafts accepted or similar instruments or letters of on which Indebtedness shall be required to be credit or representing the balance deferred and unpaid determined under the New F4L Senior Subordinated Note of the purchase price of any property (other than any Indenture, and if such price is based upon, or measured such balance that represents an account payable or any by, the fair market value of such Disqualified Capital other monetary obligation to a trade creditor (whether Stock (or any equity security for which it may be or not an affiliate) created, incurred, assumed or exchanged or converted), such fair market value shall guaranteed by such person in the ordinary course of be determined in good faith by the board of directors business of such person in connection with obtaining of such person, goods,
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ materials or services and due within twelve months (or which determination shall be evidenced by a board such longer period for payment as is customarily resolution. For purposes of the New F4L Senior extended by such trade creditor) of the incurrence Subordinated Indenture, Indebtedness incurred by any thereof, which account is not overdue by more than 90 person that is a general partnership (other than days, according to the original terms of sale, unless non-recourse Indebtedness) shall be deemed to have been such account payable is being contested in good faith), incurred by the general partners of such partnership or (c) for the payment of money relating to a pro rata in accordance with their respective interests capitalized lease obligation; (ii) the maximum fixed in the liabilities of such partnership unless any such repurchase price of all Disqualified Capital Stock of general partner shall, in the reasonable determination such person; (iii) reimbursement obligations of such of the board of directors of the Company, be unable to person with respect to letters of credit; (iv) satisfy its pro rata share of the liabilities of the obligations of such person with respect to Interest partnership, in which case the pro rata share of any Swap Obligations and Foreign Exchange Agreements; (v) Indebtedness attributable to such partner shall be all liabilities of others of the kind described in the deemed to be incurred at such time by the remaining preceding clause (i), (ii), (iii) or (iv) that such general partners on a pro rata basis in accordance with person has guaranteed or that is otherwise its legal their interests. liability, and (vi) all obligations of others secured by a lien to which any of the properties or assets "Permitted Indebtedness" means (a) Indebtedness of the (including, without limitation, leasehold interests and Company and its subsidiaries pursuant to (i) the Term any other tangible or intangible property rights) of Loans or any Loan Documents in an aggregate principal such person are subject, whether or not the obligations amount at any time outstanding not to exceed $750 secured thereby shall have been assumed by such person million, less the aggregate amount of all principal or shall otherwise be such person's legal liability repayments thereunder pursuant to and in accordance (provided, that if the obligations so secured have not with the covenant described under "-- Limitation on been assumed by such person or are not otherwise such Asset Sales" herein subsequent to the Issue Date, and person's legal liability, such obligations shall be (ii) the revolving credit facility under the Credit deemed to be in an amount equal to the fair market Agreement or any Loan Documents (and the Company and value of such properties or assets, as determined in each subsidiary (to the extent it is not an obligor) good faith by the board of directors of such person, may guarantee such Indebtedness) in an aggregate which determination shall be evidenced by a board principal amount at any time outstanding not to exceed resolution). For purposes of the preceding sentence, $325 million, less all permanent reductions thereunder the "maximum fixed repurchase price" of any pursuant to and in accordance with the covenant Disqualified Capital Stock that does not have a fixed described under "-- Limitation on Asset Sales" herein, repurchase price shall be calculated in accordance with (b) Indebtedness of the Company or a Subsidiary the terms of such Disqualified Capital Stock as if such Guarantor owed to and held by the Company or a Disqualified Capital Stock were purchased on any date Subsidiary Guarantor; (c) Indebtedness incurred by the on which Indebtedness would be required to be Company or any subsidiary in connection with the determined under the Old F4L Senior Subordinated Note purchase or improvement of property (real or personal) Indenture, and if such price is based upon, or measured or equipment or other capital expenditures in the by, the fair market value of such Disqualified Capital ordinary course of business (including for the purchase Stock (or any equity security for which it may be of assets or stock of any retail grocery store or exchanged or converted), such fair market value shall business) or consisting of Capitalized Lease be determined in good faith by the board of directors Obligations provided that (i) at the time of the of such person, which determination shall be evidenced incurrence thereof, such indebtedness, together with by a board resolution. any other Indebtedness incurred during the most recently completed four fiscal quarter period in "Operating Coverage Ratio" means, with respect to any reliance upon this clause (c) does not exceed, in the person, the ratio of (1) EBDIT of such person for the aggregate, 3% of net sales of the Company and its period (the "Pro Forma Period") consisting of the most subsidiaries during the most recently completed four recent four full fiscal quarters for which financial fiscal quarter period on a consolidated basis information in respect thereof is available immediately (calculated on a pro forma basis if the date of prior to the date of the transaction giving rise to the incurrence is prior to the first anniversary of the need to calculate the Operating Coverage Ratio (the Merger) and (ii) such Indebtedness, together with all "Transaction Date") to (2) the aggregate Fixed Charges then outstanding Indebtedness incurred in reliance upon of such person for the fiscal quarter in which the this clause (c) does not exceed, in the aggregate, 3% Transaction Date occurs and the three fiscal quarters of the aggregate net sales of the Company and its immediately subsequent to such fiscal quarter (the Subsidiaries during the most recently completed twelve "Forward Period") reasonably anticipated by the board fiscal quarter period on a consolidated basis (calcu- of directors of such person to become due from time to lated on a pro forma basis if the date of incurrence is time during such period. For purposes of this prior to the third anniversary of the Merger); (d) definition, if the Transaction Date occurs prior to the Indebtedness incurred by the Company or any subsidiary first anniversary of June 17, 1991, "EBDIT" for the Pro in connection with capital expenditures in an aggregate Forma Period shall be calculated, in the case of Food 4 principal amount not exceeding $150.0 million in the Less, after giving effect on a pro forma basis to the aggregate, provided that such capital expenditures Alpha Beta Acquisition as if it had occurred on the relate solely to the integration of the operations of first day of the Pro Forma Period. In addition to, but RSI, Food 4 Less and their respective subsidiaries, as without duplication of, the foregoing, for purposes of described in this Prospectus and Solicitation this definition, "EBDIT" shall be calculated after Statement; (e) Indebtedness of the Company incurred giving effect (without duplication), on a pro forma under certain Foreign Exchange Agreements and Interest basis for the Pro Forma Period (but no longer), to (a) Swap Obligations; (f) guarantees incurred in the any Investment, during the period commencing on the ordinary course of business by the Company or a first day of the Pro Forma Period to and including the Subsidiary of Indebtedness of any other person in Transaction Date (the "Reference Period"), in any other aggregate not to exceed $25 million at any time person that, as a result of such Investment, becomes a outstanding; (g) guarantees by the Company or a subsidiary of such person, (b) the acquisition, during Subsidiary Guarantor of Indebtedness incurred by a the Reference Period (by merger, consolidation or wholly-owned Subsidiary Guarantor so long as the purchase of stock or assets) of any business or assets, incurrence of such Indebtedness incurred by such which acquisition is not prohibited by the Old F4L wholly-owned Subsidiary Guarantor is permitted under Senior Subordinated Note Indenture, and (c) any sales the terms of the applicable New Indenture; (h) or other dispositions of assets (other than sales of Refinancing Indebtedness; (i) Indebtedness for letters inventory in the ordinary course of business) occurring of credit relating to workers' compensation claims and during the Reference Period, in each case as if such self-insurance or similar requirements in the ordinary incurrence, Investment, repayment, acquisition or asset course of business; (j) other Indebtedness outstanding sale had on the Issue Date
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ occurred on the first day of the Reference Period. In (after giving effect to the Merger); (k) Indebtedness addition, for purposes of this definition, "Fixed arising from guarantees of Indebtedness of the Company Charges" shall be calculated after giving effect or any subsidiary or other agreements of the Company or (without duplication), on a pro forma basis for the a subsidiary providing for indemnification, adjustment Forward Period, to any Indebtedness incurred or repaid of purchase price or similar obligations, in each case, on or after the first day of the Forward Period and incurred or assumed in connection with the disposition prior to the Transaction Date. of any business, assets or subsidiary, other than guarantees of Indebtedness incurred by any person "Loan Documents" means the Credit Agreement and all acquiring all or any portion of such bonuses, assets or promissory notes, guarantees, security agreements, subsidiary for the purpose of financing such pledge agreements, deeds of trust, mortgages, letters acquisition, provided that the maximum aggregate of credit and other instruments, agreements and liability in respect of all such Indebtedness shall at documents executed pursuant thereto or in connection no time exceed the gross proceeds actually received by therewith, including all amendments, supplements, the Company and its subsidiaries in connection with extensions, renewals, restatements, replacements or such disposition; (l) obligations in respect of refinancings thereof, or other modifications (in whole performance bonds and completion guarantees provided by or in part, and without limitation as to amount, terms, the Company or any subsidiary in the ordinary course of conditions, covenants or other provisions) thereof from business; and (m) additional Indebtedness of the time to time. Company and the Subsidiary Guarantors in an amount not to exceed $200 million at any time outstanding. "Credit Agreement" means the Credit Agreement, dated as of June 17, 1991, by and among Food 4 Less, certain "Operating Coverage Ratio" means, with respect to any of its subsidiaries, the Lenders and Designated Issuers person, the ratio of (1) EBDIT of such person for the of the Lenders referred to therein, Bankers Trust period (the "Pro Forma Period") consisting of the most Company, Citicorp North America, Inc., and recent four full fiscal quarters for which financial Manufacturers Hanover Trust Company, as Co-Agents, and information in respect thereof is available immediately Citicorp North America, Inc., as Administrative Agent, prior to the date of the transaction giving rise to the as the same may be amended, extended, renewed, re- need to calculate the Operating Coverage Ratio (the stated, supplemented or otherwise modified (in whole or "Transaction Date") to (2) the aggregate Fixed Charges in part, and without limitation as to amount, terms, of such person for the fiscal quarter in which the conditions, covenants and other provisions) from time Transaction Date occurs and the three fiscal quarters to time, and any agreement governing Indebtedness immediately subsequent to such fiscal quarter (the incurred to refund or refinance the entirety of the "Forward Period") reasonably anticipated by the board borrowings and commitments then outstanding or of directors of such person to become due from time to permitted to be outstanding under such Credit Agreement time during such period. For purposes of this or such agreement; provided that such refunding or definition, if the Transaction Date occurs prior to the refinancing by its terms states that it is intended to first anniversary of the Merger, "EBDIT" for the Pro be senior in right of payment to the Old F4L Senior Forma Period shall be calculated, in the case of the Subordinated Notes. Food 4 Less shall promptly notify Company, after giving effect on a pro forma basis to the Trustee of any such refunding or refinancing of the the Merger as if it had occurred on the first day of Credit Agreement. the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this "Acquired Indebtedness" means Indebtedness of a definition, "EBDIT" shall be calculated after giving person or any of its subsidiaries existing at the time effect (without duplication), on a pro forma basis for such person becomes a subsidiary of Food 4 Less or the Pro Forma Period (but no longer), to (a) any assumed in connection with the acquisition of assets Investment, during the period commencing on the first from such person and not incurred by such person in day of the Pro Forma Period to and including the connection with, or in anticipation or contemplation Transaction Date (the "Reference Period"), in any other of, such person becoming a subsidiary or such person that, as a result of such Investment, becomes a acquisition. subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or "Permitted Guarantees" means (i) guarantees in effect purchase of stock or assets) of any business or assets, on June 17, 1991 and (ii) guarantees incurred in the which acquisition is not prohibited by the New F4L ordinary course of business, by Food 4 Less or a Senior Subordinated Indenture, and (c) any sales or subsidiary, of Indebtedness of any other person. other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring "Refinancing Indebtedness" means Indebtedness of Food during the Reference Period, in each case as if such 4 Less or a subsidiary (i) issued in exchange for, or incurrence, Investment, repayment, acquisition or asset the proceeds from the issuance and sales or sale had occurred on the first day of the Reference disbursement of which are used to substantially Period. In addition, for purposes of this definition, concurrently repay, redeem, refund, refinance, dis- "Fixed Charges" shall be calculated after giving effect charge or otherwise retire for value, in whole or in (without duplication), on a pro forma basis for the part (collectively, "repay"), or constituting an Forward Period, to any Indebtedness incurred or repaid amendment, modification or supplement to, or a deferral on or after the first day of the Forward Period and or renewal of (collectively, an "amendment"), any prior to the Transaction Date. If such person or any of Indebtedness of Food 4 Less or a subsidiary (and any its subsidiaries directly or indirectly guarantees any penalties, fees and expenses actually incurred by Food Indebtedness of a third person, the Operating Coverage 4 Less or such subsidiary in connection with the Ratio shall give effect to the incurrence of such repayment or amendment thereof) existing immediately Indebtedness as if such person or subsidiary had after the original issuance of the Old F4L Senior directly incurred such guaranteed Indebtedness. Subordinated Notes or incurred pursuant to paragraphs (b), (c), (d), (f), (g), (h), (i), (j), (k), (l), (m) "EBDIT" means, with respect to any person, for any or (n) of Section 5.13 in a principal amount (or, if period, the Consolidated Net Income of such person for such Refinancing Indebtedness provides for an amount such period, plus, in each case to the extent deducted less than the principal amount thereof to be due and in computing Consolidated Net Income of such person for payable upon the acceleration thereof, with an original such period (without duplication)(i) provisions for issue price) not in excess of (l) the principal amount income taxes or similar charges recognized by such of the Indebtedness so refinanced (or, if such person and its consolidated subsidiaries accrued during Refinancing Indebtedness refinances Indebtedness under such period, (ii) depreciation and amortization expense a revolving facility or other agreement providing a of such person and its consolidated subsidiaries commitment for subsequent borrowings, with a maximum accrued during such period (but only to the extent not commitment not to exceed the maximum commitment under included in fixed such revolving credit
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ facility or other agreement) plus (2) unpaid accrued charges), (iii) fixed charges of such person and its interest on such Indebtedness plus (3) penalties, fees consolidated subsidiaries for such period, (iv) LIFO and expenses actually incurred by Food 4 Less or such charges (credits) of such person and its consolidated subsidiary, as the case may be, in connection with the subsidiaries for such period, (v) the amount of any repayment or amendment thereof; or (ii) in an amount restructuring reserve or charge recorded during such permitted to be incurred at the time of such incurrence period in accordance with GAAP, including any such by Food 4 Less or such subsidiary, as the case may be, reserve or charge related to the Merger, and (vi) any under the Credit Agreement pursuant to limitations on other non-cash charges reducing Consolidated Net Income Incurrences of Additional Indebtedness; provided that for such period (excluding any such charge which (for both clauses (i) and (ii) above) (A) Refinancing requires an accrual of or a cash reserve for cash Indebtedness of any subsidiary shall not be used to charges for any future period), less, without repay outstanding Indebtedness of Food 4 Less and (B) duplication, (i) non-cash items increasing Consolidated Refinancing Indebtedness of Food 4 Less that repays or Net Income of such person for such period in each case constitutes an amendment to Indebtedness of Food 4 Less determined in accordance with GAAP and (ii) the amount (other than any of the Securities) ranking pari passu of all cash payments made by such person or its with, or junior in right of payment to, the Old F4L subsidiaries during such period to the extent that such Senior Subordinated Notes shall not have an Average cash payment has been provided for in a restructuring Life less than the Indebtedness to be so refinanced at reserve or charge referred to in clause (v) above (and the time of such incurrence and shall not rank senior were not otherwise deducted in the computation of in right of payment in any respect to such repaid or Consolidated Net Income of such person for such amended Indebtedness, and (C) notwithstanding the period). foregoing, any Refinancing Indebtedness incurred to repay all of Old F4L Senior Subordinated Notes then "Credit Agreement" means the Credit Agreement, dated as outstanding shall not be limited in principal amount or of the Issue Date, by and among Food 4 Less, certain of otherwise if Food 4 Less irrevocably deposits with the its subsidiaries, the Lenders referred to therein, Old F4L Senior Subordinated Notes Trustee or Paying Bankers Trust Company, as administrative agent, as the Agent an amount of the proceeds of such Refinancing case may be, as amended, extended, renewed, restated, Indebtedness sufficient to redeem the outstanding supplemented or otherwise modified (in whole or in principal amount of the Old F4L Senior Subordinated part, and without limitation as to amount, terms, Notes on the date fixed for the repayment thereof. conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness in- IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD curred to refund or refinance the entirety of the F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED borrowings and commitments then outstanding or TO ELIMINATE THIS COVENANT AND CERTAIN RELATED permitted to be outstanding under such Credit Agreement DEFINITIONS. or such agreement. "Acquired Indebtedness" means (i) with respect to any person that becomes a subsidiary of the Company (or is merged into the Company or any of its subsidiaries) after the Issue Date, Indebtedness of, such person or any of its subsidiaries existing at the time such person becomes a subsidiary of the Company (or is merged into the Company or any of its subsidiaries) and which was not incurred in connection with, or in contemplation of, such person becoming a subsidiary of the Company (or being merged into the Company or any of its subsidiaries) and (ii) with respect to the Company or any of its subsidiaries, any Indebtedness assumed by the Company or any of its subsidiaries in connection with the acquisition of any assets from another person (other than the Company or any of its subsidiaries), and which was not incurred by such other person in connection with, or in contemplation of, such acquisition. "Permitted Guarantees" means (i) guarantees in effect on the Issue Date and (ii) guarantees incurred in the ordinary course of business, by the Company or a subsidiary, of Indebtedness of any other person. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (c), (d), (h) and (j) of the definition thereof) incurred in accordance with the applicable New Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commit- ment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date of the New F4L Senior Subordinated Notes and (y) shall contain subordination and default provisions no less favorable in any material respect to holders of the New Senior Subordinated F4L Notes than those contained in such repaid or amended Subordinated Indebtedness. LIMITATION ON LIENS. Pursuant to the Old F4L Senior LIMITATION ON LIENS. Pursuant to the New F4L Senior Subordinated Note Indenture, Food 4 Less shall not Subordinated Note Indenture, the Company shall not and and shall not permit any subsidiary to create, incur, shall not permit any subsidiary to create, incur, assume or suffer to exist any liens upon any of their assume or suffer to exist any liens upon any of their respective assets, except for (i) existing and future respective assets unless the New F4L Senior liens securing Senior Indebtedness and Guarantor Senior Subordinated Notes are issued thereunder equally and Indebtedness of each Subsidiary Guarantor, (ii) ratably secured by the liens covering such assets, Permitted Liens, (iii) liens securing certain Acquired except for (i) liens on assets of the Company securing Indebtedness, (iv) liens existing on June 17, 1991, (v) Senior Indebtedness and liens on assets of a Subsidiary liens securing certain Refinancing Indebtedness, and Guarantor which, at the time of incurrence, secure (vi) liens to secure certain Indebtedness that is Guarantor Senior Indebtedness, (ii) existing and future otherwise permitted under the Old F4L Senior liens securing Indebtedness and other obligations of Subordinated Note Indenture and that is incurred to the Company and its subsidiaries under the Loan finance the costs of the property subject thereto, Documents or any refinancing or replacement thereof in (vii) liens in favor of the Old F4L Senior Subordinated whole or in part permitted under the New F4L Senior Note Trustee; and (viii) any replacement, extension or Subordinated Indenture, (iii) Permitted Liens, (iv) renewal, in whole or in part, of any lien described in liens securing Acquired Indebtedness; provided that the foregoing clauses (i) through (vii) provided that such liens (x) are not incurred in connection with, or if any such clause limits the amount secured or the in contemplation of the acquisition of the property or assets subject to such liens, no extension or renewal assets acquired and (y) do not extend to or cover any shall increase the amount of the assets subject to such property or assets of the Company or any subsidiary liens. other than the property or assets so acquired, (v) liens to secure capitalized lease obligation and "Permitted Liens" shall mean (i) liens for taxes, certain other Indebtedness that is otherwise permitted assessments, and governmental charges to the extent not under the New F4L Senior Subordinated Indenture; required to be paid under the provisions of the Old F4L provided that (A) any such lien is created solely for Senior Subordinated Note Indenture concerning payment the purpose of securing such other Indebtedness of taxes and other claims; (ii) statutory liens of representing, or incurred to finance, refinance or landlords and carriers, warehousemen, mechanics, refund, the cost (including sales and excise taxes, suppliers, materialmen, repairmen, or other like liens installation and delivery charges and other direct arising in the ordinary course of business and with costs of, and other direct expenses paid or charged in respect to amounts not yet delinquent or being connection with, the purchase (whether through stock or contested in good faith by appropriate process of law, asset purchase, merger or otherwise) or construction) and for which a reserve or other appropriate or improvement of the property subject thereto (whether provision, if any, as shall be required by real or personal, including fixtures and other GAAP shall have been made; (iii) pledges or deposits in equipment), (B) the principal amount of the the ordinary course of business to secure lease Indebtedness secured by such lien does not exceed 100% obligations or nondelinquent obligations under workers' of such costs and (C) such lien does not extend to or compensation, unemployment insurance or similar cover any other property other than such item of legislation; (iv) liens to secure the performance of property and any improvements on such item; (vi) liens public statutory obligations that are not delinquent, existing on the Issue Date (after giving effect to the appeal bonds, performance bonds or other obligations of Merger); (vii) liens in favor of the New F4L Senior a like nature (other than for borrowed money); (v) Subordinated Note Trustee under the New F4L Senior easements, rights-of-way, other similar charges or Subordinated Indenture; and any substantially encumbrances not interfering in any material respect equivalent Lien granted to any trustee or similar with the business of Food 4 Less or any of its institution and or any indenture for indebtedness subsidiaries incurred in the ordinary course of permitted to be incurred under the New Indentures; and business; (vi) purchase money liens upon or in any real (viii) any replacement, extension or renewal, in whole or personal property (including fixtures and other or in part, of any lien described in this or the equipment) acquired or held by Food 4 Less or any foregoing clauses including in connection with any subsidiary in the ordinary course of business to secure refinancing of the Indebtedness, in whole or in part, the purchase price of such property or to secure secured by any such lien provided that to the extent Indebtedness incurred solely for the purpose of any such clause limits the amount secured or the assets financing or refinancing the acquisition or improvement subject to such liens, no extension or renewal shall of such property, or liens existing on such property at increase the amount or the assets subject to such the time of its acquisition (other than any such lien liens, except to the extent that the liens associated created in contemplation of such acquisition); provided with such additional assets are otherwise permitted that (x) no such lien shall extend to or cover any hereunder. property other than the property being acquired or improved and (y) any such Indebtedness would be "Permitted Liens" shall mean (i) liens for taxes, permitted to be incurred pursuant to the assessments and governmental charges or claims not yet due or which are
B-12 238
OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ provisions of the Old F4L Senior Subordinated Note being contested in good faith by appropriate Indenture summarized under "Limitation on Incurrences proceedings promptly instituted and diligently of Additional Indebtedness"; (vii) liens upon specific conducted and if a reserve or other appropriate items of inventory or other goods and proceeds of any provision, if any, as shall be required in conformity person securing such person's obligations in respect of with GAAP shall have been made therefor; (ii) statutory bankers' acceptances issued or created for the account liens of landlords and carriers, warehouseman, of such person to facilitate the purchase, shipment or mechanics, suppliers, materialmen, repairmen or other storage of such inventory or other goods in the like liens arising in the ordinary course of business, ordinary course of business; (viii) liens securing deposits made to obtain the release of such liens, and reimbursement obligations with respect to letters of with respect to amounts not yet delinquent for a period credit which encumber documents and other property of more than 60 days or being contested in good faith relating to such letters of credit and the products and by an appropriate process of law, and for which a proceeds thereof; (ix) liens in favor of customs and reserve or other appropriate provision, if any, as revenue authorities arising as a matter of law to shall be required by GAAP shall have been made; (iii) secure payment of nondelinquent customs duties in liens incurred or pledges or deposits made in the connection with the importation of goods; (x) judgement ordinary course of business to secure obligations under and attachments liens not giving rise to a Default of workers' compensation, unemployment insurance and other Event of Default; (xi) leases or subleases granted to types of social security or similar legislation; (iv) others not interfering in any material respect with the liens incurred or deposits made to secure the business of Food 4 Less or any of its subsidiaries; performance of tenders, bids, leases, statutory (xii) liens encumbering customary initial deposits and obligations, surety and appeal bonds, government margin deposits, and other liens incurred in the contracts, performance and return of money bonds and ordinary course of business that are within the general other obligations of a like nature incurred in the parameters customary in the industry, in each case ordinary course of business (exclusive of obligations securing Indebtedness under Interest Swap Obligations for the payment of borrowed money); (v) easements, and Foreign Exchange Agreements and forward contracts, rights-of-way, zoning or other restrictions, minor option futures contracts, futures options or similar defects or irregularities in title and other similar agreements or arrangements designed to protect Food 4 charges or encumbrances not interfering in any material Less or any of its subsidiaries from fluctuations in respect with the business of the Company or any of its the price of commodities; (xiii) liens encumbering subsidiaries incurred in the ordinary course of deposits made in the ordinary course of business to business; (vi) liens upon specific items of inventory secure nondelinquent obligations arising from statu- or other goods and proceeds of any person securing such tory, regulatory, contractual or warranty requirements person's obligations in respect of bankers' acceptances of Food 4 Less or its subsidiaries for which a reserve issued or created for the account of such person to or other appropriate provision, if any, as shall be facilitate the purchase, shipment or storage of such required by GAAP shall have been made; (xiv) liens inventory or other goods in the ordinary course of arising out of consignment or similar arrangements for business; (vii) liens securing reimbursement the sale of goods entered into by Food 4 Less or any of obligations with respect to letters of credit which its subsidiaries in the ordinary course of business in encumber documents and other property relating to such accordance with past practices; (xv) any interest or letters of credit and the products and proceeds title of a lessor in the property subject to any lease, thereof; (viii) liens in favor of customs and revenue whether characterized as capitalized or operating, authorities arising as a matter of law to secure other than any such interest or title resulting from or payment of nondelinquent customs duties in connection arising out of a default by Food 4 Less or any of its with the importation of goods; (ix) judgment and subsidiaries of its obligations under such lease; and attachment liens not giving rise to a Default or Event (xvi) liens arising from filing UCC financing of Default; (x) leases or subleases granted to others statements for precautionary purposes in connection not interfering in any material respect with the with true leases of personal property that are business of the Company or any subsidiary; (xi) liens otherwise permitted under the Old F4L Senior encumbering customary initial deposits and margin Subordinated Note Indenture and under which Food 4 Less deposits, and other liens incurred in the ordinary or any of its subsidiaries is a lessee. course of business that are within the general parameters customary in the industry, in each case IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD securing Indebtedness under interest swap obligations F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED and foreign exchange agreements and forward contracts, TO ELIMINATE THIS PROVISION AND CERAIN RELATED LIENS. 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; and (xv) liens arising from filing UCC financing statements for precautionary purposes in connection with true leases of personal property that are otherwise permitted under the applicable Indenture and under which the Company or any subsidiary is lessee; (xvi) liens on assets of the Company securing Indebtedness which would constitute Senior Indebtedness but for the provisions of clause (c) in the third sentence of the definition of Senior Indebtedness and liens on assets of a Subsidiary Guarantor securing Indebtedness which would constitute Guarantor Senior Indebtedness but for the provisions of
B-13 239
OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ clause (c) in the third sentence of the definition of Guarantor Senior Indebtedness and; (xvii) additional liens securing Indebtedness at any one time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the aggregate Consolidated Net Income of the Company earned subsequent to the Issue Date on or prior to such time. "Loan Documents" means the Credit Agreement and all promissory notes, guarantees, security agreements, pledge agreements, deeds of trust, mortgages, letters of credit and other instruments, agreements and documents executed pursuant thereto or in connection therewith, and all amendments, supplements, extensions, renewals, restatements, replacements or refinancings thereof (in each case, in whole or in part, and without limitation as to amount, number, terms, conditions, covenants or other provisions) or other modifications thereof from time to time (whether or not any such replacement or refinancing replaces or refinances the entirety of the borrowings then outstanding under the Credit Agreement) and including all subsequent amendments, supplements, extensions, renewals, re- statements, replacements, or refinancings of any such Loan Documents (in each case, in whole or in part, and without limitation as to amount, number, terms, conditions, covenants or other provisions). LIMITATION ON ASSET SALES. Pursuant to the Old F4L LIMITATION ON ASSET SALES. Pursuant to the New F4L Senior Subordinated Note Indenture, Food 4 Less will Senior Subordinated Note Indenture, the Company will not, and will not permit any of its subsidiaries to, not, and will not permit any of its subsidiaries to, make any Asset Sale unless (a) Food 4 Less or the make any Asset Sale unless (a) the Company or the applicable subsidiary receives consideration at the applicable subsidiary receives consideration at the time of such Asset Sale at least equal to the fair time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed market value of the assets sold and (b) upon of (as determined in good faith by the board of consummation of an Asset Sale, the Company will within directors of Food 4 Less or, if the aggregate 365 days of the receipt of the proceeds therefrom, fair-market value of all non-cash consideration either: (i) apply or cause its subsidiary to apply the received by the Food 4 Less or such subsidiary, as the net cash proceeds of any Asset Sale to (A) a Related case may be, from any such Asset Sale shall exceed $15 Business Investment, (B) an investment in properties million, as determined by an independent financial and assets that replace the properties and assets that advisor, provided that no such determination by the are the subject of such Asset Sale or (C) an investment board of directors of Food 4 Less shall be required if in properties and assets that will be used in the the fair market value of the assets sold or otherwise business of the Company and its subsidiaries existing disposed of does not exceed $5 million) and (b) an on the Issue Date or in businesses reasonably related amount equal to the aggregate cash, net of expenses, thereto; (ii) apply or cause to be applied such net taxes, commissions and the like incurred in connection cash proceeds to the permanent repayment of Pari Passu with such Asset Sale and the amount of cash required to Indebtedness or in the case of the New Senior repay any Indebtedness secured by the asset involved in Subordinated Note Indenture, Senior Indebtedness; such Asset Sale, received by Food 4 Less or such provided, however, that the repayment of any revolving subsidiary, as the case may be, from such Asset Sale loan (under the Credit Agreement or otherwise) shall (the "Applied Amount") is applied in accordance with result in a permanent reduction in the commitment this covenant and (c) the Applied Amount is within 180 thereunder; (iii) use such net cash proceeds to secure days of such Asset Sale, at the election of Food 4 Less Letter of Credit Obligations to the extent the related (i) either applied or caused to be applied to the letters of credit have not been drawn upon or returned payment of any Senior Indebtedness or used to secure undrawn; or (vi) after such time as the accumulated net Letter of Credit Obligations to the extent the related cash proceeds equals or exceeds $20 million, apply or letters of credit have not been drawn upon or have not cause to be applied such net cash proceeds to the been returned undrawn and all other Senior Indebtedness purchase of New F4L Senior Subordinated Notes issued has been paid in full; provided, however, that, subject under such New F4L Senior Subordinated Indenture to clause (ii) below, any repayment of Indebtedness tendered to the Company for purchase at a price equal under the Revolving Facility under the Loan Documents to 100% of the principal amount thereof plus accrued or other revolving line of credit shall result in a interest to the date of purchase pursuant to an offer permanent reduction of the Revolving Commitment or such to purchase made by the Company as set forth below (a other line of credit in a like amount; (ii) invested or "Net Proceeds Offer"); provided, however, that the caused to be invested in a manner that would constitute Company shall have the right to exclude from the a Related Business Investment hereunder; provided, foregoing provisions Asset Sales subsequent to the however, that pending such Related Business Investment, Issue Date, (x) the proceeds of which are derived from nothing contained herein shall prohibit Food 4 Less the sale and substantially concurrent lease-back of a from applying or causing to be applied all or any supermarket and/or related assets which have acquired portion of the Applied Amount to the repayment of or constructed by the Company or a Subsidiary Indebtedness under the Revolving Facility under the subsequent to the Issue Date, provided that such sale Loan Documents or other revolving line of credit and substantially concurrent lease-back occurs within without a permanent reduction of the Revolving 180 days following such acquisition or the completion Commitment or such other line of credit in a like of such construction, as the case may be, (y) the amount; or (iii) applied or caused to be applied to the proceeds of which in the aggregate do not exceed $20 purchase of Old F4L Senior Notes pursuant to a Net million; provided, further that pending utilization of Proceeds Offer as set forth in the Old F4L Senior Note any net cash proceeds in the manner (and within the Indenture provided, however, that Food 4 Less shall not time period) described above, the Company may use any be required to satisfy the condition specified in such net cash proceeds to repay revolving loans (under clause (a) above if such Asset the
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ Sale is pursuant to a foreclosure by the Lenders under Credit Agreement or otherwise) without a permanent the Credit Agreement and the other Loan Documents or reduction of the commitment thereunder. their Representatives on collateral securing Indebtedness under the Loan Documents; provided, The New Senior Subordinated Note Indenture will further further, that if at any time any non-cash consideration provide that, notwithstanding the foregoing, prior to received by Food 4 Less or any subsidiary in connection the mailing of the Net Proceeds Offer described below, with any Asset Sale is converted into or sold or the Company shall purchase all New F4L Senior Notes (or otherwise disposed of for cash, then such cash shall permitted refinancings thereof) which it is required to constitute Applied Amounts for purposes of this purchase by reason of such Asset Sale pursuant to the covenant and shall be applied in accordance with clause provisions of the New Senior Note Indenture. (c) above within 180 days of the receipt of such cash; provided, further, Food 4 Less shall have the right to Each Net Proceeds Offer will be mailed to the record exclude up to $10 million of proceeds in the aggregate holders of New F4L Senior Subordinated Notes, as shown received from Asset Sales subsequent to the Issue Date on the register of holders of New F4L Senior from the provisions of this covenant. To the extent Subordinated Notes not less than 325 nor more than 365 that the Applied Amount is not actually applied in days after the relevant Asset Sale, with a copy to the accordance with clauses (c)(i) or (ii) above, or after New F4L Senior Subordinated Note Trustee, shall specify such application there remains a portion of the Applied the purchase date (which shall be no earlier than 30 Amount which, when added to any other Applied Amounts days nor later than 40 days from the date such notice remaining after such application, accumulates at least is mailed) and shall otherwise comply with the $2,500,000 subsequent to the previous time Food 4 Less procedures set forth in the New F4L Senior Subordinated shall have accumulated at least such an amount and used Note Indenture. Upon receiving notice of the Net it in accordance with this covenant, or if no such Proceeds Offer, New F4L Senior Subordinated Notes, may accumulation shall previously have occurred, subsequent elect to tender their New F4L Senior Subordinated Notes to the date of the Old F4L Senior Note Indenture, Food in whole or in part in integral multiples of $1,000 in 4 Less shall make an offer as described in the Old F4L exchange for cash. To the extent holders properly Senior Note Indenture (the "Net Proceeds Offer") to tender New F4L Senior Subordinated Notes, in an amount purchase at a price equal to 100% of the aggregate exceeding the Net Proceeds Offer, New F4L Senior principal amount thereof, plus accrued interest to the Subordinated Notes of tendering holders will be date of purchase, such aggregate principal amount of repurchased on a pro rata basis (based on amounts Old F4L Senior Notes which, when added to the accrued tendered). interest thereon, shall be equal to the Net Proceeds required by this covenant to be used to purchase The Company will comply with the requirements of Rule securities in a Net Proceeds Offer; provided, however, 14e-1 under the Exchange Act and any other securities that Food 4 Less may credit against the principal laws and regulations thereunder to the extent such laws amount of Old F4L Senior Notes to be acquired pursuant and regulations are applicable in connection with the to this covenant the principal amount of Old F4L Senior repurchase of New F4L Senior Subordinated Notes Notes acquired by Food 4 Less through purchase, pursuant to a Net Proceeds Offer. optional redemption, exchange or otherwise following consummation of the Asset Sale and surrendered for "Asset Sale" means, with respect to any person, any cancellation and not previously used as a credit sale, transfer or other disposition or series of sales, against any other required payment pursuant to the Old transfers or other dispositions (including, without F4L Senior Note Indenture. The Net Proceeds Offer shall limitation, by merger or consolidation or by exchange remain open from the time of mailing until 5 days (or of assets and whether by operation of law or otherwise) such shorter period as may be required under applicable made by such person or any of its subsidiaries to any law) before the Proceeds Purchase Date. person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, "Asset Sale" means, for any person, any sale, transfer or other disposition by a subsidiary, to any transfer or other disposition or series of sales, person other than the Company or a directly or transfers or other dispositions (including, without indirectly wholly-owned subsidiary) of any assets of limitation, by merger or consolidation or by exchange such person or any of its subsidiaries including, of assets and whether by operation of law or otherwise) without limitation, assets consisting of any capital made by such person or any of its subsidiaries to any stock or other securities held by such person or any of person other than such person or one of its its subsidiaries, and any capital stock issued by any wholly-owned subsidiaries (or, in the case of a sale, subsidiary of such person, in each case, outside of the transfer or other disposition by a subsidiary, to any ordinary course of business, excluding, however, any person other than Food 4 Less or a directly or sale, transfer or other disposition, or series of indirectly wholly-owned subsidiary) of any assets of related sales, transfers or other dispositions (i) such person or any of its subsidiaries including, involving only excluded assets (ii) resulting in Net without limitation, assets consisting of any capital Proceeds to the Company and the subsidiaries of stock or other securities held by such person, or any $500,000 or less or (iii) pursuant to any foreclosure of its subsidiaries, and any capital stock issued by of assets or other remedy provided by applicable law to any subsidiary of such person, outside of the ordinary a creditor of the Company with a lien on such assets, course of business, excluding, however, any sale, which lien is permitted under the New F4L Senior transfer or other disposition, or series of related Subordinated Note Indentures, provided that such sales, transfers or other dispositions, having a foreclosure or other remedy is conducted in a purchase price or transaction value, as the case may commerically responsible manner or in accordance with be, of $250,000 or less. any Bankruptcy Law. "Related Business Investment" means (i) any "Related Business Investment" means (i) any Investment Investment by a person in any other person a majority by a person in any other person a majority of whose of whose revenues are derived from the operation of one revenues are derived from the operation of one or more or more retail grocery stores or supermarkets or any retail grocery stores or supermarkets or any other line other line of business engaged in by Food 4 Less or any of business engaged in by the Company or any of its of its subsidiaries as of the Issue Date; (ii) any subsidiaries as of the Issue Date; (ii) any Investment Investment by such person in any cooperative or other by such person in any cooperative or other supplier, supplier, including, without limitation, any joint including, without limitation, any joint venture which venture which is intended to supply any product or is intended to supply any product or service useful to service useful to the business of Food 4 Less and its the business of the Company and its subsidiaries as it subsidiaries as it is conducted as of the Issue Date is conducted as of the Issue Date and as such business and as such business may thereafter evolve or change; may thereafter evolve or change; and (iii) any capital and (iii) any capital expenditure or Investment expenditure or Investment (without regard to (without regard to
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ the $5 million threshold in the definition thereof), in the $5 million threshold in the definition thereof), in each case reasonably related to the business of Food 4 each case reasonably related to the business of the Less and its subsidiaries as it is conducted as of the Company and its subsidiaries as it is conducted as of Issue Date and as such business may thereafter evolve the Issue Date and as such business may thereafter or change. evolve or change. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE THIS PROVISION. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS SUBSIDIARIES. Pursuant to the Old F4L Senior AFFECTING SUBSIDIARIES. Pursuant to the New F4L Senior Subordinated Note Indenture, Food 4 Less shall not, and Subordinated Note Indenture, the Company shall not, and shall not permit any subsidiary to, directly or shall not permit any subsidiary to, directly or indirectly, create or suffer to exist, or allow to indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction become effective any consensual Payment Restriction with respect to any of its subsidiaries, except for (a) with respect to any of its subsidiaries, except for (a) any such restrictions contained in (i) the Loan any such restrictions contained in (i) the Loan Documents and related documents as in effect on June Documents and related documents as in effect on the 17, 1991 as any such payment restriction may apply to Issue Date as any such payment restriction may apply to any present or future subsidiary, (ii) Indebtedness of any present or future subsidiary, (ii) the New F4L a subsidiary existing on June 17, 1991, (iii) the Old Senior Subordinated Note Indenture and any agreement in F4L Senior Subordinated Note Indenture, (iv) effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such Indebtedness of a person existing at the time such person becomes a subsidiary (provided, that (x) such person becomes a subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a subsidiary, contemplation of, such person becoming a subsidiary, (y) such restriction is not applicable to any person, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to the otherwise permitted to be incurred pursuant to the provisions of the Old F4L Senior Subordinated Note provisions described under "Limitation on Incurrences Indenture summarized under "Limitation on Incurrences of Additional Indebtedness" above), and (iv) secured of Additional Indebtedness"), (v) secured Indebtedness Indebtedness otherwise permitted to be incurred otherwise permitted under the provisions of the Old F4L pursuant to the provisions described under "Limitation Senior Subordinated Note Indenture summarized under on Incurrences of Additional Indebtedness" and "Limitation on Incurrences of Additional Indebtedness" "Limitation on Liens" above that limit the right of the and that limits the right of the debtor to dispose of debtor to dispose of the assets securing such the assets securing such Indebtedness; (b) customary Indebtedness; (b) customary non-assignment provisions non-assignment provisions restricting subletting or restricting subletting or assignment of any lease or assignment of any lease or assignment of any contract other agreement entered into by a subsidiary; (c) of any subsidiary, (c) customary net worth provisions customary net worth provisions contained in leases and contained in leases and other agreements entered into other agreements entered into by a subsidiary in the by a subsidiary in the ordinary course of business; (d) ordinary course of business; (d) customary restrictions customary restrictions with respect to a subsidiary with respect to a subsidiary pursuant to an agreement pursuant to an agreement that has been entered into for that has been entered into for the sale or disposition the sale or disposition of all or substantially all of of all or substantially all of the capital stock or the capital stock or assets of such subsidiary; (e) assets of such subsidiary; (e) customary provisions in customary provisions in instruments or agreements joint venture agreements and other similar agreements; relating to a lien created, incurred or assumed in and (f) restrictions contained in Indebtedness incurred accordance with the provisions of the Old F4L Senior to refinance, refund, extend or renew Indebtedness Subordinated Note Indenture summarized under referred to in clause (a) above; provided that the "Limitation on Liens" and prohibiting the transfer of restrictions contained therein are not materially more the property subject to such lien; and (f) restrictions restrictive taken as a whole than those provided for in contained in Indebtedness incurred to refinance, such Indebtedness being refinanced, refunded, extended refund, extend or renew Indebtedness referred to in or renewed and (g) Payment Restriction contained in any clause (a) above; provided, that the restrictions other Indebtedness permitted to be incurred subsequent contained therein relating to the payment of dividends to the Issue Date pursuant to the provisions of the by such subsidiaries are not materially more covenant described under "-- Limitation on Incurrences restrictive than those provided for in such of Additional Indebtedness" above; provided that any Indebtedness being refinanced, refunded, extended, such Payment Restriction is ordinary and customary with renewed or amended. respect to the type of Indebtedness being incurred (under the relevant circumstances), and, in any event, "Payment Restriction" means, with respect to a no more restrictive than the most restrictive Payment subsidiary of any person, any encumbrance, restriction Restrictions in effect on the Issue Date. or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, "Payment Restriction" means, with respect to a judgment, decree, order, statute, rule or governmental subsidiary of any person, any encumbrance, restriction regulation, on the ability of (i) such subsidiary to or limitation, whether by operation of the terms of its (a) pay dividends or make other distributions on its charter or by reason of any agreement, instrument, capital stock or make payments on any obligation, judgment, decree, order, statute, rule or governmental liability or Indebtedness owed to such person or any regulation, on the ability of (i) such subsidiary to other subsidiary of such person, (b) make loans or (a) pay dividends or make other distributions on its advances to such person or any other subsidiary of such capital stock or make payments on any obligation, person, or (c) transfer any of its properties or assets liability or Indebtedness owed to such person or any to such person or any other subsidiary of such person, other subsidiary of such person, (b) make loans or or (ii) such person or any other subsidiary of such advances to such person or any other subsidiary of such person to receive or retain any such (a) dividends, person, or (c) transfer any of its properties or assets distributions or payments, (b) loans or advances, or to such person or any other subsidiary of such person, (c) transfer of properties or assets. or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD distributions or payments, (b) loans or advances, or F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED (c) transfer of properties or assets. TO ELIMINATE THIS COVENANT AND CERTAIN RELATED DEFINITIONS.
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ GUARANTEES OF CERTAIN INDEBTEDNESS. Pursuant to the GUARANTEES OF CERTAIN INDEBTEDNESS. Pursuant to the New Old F4L Senior Subordinated Note Indenture, Food 4 F4L Senior Subordinated Note Indenture, the Company Less shall not permit any of its subsidiaries to (a) shall not permit any of its subsidiaries to (a) incur, incur, guarantee or secure through the granting of guarantee or secure through the granting of liens the liens the payment of any Indebtedness under the Term payment of any Indebtedness under the Term Loans or any Facility under the Credit Agreement or any Refinancing other Loan Documents or (b) pledge any intercompany Indebtedness related thereto or (b) pledge any notes representing obligations of any of its intercompany notes representing obligations of any of subsidiaries, to secure the payment of any Indebtedness its subsidiaries, to secure the payment of any under the Term Loans or any other Loan Documents, in Indebtedness under the Term Facility under the Credit each case unless such subsidiary, the Company and the Agreement or any Refinancing Indebtedness related New F4L Senior Subordinated Note Trustee execute and thereto, in each case unless such subsidiary, Food 4 deliver a supplemental indenture evidencing such Less and the Old F4L Senior Subordinated Note Trustee subsidiary's guarantee. execute and deliver a supplemental indenture evidencing such subsidiary's guarantee, such guarantee to be subordinated to Guarantor Senior Indebtedness in accordance with the Old F4L Senior Subordinated Note Indenture. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE THIS COVENANT. LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pursuant LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pursuant to to the Old F4L Senior Subordinated Note Indentures, the New F4L Senior Subordinated Note Indenture, neither neither Food 4 Less nor any of its subsidiaries shall the Company nor any of its Subsidiaries shall (i) sell, (i) sell, lease, transfer or otherwise dispose of any lease, transfer or otherwise dispose of any of its of its properties, assets or issue debt securities to, properties or assets or issue securities (other than (ii) purchase any property, assets or securities from, equity securities which do not constitute Disqualified (iii) make any Investment in, or (iv) enter into or Capital Stock) to, (ii) purchase any property, assets suffer to exist any contract or agreement with or for or securities from, (iii) make any Investment in, or the benefit of, an affiliate or Significant Stockholder (iv) enter into or suffer to exist any contract or (and any affiliate of such Significant Stockholder) of agreement with or for the benefit of, an affiliate or Food 4 Less or any subsidiary (an "Affiliate Significant Stockholder (or any affiliate of such Transaction"), other than Affiliate Transactions Significant Stockholder) of the Company or any subsidi- (including lease transactions) in the ordinary course ary (an "Affiliate Transaction"), other than (x) of business, that are fair to Food 4 Less or such Affiliate Transactions permitted under the following subsidiary, as the case may be, and on terms at least paragraph and (y) Affiliate Transactions in the as favorable as might reasonably have been obtainable ordinary course of business, that are fair to the at such time from an unaffiliated party, unless the Company or such subsidiary, as the case may be, and on board of directors of Food 4 Less or such subsidiary, terms at least as favorable as might reasonably have as the case may be, pursuant to a board resolution, been obtainable at such time from an unaffiliated reasonably and in good faith determines that such party; provided that (A) with respect to Affiliate Affiliate Transaction is fair to Food 4 Less or such Transactions involving aggregate payments in excess of subsidiary, as the case may be, and is on terms at $1 million and less than $5 million, the Company or least as favorable as might reasonably have been such subsidiary, as the case may be, shall have obtainable at such time from an unaffiliated party. In delivered an officers' certificate to the New F4L addition, neither Food 4 Less nor any of its Senior Subordinated Note Trustee certifying that such subsidiaries shall enter into an Affiliate Transaction Affiliate Transaction complies with clause (y) above, or series of related Affiliate Transactions involving (B) with respect to Affiliate Transactions involving or having a value of more than $15 million unless Food aggregate payments in excess of $5 million and less 4 Less or such subsidiary, as the case may be, has than $15 million, with respect to which the Company or received an opinion from an independent financial such subsidiary, as the case may be, shall have advisor to the effect that the financial terms of such delivered an officers' certificate to the New F4L Affiliate Transaction are fair to Food 4 Less or such Senior Subordinated Note Trustee certifying that such subsidiary from a financial point of view. Affiliate Transaction complies with clause (y) above and that such Affiliate Transaction has received the The provisions of the foregoing paragraph shall not approval of a majority of the disinterested members of apply to (i) any Permitted Payment, (ii) any Restricted the board of directors of the Company or the Payment that is made in compliance with the provisions subsidiary, as the case may be, or, in the absence of of the Old F4L Senior Subordinated Note Indenture any such approval by the disinterested members of the summarized above under "Limitation on Restricted board of directors of the Company or that the Payments," (iii) reasonable and customary fees and subsidiary, as the case may be, that an independent compensation paid to, and indemnity provided on behalf financial advisor has reasonably and in good faith of, officers, directors, employees or consultants of determined that the financial terms of such Affiliate Food 4 Less or any subsidiary, as determined by the Transaction are fair to the Company or such subsidiary, board of directors of Food 4 Less or any subsidiary or as the case may be, or that the terms of such Affiliate the senior management thereof in good faith, (iv) Transaction are at least as favorable as might transactions exclusively between or among Food 4 Less reasonably have been obtained at such time from an and any of its wholly owned subsidiaries or exclu- unaffiliated party, and that such independent financial sively between or among such subsidiaries, provided advisor has provided written confirmation of such such transactions are not otherwise prohibited by the determination to the board of directors and (C) with Old F4L Senior Subordinated Note Indenture, (v) any respect to Affiliate Transactions involving aggregate agreement as in effect as of June 17, 1991 or any payments in excess of $15 million, with respect to amendment thereto or any transaction contemplated which the Company or such subsidiary, as the case may thereby (including pursuant to any amendment thereto) be, shall have delivered to the New F4L Senior Subordi- so long as any such amendment is not disadvantageous to nated Note Trustee, a written opinion from an the holders in any material respect, (vi) the existence independent financial advisor to the effect that the of, or the performance by Food 4 Less or any of its financial terms of such subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration Affiliate Transaction are fair to the Company or such rights agreement or purchase agreement related thereto) subsidiary, as the case may be, or that the terms of to which it (or FFL) is a party as of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party.
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ June 17, 1991 and any similar agreements which it (or FFL) may enter into thereafter, provided, however, that The provisions of the foregoing paragraph shall not the existence of, or the performance by Food 4 Less or apply to (i) any Permitted Payment, (ii) any Restricted any subsidiaries of obligations under any future Payment that is made in compliance with the provisions amendment to, any such existing agreement or under any of the covenant described under "-- Limitation on similar agreement entered into after June 17, 1991 Restricted Payments" above, (iii) reasonable and shall only be permitted by this clause (vi) to the customary fees and compensation paid to, and indemnity extent that the terms of any such amendment or new provided on behalf of, officers, directors, employees agreement are not otherwise disadvantageous to the or consultants of the Company or any Subsidiary, as holders in any material respect, (vii) transactions determined by the board of directors of the Company or permitted by, and complying with, the provisions of the any Subsidiary or the senior management thereof in good Old F4L Senior Subordinated Note Indenture summarized faith, (iv) transactions exclusively between or among below under "Limitations on Merger and Certain Other the Company and any of its wholly-owned subsidiaries or Transactions," (viii) transactions with Certified exclusively between or among such wholly-owned Grocers of California, Inc., Affiliated Wholesale Subsidiaries, provided such transactions are not Grocers of Kansas City, Inc. or other suppliers in the otherwise prohibited by the New F4L Senior Subordinated ordinary course of business and otherwise in compliance Note Indenture, (v) any agreement as in effect as of with the terms of the Old F4L Senior Subordinated Note the Issue Date or any amendment thereto or any Indenture. transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is "Significant Stockholder" means, with respect to any not disadvantageous to the holders of the New F4L person, any other person who is the beneficial owner Senior Subordinated Notes, in any material respect, (within the meaning of Rule 13d-3 under the Exchange (vi) the existence of, or the performance by the Act) of more than 10% of any class of equity securities Company or any of its subsidiaries of its obligations of such person that are entitled to vote on a regular under the terms of, any stockholders agreement basis for the election of directors of such person. (including any registration rights agreement or purchase agreement related thereto) to which it (or New IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD Holdings) is a party as of the Issue Date and any F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED similar agreements which it (or New Holdings) may enter TO ELIMINATE THIS COVENANT AND CERTAIN RELATED into thereafter; provided, however, that the existence DEFINITIONS. of, or the performance by the Company or any subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the holders of the New F4L Senior Subordinated Notes, in any material respect, (vii) transactions permitted by, and complying with, the provisions of the covenant described under "-- Limitation on Mergers and Certain Other Transactions" below and (viii) purchases or sales of goods or services or other transactions with suppliers, in each case, in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the New New F4L Senior Subordinated Note Indenture which, are fair to the Company in the reasonable determination of the board of directors, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. LIMITATION ON CHANGE OF CONTROL. Pursuant to the Old LIMITATION ON CHANGE OF CONTROL. The New F4L Senior F4L Senior Subordinated Note Indenture, upon the Subordinated Note Indenture will provide that if a occurrence of a Change of Control, each holder will Change of Control occurs, each holder will have the have the right to require the repurchase of such right to require the Company to repurchase such holder's Old F4L Senior Subordinated Notes pursuant to holder's New F4L Senior Subordinated Notes pursuant to the offer described below (the "Change of Control a Change of Control Offer at 101% of the principal Offer"), at a purchase price equal to 101% of the amount thereof plus accrued and unpaid interest to the principal amount thereof plus accrued interest, if any, date of repurchase. to the date of purchase. Prior to the mailing of the notice to holders described below, but in any event The New F4L Senior Subordinated Note Indenture will within 30 days following the date upon which the Change further provide that, notwithstanding the foregoing, of Control occurred (the "Change of Control Date"), prior to the mailing of the notice of a Change of Food 4 Less will (i) repay in full all Indebtedness of Control Offer referred to above, within 30 days Food 4 Less and its subsidiaries under the loan following a Change of Control the Company shall either documents and related documents or offer to repay in (a) repay in full and terminate all commitments under full all such Indebtedness and repay the Indebtedness Indebtedness under the Credit Agreement to the extent of each lender who has accepted such offer or (ii) the terms thereof require repayment upon a Change of obtain the requisite consent under the Credit Agreement Control (or offer to repay in full and terminate all and related documents to permit the repurchase of commitments under all such Indebtedness under the Credit Agreement and repay the Indebtedness owed to the Old F4L Senior Subordinated Notes. Food 4 Less must each lender which has accepted such offer), or (b) first comply with the covenant in the preceding obtain the requisite consents under the Credit sentence before it will be required to repurchase Old Agreement, the terms of which require repayment upon a F4L Senior Subordinated Notes pursuant to a Change of Change of Control, to permit the repurchase of the New Control Offer. Food 4 Less must comply F4L
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ with Rule 14e-1 under the Securities Exchange Act of Senior Subordinated Notes as provided above. The 1934, as amended, and any other applicable provisions Company shall first comply with the covenant in the of the federal securities laws in connection with a immediately preceding sentence before it shall be Change of Control Offer. required to repurchase New F4L Senior Subordinated Notes pursuant to the provisions described below. The Pursuant to the Old F4L Senior Subordinated Note Company's failure to comply with the covenants Indenture, within 30 days following any Change of described in this paragraph shall constitute an Event Control Date, Food 4 Less must send, by first class of Default under the New F4L Senior Subordinated Note mail, a notice to each holder, with copies to the Indenture. Credit Agent and the Old F4L Senior Subordinated Note Trustee, which notice shall govern the terms of the In addition, the New F4L Senior Subordinated Note Change of Control Offer. Such notice shall state, among Indenture will provide that prior to purchasing New F4L other things, the purchase date, which must be no Senior Subordinated Notes tendered in a Change of earlier than 30 days nor later than 40 days from the Control Offer, the Company shall purchase all Senior date such notice is mailed, other than as may be F4L Notes (or permitted refinancings thereof) which it required by law (the "Change of Control Payment Date"). is required to purchase by reason of such Change of Holders electing to have a Old F4L Senior Subordinated Control pursuant to the provisions of the indenture Notes purchased pursuant to a Change of Control Offer under which such New Senior F4L Notes are issued, as in will be required to surrender the Old F4L Senior effect on the Issue Date. Subordinated Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Old F4L Senior Subordinated Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the business day prior to the Change of Control Payment Date. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE THIS COVENANT AND CERTAIN RELATED DEFINITIONS. LIMITATIONS ON MERGERS AND CERTAIN OTHER LIMITATIONS ON MERGERS AND CERTAIN OTHER TRANSACTIONS. TRANSACTIONS. Pursuant to the Old F4L Senior Pursuant to the New F4L Senior Subordinated Note Subordinated Note Indenture, Food 4 Less shall not, in Indenture, the Company, in a single transaction or a single transaction or through a series of related through a series of related transactions, shall not (i) transactions, (i) consolidate with or merge with or consolidate with or merge with or into any other into any other person, or transfer (by lease, person, or transfer (by lease, assignment, sale or assignment, sale or otherwise) all or substantially all otherwise) all or substantially all of its properties of its properties and assets as an entirety or and assets as an entirety or substantially as an substantially as an entirety to another person or group entirety to another person or group of affiliated of affiliated persons or (ii) adopt a plan of persons or (ii) adopt a plan of liquidation, unless, in liquidation, unless, in either case, (1) either Food 4 either case, (1) either the Company shall be the Less shall be the continuing person, or the person (if continuing person, or the person (if other than the other than Food 4 Less) formed by such consolidation or Company) formed by such consolidation or into which the into which Food 4 Less is merged or to which all or Company is merged or to which all or substantially all substantially all of the properties and assets of Food of the properties and assets of the Company as an 4 Less as an entirety or substantially as an entirety entirety are transferred (or, in the case of a plan of are transferred (or, in the case of a plan of liquidation, any person to which assets are liquidation, any person to which assets are transferred) (the Company or such other person being transferred) (Food 4 Less or such other person being hereinafter referred to as the "Surviving Person") hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing shall be a corporation organized and validly existing under the laws of the United States, any state thereof under the laws of the United States, any state thereof or the District of Columbia, and shall expressly or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations assume, by an indenture supplement executed and of the Company under the New F4L Senior Subordinated delivered to the Old F4L Senior Subordinated Note Note Indenture and the New F4L Senior Subordinated Trustee in form satisfactory to the Old F4L Senior Notes thereunder; (2) immediately after and giving Subordinated Note Trustee, all the obligations of Food effect of such transaction and the assumption 4 Less under the Old F4L Senior Subordinated Notes and contemplated by clause (1) above and the incurrence or the Old F4L Senior Subordinated Note Indenture; (2) anticipated incurrence of any Indebtedness to be immediately after and giving effect to such transaction incurred in connection therewith, (A) the Surviving and the assumption contemplated by clause (1) above and Person shall have a Consolidated Net Worth equal to or the incurrence or anticipated incurrence of any greater than the Consolidated Net Worth of the Company Indebtedness to be incurred in connection therewith, immediately preceding the transaction and (B) the (A) the Surviving Person shall have a net worth equal Surviving Person could incur at least $1.00 of to or greater than the net worth of Food 4 Less additional Indebtedness (other than Permitted Indebt- immediately preceding the transaction, (B) the edness) pursuant to the provisions described above Surviving Person could incur at least $1 of Indebt- under "Limitation on Incurrences of Additional edness pursuant to provisions of the Old F4L Senior Indebtedness"; (3) immediately before and immediately Subordinated Note Indenture summarized above in the after and giving effect to such transaction and the first paragraph under the heading "Limitation on assumption of the obligations as set forth in clause Incurrences of Additional Indebtedness," and (C) if the (1) above and the incurrence or anticipated incurrence Operating Coverage Ratio of Food 4 Less immediately of any Indebtedness to be incurred in connection preceding the transaction is within a range set forth therewith, no Default or Event of Default shall have under column X below, then the Surviving Person shall occurred and be continuing; and (iv) each Subsidiary have an Operating Coverage Ratio at least equal to the Guarantor, unless it is the other party to the greater of (i) the actual Operating Coverage Ratio of transaction, shall have by supplemental indenture Food 4 Less multiplied by the appropriate percentage confirmed that its guarantee of the obligations of the set forth in column Y below and (ii) the ratio set Company under the New F4L Senior Subordinated Notes and forth in column Z below: the New F4L Senior Subordinated Note Indenture shall apply, without alteration or amendment as such X Y Z guarantee applies on the date it was granted under the New F4L Senior Subordinated Note Indenture to the 1.8:1 to 2.499:1 100% 1.8:1 obligations of the Company under the New F4L Senior 2.5:1 to 2.999:1 90% 2.5:1 Subordinated Note Indenture and the New F4L Senior 3.0:1 or more 80% 2.7:1
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ 3.0:1 or more 80% 2.7:1 Subordinated Notes to the obligations of the Company or such person, as the case may be, under the New F4L and, provided further, that if immediately after giving Senior Subordinated Note Indenture and the New F4L effect to such transaction on a pro forma basis, the Senior Subordinated Notes, after the consummation of Operating Coverage Ratio of Food 4 Less or the such transaction. surviving entity, as the case may be, is 3.2:1 or more, the calculation in the preceding proviso shall be Notwithstanding the foregoing, the consummation of the inapplicable and such transaction shall be deemed to Merger on the Issue Date need only comply with clauses have complied with the requirements of such provision; (1) and (3) of the foregoing paragraph. (3) immediately before and immediately after and giving effect to such transaction and the assumption of the The New F4L Senior Subordinated Note Indenture will obligations as set forth in clause (1) above and the provide that upon any consolidation or merger or any incurrence or anticipated incurrence of any transfer of all or substantially all of the assets of Indebtedness to be incurred in connection therewith, no the Company or any adoption of a plan of liquidation by Default or Event of Default shall have occurred and be the Company in accordance with the foregoing, the continuing. For purposes of the foregoing, the transfer surviving person formed by such consolidation or into (by lease, assignment, sale or otherwise) of all or which the Company is merged or to which such transfer substantially all of the properties and assets of one is made (or, in the case of a plan of liquidation, to or more subsidiaries, the capital stock of which which assets are transferred) shall succeed to, and be constitutes all or substantially all of the properties substituted for, and may exercise every right and power and assets of Food 4 Less shall be deemed to be the of, the Company under the New F4L Senior Subordinated transfer of all or substantially all of the properties Note Indenture with the same effect as if such and assets of Food 4 Less. surviving person had been named as the Company herein; provided, however, that solely for purposes of IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD computing amounts described in subclause (c) of the F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED first paragraph of the covenant described above under TO ELIMINATE THE SUBSECTIONS OF THIS PROVISION WHICH "Limitation on Restricted Payments", any such surviving REQUIRE THAT IMMEDIATELY AFTER GIVING EFFECT TO SUCH person shall only be deemed to have succeeded to and be TRANSACTION AND THE INCURRENCE OF ANY INDEBTEDNESS IN substituted for the Company with respect to periods CONNECTION THEREWITH, FOOD 4 LESS OR THE SURVIVING subsequent to the effective time of such merger, ENTITY, AS THE CASE MAY BE, HAS A NET WORTH OR consolidation or transfer of assets. OPERATING COVERAGE RATIO THAT MEETS THE STANDARDS SET FORTH THEREIN. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more subsidiaries, the capital stock of which constitutes all or substantially all of the properties and assets of the Company shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. MAINTENANCE OF NET WORTH. Pursuant to the Old F4L MAINTENANCE OF NET WORTH. The New F4L Senior Subordi- Senior Subordinated Note Indenture, if Food 4 Less' nated Note Indenture will not contain a covenant Net Worth at the end of each of any two consecutive requiring the maintenance of a minimum net worth. fiscal quarters (the last day of the second fiscal quarter being referred to as the "Acceleration Date") is equal to or less than $50 million (the "Minimum Net Worth"), then Food 4 Less shall make an offer to all holders (an "Offer") to purchase, on a pro rata basis, on or before the last day of the next following fiscal quarter or, in the event that the Acceleration Date is the last day of Food 4 Less' fiscal year, the forty-fifth day after the last day of the next following fiscal quarter (the "Accelerated Payment Date"), $14.5 million aggregate principal amount of Old F4L Senior Subordinated Notes (an "Accelerated Payment") at a purchase price equal to 100% of principal amount plus accrued but unpaid interest to the Accelerated Payment Date. Food 4 Less may credit against the forty-fifth day after the last day of the next following fiscal quarter (the "Accelerated Payment Date"), $14.5 million aggregate principal amount of Old F4L Senior Subordinated Notes (an "Accelerated Payment") at a purchase price equal to 100% of principal amount plus accrued but unpaid interest to the Accelerated Payment Date. Food 4 Less may credit against the principal amount of Old F4L Senior Subordinated Notes to be acquired in any Accelerated Payment 100% of the principal amount of Old F4L Senior Subordinated Notes acquired by Food 4 Less through purchase, optional redemption, exchange or otherwise during the 180-day period ending on the Acceleration Date and surrendered for cancellation. Food 4 Less, however, may not credit Old F4L Senior Subordinated Notes against an Accelerated Payment if such Old F4L Senior Subordinated Notes were previously used as a credit against any other required payment under the Old F4L Senior Subordinated Note Inden-
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ ture. In no event shall the failure of Food 4 Less' Net Worth to equal or exceed $50 million at the end of any fiscal quarter be counted toward the making of more than one Offer. "Net Worth" as of any date means, with respect to any person, the amount of the equity of the holders of capital stock of such person that would appear on the balance sheet of such person as of such date, determined in accordance with GAAP, adjusted to exclude (to the extent included in such equity), (i) the amount of equity attributable to Disqualified Capital Stock and (ii) with respect to Food 4 Less, the effect of (a) all non-cash charges reducing such equity amount and attributable to the early extinguishment of, or acceleration of costs of, the financing of the Alpha Beta Acquisition (other than amortization of original issue discount), (b) prepayment penalties or other charges incurred in connection with the retirement of certain Indebtedness of a subsidiary of Food 4 Less existing immediately prior to June 17, 1991 and (c) the recognition of deferred losses, in an amount not to exceed $3 million, on the Long Beach Warehouse. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE THIS COVENANT AND CERTAIN RELATED DEFINITIONS. LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The Old LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. Pursuant F4L Senior Subordinated Note Indenture does not have to the New Senior Subordinated Note Indenture, the a covenant providing for the limitation on the issuance Company will not permit any of its Subsidiaries to of preferred stock of subsidiaries. issue any Preferred Stock (other than to the Company or to a wholly-owned Subsidiary) or permit any person (other than the Company or a wholly-owned subsidiary) to own any Preferred Stock of any subsidiary. EVENTS OF DEFAULT EVENTS OF DEFAULT Pursuant to the Old F4L Senior Subordinated Note Pursuant to the New F4L Senior Subordinated Note Indenture, the following events constitute "Events of Indenture the following events constitute "Events of Default": (i) failure to make any interest payment on Default": (i) failure to make any interest payment on the Old F4L Senior Subordinated Notes when due, and the the New F4L Senior Subordinated Notes when due and the continuance of such default for a period of 30 days continuance of such default for a period of 30 days; (whether or not such payment would be prohibited by the (ii) failure to pay principal of, or premium, if any, provisions of the Old F4L Senior Subordinated Note on the New F4L Senior Subordinated Notes when due, Indenture concerning the subordination of the Old F4L whether at maturity, upon acceleration, redemption, Senior Subordinated Notes); (ii) failure to pay required repurchase or otherwise; (iii) failure to principal of the Old F4L Senior Subordinated Notes when comply with any other agreement contained in the New due, whether at maturity, upon acceleration, redemption F4L Senior Subordinated Notes or the New F4L Senior or otherwise (including the failure to make an Subordinated Note Indenture, if such failure continues Accelerated Payment and whether or not such payment unremedied for 30 days after written notice given by would be prohibited by the provisions of the Old F4L the New F4L Senior Subordinated Note Trustee or the Senior Subordinated Note Indenture concerning the holders of at least 25% in principal amount of the New subordination of the New F4L Senior Subordinated F4L Senior Subordinated Notes then outstanding (except Notes); (iii) failure to comply with any other in the case of a default with respect to the covenants agreement contained in the New F4L Senior Subordinated described under "Limitation on Restricted Payments," Notes or the Old F4L Senior Subordinated Note "Limitations on Disposition of Assets," "Change of Indenture, if such failure continues unremedied for 30 Control," and "Limitations on Merger and Certain Other days after written notice given by the Old F4L Senior Transactions," which shall constitute Events of Default Subordinated Note Trustee or the holders of at least with notice but without passage of time); (iv) a 33 1/3% in principal amount of the Old F4L Senior default under any Indebtedness of the Company or its Subordinated Notes then outstanding (except in the case subsidiaries, whether such Indebtedness now exists or of a default with respect to the covenants set forth in shall hereinafter be created, if both (A) such default the Old F4L Senior Subordinated Note Indenture under either (1) results from the failure to pay any such the headings "Limitation on Restricted Payments," Indebtedness at its stated final maturity or (2) "Maintenance of Net Worth," "Limitation on Disposition relates to an obligation other than the obligation to of Assets," "Limitation on Change of Control," and pay such Indebtedness at its stated final maturity and "Limitations on Merger and Certain Other Transactions," results in the holder or holders of such Indebtedness which shall constitute Events of Default with notice causing such Indebtedness to become due prior to its but without passage of time specified); (iv) a default stated maturity and (B) the principal amount of such under any Indebtedness, whether such Indebtedness now Indebtedness, together with the principal amount of any exists or shall hereinafter be created, if both (A) other such Indebtedness in default for failure to pay such default either (1) results from the failure to pay principal at stated final maturity or the maturity of any such Indebtedness at its stated final maturity or which has been so accelerated, aggregate $20 million or (2) relates to an obligation other than the obligation more at any one time outstanding; (v) any final to pay such Indebtedness at its stated maturity and judgment or order for payment of money in excess of $20 results in the holder or holders of such Indebtedness million shall be entered against the Company or any causing such Indebtedness to become due prior to its Significant Subsidiary and shall not be discharged for stated maturity and (B) the principal amount of such a period of 60 days after such judgment becomes final Indebtedness, together with the principal amount of any and nonappealable; (vi) either the Company or any other such Indebtedness in default for failure to pay Significant Subsidiary pursuant to or within the principal at maturity or the maturity of which has been meaning of any Bankruptcy Law: (a) commences a so accelerated, aggregates $20 million or more at any voluntary case or proceeding; (b) consents to the entry one time outstanding, (v) either Food of an order for relief against it in an
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ ------------------------------------------------------ 4 Less or any Significant Subsidiary (a) admits in involuntary case or proceeding; (c) consents to the writing its inability to pay its debts generally as appointment of a custodian of it or for all or they become due, (b) commences a voluntary case or substantially all of its property; or (d) makes a proceding under any Bankruptcy Law; (c) consents to the general assignment for the benefit of its creditors; entry of a judgment, decree or order for relief against (vii) a court of competent jurisdiction enters an order it in an involuntary case or proceeding under any or decree under any Bankruptcy Law that: (a) is for Bankruptcy Law; (d) consents to the appointment of a relief against the Company or any significant Custodian of it or for all or substantially all of its subsidiary, in an involuntary case or proceeding; (b) property, (e) consents to or acquieces in the appoints a custodian of the Company or any significant institution of a bankruptcy or an insolvency proceeding subsidiary, or for all or any substantial part of their against it, (f) makes a general assignment for the respective properties; or (c) orders the liquidation of benefit of its creditors, or (g) takes any corporate the Company or any significant subsidiary, and in each action to authorize or effect any of the foregoing; case the order or decree remains unstayed and in effect (vi) a court of competent jurisdiction enters a for 60 days; (viii) the lenders under the Credit judgment, decree or order for relief in respect of Food Agreement shall commence judicial proceedings to 4 Less or any Significant Subsidiary in an involuntary foreclose upon any material portion of the assets of case or proceeding under any Bankruptcy Law which the Company and its subsidiaries; or (ix) any of the shall: (a) approve as properly filed a petition seeking guarantees issued under the New F4L Senior Subordinated reorganization, arrangement, adjustment or composition Indenture shall be declared or adjudged unenforceable in respect of Food 4 Less or any Significant or invalid in a final judgment or order issued by any Subsidiary, (b) appoint a Custodian of Food 4 Less or court of governmental authority. In the event of a any Significant Subsidiary, or for substantially all of declaration of acceleration because an Event of Default their respective properties; or (c) order the winding set forth in clause (iv) above has occurred and is up liquidation of its affairs, and in each case the continuing, such declaration of acceleration shall be order or decree remains unstayed and in effect for 60 automatically rescinded and annulled if either (i) the days; (vii) any Warrant of attachment is issued against holders of the Indebtedness which is the subject of any portion of the property of Food 4 Less or any such Event of Default have waived such failure to pay Significant Subsidiary having a value of at least $20 at maturity or have rescinded the acceleration in million, which Warrant is not released within 60 days respect of such Indebtedness within 90 days of such after service of process with respect thereto, or final maturity or declaration of acceleration, as the case judgment not covered by insurance which in the may be, and no other Event of Default has occurred aggregate at any one time exceeds $20 million shall be during such 90-day period which has not been cured or entered against Food 4 Less or any Significant waived, or (ii) such Indebtedness shall have been Subsidiary and shall not be discharged for a period of discharged or the maturity thereof shall have been 60 days after such judgment becomes final and extended such that it is not then due and payable, or nonappealable; and (viii) the lenders under the Loan the underlying default has been cured, within 90 days Documents or any refinancing indebtedness related of such maturity or declaration of acceleration, as the thereto shall foreclose or take any action to foreclose case may be. upon any material portion of the collateral securing such indebtedness. In the event of a declaration of Under the terms of the New F4L Senior Subordinated Note acceleration because an Event of Default set forth in Indenture, if an Event of Default (other than an Event clause (iv) above has occurred and is continuing, such of Default resulting from bankruptcy, insolvency, declaration of acceleration shall be automatically receivership or reorganization of the Company or a rescinded and annulled if either (i) the holders of the Subsidiary Guarantor) occurs and is continuing, the New Indebtedness which is the subject of such Event of F4L Senior Subordinated Note Trustee or the holders of Default have waived such failure to pay at maturity or at least 25% in principal amount of the then have rescinded the acceleration in respect of such outstanding New F4L Senior Subordinated Notes issued Indebtedness within 90 days of such maturity or under the New Indenture may declare immediately due and declaration of acceleration, as the case may be, and no payable all unpaid principal and interest accrued and other Event of Default has occurred during such 90-day unpaid on the then outstanding New F4L Senior period which has not been cured or waived, or (ii) such Subordinated Notes by notice in writing to the Company Indebtedness shall have been discharged or the maturity and the New F4L Senior Subordinated Note Trustee thereof shall have been extended such that it is not specifying the respective Event of Default and that it then due and payable, or the underlying default has is a "notice of acceleration" (the "Acceleration been cured, within 90 days of such maturity or Notice"), and the same (i) shall become immediately due declaration of acceleration, as the case may be. and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become Under the terms of the Old F4L Senior Subordinated due and payable upon the first to occur of an Note Indenture, if an Event of Default (other than an acceleration under the Credit Agreement, or five Event of Default resulting from bankruptcy, insolvency, business days after receipt by the Company and the receivership or reorganization of Food 4 Less) occurs administrative agent under the Credit Agreement of such and is continuing, the Old F4L Senior Subordinated Note Acceleration Notice. If an Event of Default resulting Trustee or the holders of at least 33 1/3% in principal from certain events of bankruptcy, insolvency, amount of the Old F4L Senior Subordinated Notes then receivership or reorganization of the Company or a outstanding may declare immediately due and payable all Subsidiary Guarantor shall occur, all unpaid principal unpaid principal and interest accrued and unpaid on the of and accrued interest on all then outstanding New F4L Old F4L Senior Subordinated Notes then outstanding; Senior Subordinated Notes shall be immediately due and provided, however, that if any Senior Indebtedness is payable without any declaration or other act on the outstanding under the Credit Agreement or the Credit part of the New F4L Senior Subordinated Note Trustee or Agreement is otherwise in effect, upon any such any of the holders. After a declaration of declaration, all unpaid principal and interest accrued acceleration, subject to certain conditions, the and unpaid on the Old F4L Senior Subordinated Notes holders of a majority in principal amount of the then then outstanding shall become due and payable upon the outstanding New F4L Senior Subordinated Notes, by first to occur of (i) five business days after notice notice to the New F4L Senior Subordinated Note Trustee, is received by Food 4 Less and the Credit Agent; and may rescind such declaration if all existing Events of (ii) an acceleration under the Credit Agreement. If an Default are remedied. In certain cases the holders of a Event of Default resulting from certain events of majority in principal amount of outstanding New F4L bankruptcy, insolvency, receivership or reorganization Senior Subordinated Notes may waive a past default shall occur, all unpaid principal and accrued interest under the New F4L Senior Subordinated Note Indenture shall be immediately due and payable without any and its consequences, except a default in the payment declaration or other act on the part of the Old F4L of or interest on any of the New F4L Senior Senior Subordinated Note Trustee or any of the Subordinated Notes. holders. Subject to certain conditions, the holders of
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES - - ------------------------------------------------------ -------------------------------------------------------- a majority in principal amount of the Old F4L Senior The New F4L Senior Subordinated Note Indenture provides Subordinated Notes then outstanding, by notice to the that if a Default or Event of Default occurs and is Old F4L Senior Subordinated Note Trustee, may rescind continuing and if it is known to the New F4L Senior such declaration if all existing Events of Default are Subordinated Note Trustee, the New F4L Senior remedied. In certain cases the holders of a majority in Subordinated Note Trustee shall mail to each holder of principal amount of outstanding Old F4L Senior New F4L Senior Subordinated Notes notice of the Default Subordinated Notes may waive any past default and its or Event of Default within 90 days after such Default consequences, except a default in the payment of or Event of Default occurs; provided, however, that, principal of or interest on any of the Old F4L Senior except in the case of a Default or Event of Default in Subordinated Notes. the payment of the principal of or interest on any New F4L Senior Subordinated Note, including the failure to The Old F4L Senior Subordinated Note Indenture make payment on a Change of Control Payment Date provides that if a Default or Event of Default occurs pursuant to a Change of Control Offer or payment when and is continuing and if it is known to the Old F4L due pursuant to a Proceeds Offer the New F4L Senior Senior Subordinated Note Trustee, the Old F4L Senior Subordinated Note Trustee may withhold such notice if Subordinated Note Trustee shall mail to each holder it in good faith determines that withholding such notice of the uncured Default or Event of Default notice is in the interest of the holders. within 90 days after such Default or Event of Default occurs; provided, however, that, except in the case of The New F4L Senior Subordinated Note Indenture provides a Default or Event of Default in the payment of the that no holder of New F4L Senior Subordinated Notes may principal of or interest on any of the Old F4L Senior pursue any remedy thereunder unless the New F4L Senior Subordinated Notes, including an Accelerated Payment Subordinated Note Trustee (i) shall have failed to act and the failure to make payment on the Change of for a period of 60 days after receiving written notice Control Payment Date pursuant to a Change of Control of a continuing Event of Default by such holder and a Offer, the Old F4L Senior Subordinated Note Trustee may request to act by holders of at least 25% in principal withhold such notice if it in good faith determines amount of New F4L Senior Subordinated Notes and (ii) that withholding such notice is in the interest of the has received indemnification satisfactory to it; holders. provided, however, that such provision does not affect the right of any holder to sue for enforcement of any The Old F4L Senior Subordinated Note Indenture overdue payment of New F4L Senior Subordinated Notes. provides that no holder may pursue any remedy thereunder unless the Old F4L Senior Subordinated Note Under the New F4L Senior Subordinated Note Indenture, Trustee (i) shall have failed to act for a period of 60 two officers of the Company are required to certify to days after receiving written notice of a continuing the New F4L Senior Subordinated Note Trustee within 120 Event of Default by such holder and a request to act by days after the end of each fiscal year of the Company holders of at least 33 1/3% in principal amount of Old whether or not they know of any Default that occurred F4L Senior Subordinated Notes and (ii) has received during such fiscal year and, if applicable, describe indemnification satisfactory to it; provided, however, such Default and the status thereof. that such provision does not affect the right of any holder to sue for enforcement of any overdue payment on Old F4L Senior Subordinated Notes. Under the Old F4L Senior Subordinated Note Indenture, two officers of Food 4 Less are required to certify to the Trustee within 120 days after the end of each fiscal year of Food 4 Less whether or not they know of any Default that occurred during such fiscal year and, if applicable, describe such Default and the status thereof. MODIFICATION OF THE OLD F4L SENIOR MODIFICATION OF THE NEW F4L SENIOR SUBORDINATED NOTE INDENTURE SUBORDINATED NOTE INDENTURE Pursuant to the terms of the Old F4L Senior Pursuant to the terms of the New F4L Senior Subordinated Note Indenture, the Old F4L Senior Subordinated Note Indenture, the New F4L Senior Subordinated Note Indenture and the Old F4L Senior Subordinated Note Indenture and the New F4L Senior Subordinated Notes may be amended or supplemented (and Subordinated Notes may be amended or supplemented (and compliance with any provision thereof may be waived) by compliance with any provision thereof may be waived) by Food 4 Less, the Old F4L Senior Subordinated Note the Company, the Subsidiary Guarantors, the New F4L Trustee and the holders of not less than a majority in Senior Subordinated Note Trustee and the holders of not aggregate principal amount of the Old F4L Senior less than a majority in aggregate principal amount of Subordinated Notes then outstanding, except that (A) New F4L Senior Subordinated Notes then outstanding, without the consent of each holder affected, no such except that (i) without the consent of each holder of amendment supplement or waiver may (1) change the New F4L Senior Subordinated Notes affected, no such principal amount of Old F4L Senior Subordinated Notes amendment, supplement or waiver may (1) change the whose holders must consent to an amendment, supplement principal amount of the New F4L Senior Subordinated or waiver of any provision of the Old F4L Senior Notes the holders of which must consent to an Subordinated Note Indenture or the Old F4L Senior amendment, supplement or waiver of any provision of the Subordinated Notes; (2) reduce the rate or extend the New F4L Senior Subordinated Note Indenture, the New F4L time for payment of interest on any Old F4L Senior Senior Subordinated Notes or the senior subordinated Subordinated Note; (3) reduce the principal amount of guarantee, (2) reduce the rate or extend the time for any Old F4L Senior Subordinated Note; (4) change the payment of interest on the New F4L Senior Subordinated date of maturity of any Old F4L Senior Subordinated Notes, (3) reduce the principal amount of any New F4L Note, or alter the redemption provisions in a manner Senior Subordinated Notes, (4) change the Maturity Date adverse to any holder; (5) make any changes in the of the New F4L Senior Subordinated Notes or the Change provisions concerning waivers of Defaults or Events of of Control Payment Date or alter the redemption Default by holders or the rights of holders to recover provisions in the New F4L Senior Subordinated Note the principal of, interest on, or redemption payment Indenture, the New F4L Senior Subordinated Notes or the with respect to, any Old F4L Senior Subordinated Note; purchase price in connection with any repurchase of New or (6) make the principal of, or the interest on, any F4L Senior Subordinated Notes pursuant to the covenant Old F4L Senior Subordinated Note payable with anything described under " -- Limitation on Change of Control" or in any manner other than as provided for in the Old above in a manner adverse to any holder of the New F4L F4L Senior Subordinated Note Indenture and the Old F4L Senior Subordinated Senior Subordinated Notes; and (B) no provision in any Notes, (5) make any changes in the provisions supplemental indenture that affects the subordination concerning waivers of Defaults or Events of Default by of the Old F4L Senior Subordinated Notes and the holders or the rights of holders to recover the Guarantee Obligations or other provisions relating principal of, interest on or redemption payment with thereto shall be effective against the holders of the respect to New F4L Senior Subordinated Notes, (6) make Senior Indebtedness or Senior Guarantor Indebtedness the principal of, or interest on, any New F4L Senior who have not consented thereto. Subordinated Notes payable with anything or in any manner other than as provided for in the New F4L Senior According to the terms of the Old F4L Senior Subordinated Note Indenture, the New F4L Senior Subordinated Note Indenture, Food 4 Less and the Subordinated Notes and the Senior Subordinated Note Trustee may amend the Old F4L Senior Subordinated Note Guarantee, (7) waive any Default or Event of Default Indenture and the Old F4L Senior Subordinated Notes (a) resulting from a failure to comply with the covenant to cure any ambiguity, defect or inconsistency therein; described under "Limitation on Change of Control" above provided, that such amendment or supplement does not and (ii) without the consent of holders of not less adversely affect the rights of any holder or (b) to than two thirds in aggregate principal amount of New make any other change that does not adversely affect F4L Senior Subordinated Notes then outstanding, no such the rights of any holder. amendment, supplement or waiver may release any Guarantor from any of its obligations under its guarantee or the New F4L Senior Subordinated Note Indenture other than in accordance with the terms of the senior subordinated guarantee and the New F4L Senior Subordinated Note Indenture. In addition, the New F4L Senior Subordinated Note Indentures and the guarantees may be amended by the Company, the Subsidiary Guarantors and the New F4L Senior Subordinated Note Trustee (a) to cure any ambiguity, defect or ambiguity therein; provided that such amendment or supplement does not adversely affect the rights of any holder thereof or (b) to make any other change that does not adversely affect the rights of any holder thereunder in any material respect.
B-23 249 Facsimile copies of the Letters of Transmittal, properly completed and duly executed, will be accepted, Letters of Transmittal, certificates for the Old F4L Notes and any other required documents should be sent by each holder or its broker, dealer, commercial bank, trust company or other nominee to the Exchange Agent at one of its addresses set forth below. The Exchange Agent is: BANKERS TRUST COMPANY Facsimile Transmission Number: (212) 250-6275 (212) 250-3290 By Mail: (For Eligible Institutions Only) By Hand/Overnight Delivery: Bankers Trust Company Bankers Trust Company Corporate Trust and Agency Group Confirm by Telephone: Corporate Trust and Agency Group Reorganization Dept. (212) 250-6270 Receipt & Delivery Window P.O. Box 1458 123 Washington Street, 1st Floor Church Street Station New York, New York 10006 New York, New York 10008-1458
Any questions or requests for assistance or additional copies of this Prospectus and Solicitation Statement, the Letters of Transmittal and the Notices of Guaranteed Delivery may be directed to the Information Agent or one of the Dealer Managers at their respective telephone numbers and locations set forth below. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offers and the Solicitation. The Information Agent is: D.F. KING & CO., INC. Call Toll Free: (800) 669-5550 77 Water Street New York, NY 10005 (212) 269-5550 (collect) The Dealer Managers are: BT SECURITIES CS FIRST BOSTON DONALDSON, LUFKIN CORPORATION 55 East 52nd Street & JENRETTE One Bankers Trust Plaza New York, New York 10055 SECURITIES CORPORATION 130 Liberty Street (212) 909-2873 140 Broadway New York, New York 10006 New York, New York 10005 (212) 775-4300 (212) 504-4753
250 EDGAR APPENDIX This EDGAR Appendix is filed in compliance with Item 304 of Regulation S-T regarding graphic and image information. It describes material appearing on pages 7 and 8 of the Prospectus and Solicitation Statement. PAGE 7 The chart consists of two columns which graphically illustrate the respective corporate structures of Food 4 Less and Ralphs before the Merger. Food 4 Less' corporate structure illustrates that Food 4 Less, Inc. ("FFL") owns Food 4 Less Holdings, Inc. ("Holdings"), which, in turn, owns Food 4 Less Supermarkets, Inc. ("Food 4 Less") which, in turn, owns several other Food 4 Less subsidiaries. The Ralphs' corporate structure illustrates that Ralphs Supermarkets, Inc. ("RSI"), owns Ralphs Grocery Company ("RGC") which, in turn, owns Crawford Stores, Inc. A dotted arrow has been drawn from the box representing Food 4 Less to the box representing RSI to simulate the RSI Merger. A dotted arrow has been drawn from the box representing RGC to the box representing RSI to simulate the RGC Merger. A dotted arrow has been drawn to the box representing Holdings from the box representing FFL to simulate the FFL Merger. PAGE 8 The chart illustrates the corporate structure of the Company after the Merger and the FFL Merger. The corporate structure illustrates that New Holdings owns the Company which, in turn, is the parent of all other subsidiaries of the Company. The anticipated debt obligations of New Holdings are placed in order of ranking next to the box representing New Holdings and the anticipated debt obligations of the Company are placed in order of ranking next to the box representing the Company. 251 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Food 4 Less and its subsidiaries Cala Foods, Inc. and Food 4 Less of Southern California, Inc., are Delaware corporations and their Certificates of Incorporation and Bylaws provide for indemnification of their officers and directors to the fullest extent permitted by law. Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") eliminates the liability of a corporation's directors to a corporation or its stockholders, except for liabilities related to breach of duty of loyalty, actions not in good faith, and certain other liabilities. Section 145 of the DGCL provides for the indemnification by a Delaware corporation of its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against liabilities and expenses incurred in any such action, suit or proceeding. Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Food 4 Less of California, Inc., Food 4 Less GM, Inc. and Food 4 Less Merchandising, Inc. are California corporations and their Certificates of Incorporation and Bylaws provide for indemnification of their officers and directors to the fullest extent permitted by law. Section 204(10) of the California General Corporation Law (the "CGCL") eliminates the liability of a corporation's directors for monetary damages to the fullest extent permissible under California law. Pursuant to Section 204(11) of the CGCL, a California corporation may indemnify Agents (as defined in Section 317 of the CGCL), subject only to the applicable limits set forth in Section 204 of the CGCL with respect to actions for breach of duty to the corporation and its shareholders. As permitted by Section 317 of the CGCL, indemnification may be provided by a California corporation of its Agents (as defined in Section 317 of the CGCL), to the maximum extent permitted by the CGCL, in connection with any proceeding arising by reason of the fact that such person is or was such a director or officer, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in any such proceeding. Falley's, Inc. is a Kansas corporation and its Bylaws provide for indemnification of its officers and directors to the fullest extent permitted by law. Section 17-6305(a) of the Kansas General Corporation Code (the "KGCC") provides for the indemnification by a Kansas corporation of its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against liabilities and expenses incurred in any such action, suit or proceeding. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits A list of exhibits filed with this Registration Statement on Form S-4 is set forth in the Index to Exhibits on page E-1, and is incorporated herein by reference. (b) Financial Statement Schedules (i) Ralphs Schedule V -- Property, Plant and Equipment Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant and Equipment Schedule VIII -- Valuation and Qualifying Accounts Schedule IX -- Short-Term Borrowings
II-1 252 (ii) Food 4 Less Schedule II -- Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees other than Related Parties Schedule V -- Property and Equipment Schedule VI -- Accumulated Depreciation and Amortization of Property and Equipment Schedule VIII -- Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (d) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-2 253 (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. II-3 254 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on January 24, 1995. FOOD 4 LESS SUPERMARKETS, INC. By: /s/ MARK A. RESNIK -------------------------------- Mark A. Resnik Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - - --------------------------------------------- ------------------------------ ----------------- * Chief Executive Officer and January 24, 1995 - - --------------------------------------------- Director (Principal Ronald W. Burkle Executive Officer) * Executive Vice President -- January 24, 1995 - - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) * Director January 24, 1995 - - --------------------------------------------- Joe S. Burkle /s/ MARK A. RESNIK Director January 24, 1995 - - --------------------------------------------- Mark A. Resnik * Director January 24, 1995 - - --------------------------------------------- George G. Golleher * Power of Attorney by /s/ MARK A. RESNIK - - --------------------------------------------- Mark A. Resnik Vice President and Secretary
II-4 255 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrants have duly caused this Amendment No. 2 to the Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on January 24, 1995. BAY AREA WAREHOUSE STORES, INC. BELL MARKETS, INC. CALA CO. CALA FOODS, INC. FOOD 4 LESS OF CALIFORNIA, INC. FOOD 4 LESS GM, INC. FOOD 4 LESS MERCHANDISING, INC. FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. By: /s/ MARK A. RESNIK ------------------------------------ Mark A. Resnik Vice President and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - - --------------------------------------------- ------------------------------ ----------------- * Director and Chairman of the January 24, 1995 - - --------------------------------------------- Board of each Registrant Ronald W. Burkle * Chief Executive Officer and January 24, 1995 - - --------------------------------------------- Director (Principal George G. Golleher Executive Officer) of each Registrant * Executive Vice President -- January 24, 1995 - - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) of each Registrant * Power of Attorney by /s/ MARK A. RESNEK - - --------------------------------------------- Mark A. Resnik Vice President and Assistant Secretary
II-5 256 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on January 24, 1995. ALPHA BETA COMPANY BY: /S/ MARK A. RESNIK ------------------------------------ Mark A. Resnik Vice President and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - - --------------------------------------------- ---------------------------- ------------------ * Director and Chief Executive January 24, 1995 - - --------------------------------------------- Officer (Principal Ronald W. Burkle Executive Officer) * Director January 24, 1995 - - --------------------------------------------- George G. Golleher * Executive Vice President -- January 24, 1995 - - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) * Power of Attorney by /s/ MARK A. RESNIK - - --------------------------------------------- Mark A. Resnik Vice President and Assistant Secretary
II-6 257 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on January 24, 1995. FALLEY'S, INC. By: /s/ MARK A. RESNIK ------------------------------------ Mark A. Resnik Vice President and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - - --------------------------------------------- --------------------------- ------------------- * Director January 24, 1995 - - --------------------------------------------- Ronald W. Burkle * Director January 24, 1995 - - --------------------------------------------- George G. Golleher * Chief Executive Officer January 24, 1995 - - --------------------------------------------- (Principal Executive Joe S. Burkle Officer) * Director January 24, 1995 - - --------------------------------------------- Michael Saltman * Executive Vice President -- January 24, 1995 - - --------------------------------------------- Finance/Administration Greg Mays and Chief Financial Officer (Principal Financial and Accounting Officer) * Power of Attorney by /s/ MARK A. RESNIK - - --------------------------------------------- Mark A. Resnik Vice President and Assistant Secretary
II-7 258 ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES Board of Directors and Stockholders Ralphs Supermarkets, Inc.: The audits referred to in our report dated April 8, 1994 (except as to note 16, which is as of September 14, 1994), included the related financial statement schedules as of January 30, 1994 and January 31, 1993, and for each of the fiscal years in the three-year period ended January 30, 1994, included in the registration statement. These financial statement schedules are the responsibility of Ralphs management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the headings "Summary Historical Financial Data of Ralphs," "Selected Historical Financial Data of Ralphs" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Los Angeles, California January 23, 1995 S-1 259 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT 52 WEEKS ENDED JANUARY 30, 1994, 52 WEEKS ENDED JANUARY 31, 1993 AND 52 WEEKS ENDED FEBRUARY 2, 1992 (IN THOUSANDS)
BALANCE OTHER BALANCE BEGINNING CHANGES -- AT END OF PERIOD ADDITIONS RETIREMENTS ADD (DEDUCT) OF PERIOD ---------- --------- ----------- ------------- ---------- 52 WEEKS ENDED JANUARY 30, 1994: Land.................................... $ 156,487 $ 4,206 $ -- $ (789) $ 159,904 Buildings & improvements................ 180,639 16,730 (6,290) 100 191,179 Leasehold improvements.................. 149,273 8,670 (159) 3,557 161,341 Fixtures & equipment.................... 349,697 33,361 (30,299) 1,867 354,626 Capitalized leases...................... 69,058 15,395 (358) 2,869 86,964 ---------- --------- ----------- ------------- ---------- Total......................... $ 905,154 $78,362 $ (37,106) $ 7,604 $ 954,014 ======== ======= ======== ========== ======== 52 WEEKS ENDED JANUARY 31, 1993: Land.................................... $ 145,344 $11,143 $ -- $ -- $ 156,487 Buildings & improvements................ 151,896 28,657 (31) 117 180,639 Leasehold improvements.................. 140,989 8,843 (442) (117) 149,273 Fixtures & equipment.................... 317,832 48,336 (16,471) -- 349,697 Capitalized leases...................... 70,151 -- (668) (425) 69,058 ---------- --------- ----------- ------------- ---------- Total......................... $ 826,212 $96,979 $ (17,612) $ (425) $ 905,154 ======== ======= ======== ========== ======== 52 WEEKS ENDED FEBRUARY 2, 1992: Land.................................... $ 143,410 $ 1,864 $ -- $ 70(a) $ 145,344 Buildings & improvements................ 136,205 16,558 (15) (852)(a) 151,896 Leasehold improvements.................. 144,385 (11) (3,497) 112 140,989 Fixtures & equipment.................... 301,482 31,944 (16,264) 670 317,832 Capitalized leases...................... 69,228 3,847 (2,924) -- 70,151 ---------- --------- ----------- ------------- ---------- Total......................... $ 794,710 $54,202 $ (22,700) $ -- $ 826,212 ======== ======= ======== ========== ========
- - --------------- (a) Reclassification to/from other accounts. S-2 260 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT 52 WEEKS ENDED JANUARY 30, 1994, 52 WEEKS ENDED JANUARY 31, 1993 AND 52 WEEKS ENDED FEBRUARY 2, 1992 (IN THOUSANDS)
BALANCE OTHER BALANCE BEGINNING CHANGES-- AT END OF PERIOD ADDITIONS RETIREMENTS ADD (DEDUCT) OF PERIOD --------- --------- ----------- ------------ --------- 52 WEEKS ENDED JANUARY 30, 1994: Buildings & improvements.................. $ 33,598 $10,117 $ (2,640) $ (630) $ 40,445 Leasehold improvements.................... 49,549 6,691 (86) 9,082 65,236 Fixtures & equipment...................... 182,980 40,301 (14,392) (1,824) 207,065 Capitalized leases........................ 28,362 8,434 (294) 2,869 39,371 --------- --------- ----------- ------------ --------- Total........................... $ 294,489 $65,543 $ (17,412) $ 9,497 $ 352,117 ======== ======= ======== ========== ======== 52 WEEKS ENDED JANUARY 31, 1993: Buildings & improvements.................. $ 24,514 $ 9,092 $ (8) $ -- $ 33,598 Leasehold improvements.................... 38,138 11,775 (364) -- 49,549 Fixtures & equipment...................... 148,407 43,256 (8,683) -- 182,980 Capitalized leases........................ 21,271 7,759 (668) -- 28,362 --------- --------- ----------- ------------ --------- Total........................... $ 232,330 $71,882 $ (9,723) $ -- $ 294,489 ======== ======= ======== ========== ======== 52 WEEKS ENDED FEBRUARY 2, 1992: Buildings & improvements.................. $ 17,161 $ 7,366 $ (11) $ (2) $ 24,514 Leasehold improvements.................... 26,483 11,678 (23) -- 38,138 Fixtures & equipment...................... 113,431 40,003 (5,029) 2 148,407 Capitalized leases........................ 13,009 8,271 (9) -- 21,271 --------- --------- ----------- ------------ --------- Total........................... $ 170,084 $67,318 $ (5,072) $ -- $ 232,330 ======== ======= ======== ========== ========
S-3 261 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS 52 WEEKS ENDED JANUARY 30, 1994, 52 WEEKS ENDED JANUARY 31, 1993 AND 52 WEEKS ENDED FEBRUARY 2, 1992 (IN THOUSANDS)
BALANCE CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS AT END OF PERIOD EXPENSES DESCRIBE(B) (PAYMENTS) OF PERIOD --------- ---------- ---------------- ---------- --------- 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 FEBRUARY 2, 1992: Self-Insurance Reserves(a)............. $ 57,948 $ 25,549 $ 5,620 $(24,594) $ 64,523 Store Closure Reserves................. $ 2,000 $ 12,244 $ -- $ -- $ 14,244
- - --------------- (a) Includes short-term portion. (b) Amortization of discount on self-insurance reserves to interest expense. S-4 262 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) SCHEDULE IX -- SHORT-TERM BORROWINGS 52 WEEKS ENDED JANUARY 30, 1994, 52 WEEKS ENDED JANUARY 31, 1993 AND 52 WEEKS ENDED FEBRUARY 2, 1992 (IN THOUSANDS, EXCEPT INTEREST RATE DATA)
MAXIMUM WEIGHTED WEIGHTED AMOUNT AVERAGE AVERAGE BALANCE AVERAGE OUTSTANDING AMOUNT INTEREST AT END INTEREST DURING OUTSTANDING DURING OF PERIOD RATE PERIOD RATE(A) THE PERIOD --------- -------- ----------- ----------- ----------- JANUARY 30, 1994: Working capital credit line........ $ -- --% $51,900 $ 8,006 7.75% JANUARY 31, 1993: Working capital credit line........ $ 31,100 7.75% $41,800 $13,851 7.82% FEBRUARY 2, 1992: Working capital credit line........ $ 16,500 7.75% $34,900 $ 6,706 9.56%
- - --------------- (a) Average interest rate for the year is computed by dividing the actual short-term expense by the average short-term debt outstanding. S-5 263 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Food 4 Less Supermarkets, Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Food 4 Less Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25, 1994, and the related consolidated statements of operations, stockholder's equity and cash flows for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994 and have issued our report thereon dated July 29, 1994 (except with respect to the matter discussed in Note 14, as to which the date is September 14, 1994, and with respect to the matter discussed in Note 15, as to which the date is October 14, 1994). Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules on pages S-7 through S-10 are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California July 29, 1994 (except with respect to the matter discussed in Note 14, as to which the date is September 14, 1994, and with respect to the matter discussed in Note 15, as to which the date is October 14, 1994) S-6 264 FOOD 4 LESS SUPERMARKETS, INC. SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES 52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED JUNE 27, 1992 (IN THOUSANDS)
BALANCE AT END OF BALANCE AT PERIOD BEGINNING AMOUNTS OTHER ---------------------- OF PERIOD ADDITIONS COLLECTED CHANGES CURRENT NONCURRENT ----------- ---------- -------- -------- -------- ----------- 52 WEEKS ENDED JUNE 25, 1994: None................................... $ -- $ -- $ -- $ -- $ -- $ -- ----------- ---------- -------- -------- -------- ----------- $ -- $ -- $ -- $ -- $ -- $ -- ======== ======= ======= ====== ====== ======== 52 WEEKS ENDED JUNE 26, 1993: Spencer Deese.......................... $ 100 $ -- $100 $ -- $ -- $ -- ----------- ---------- -------- -------- -------- ----------- $ 100 $ -- $100 $ -- $ -- $ -- ======== ======= ======= ====== ====== ======== 52 WEEKS ENDED JUNE 27, 1992: Spencer Deese.......................... $ 105 $ -- $ 5 $ -- $ -- $ 100 ----------- ---------- -------- -------- -------- ----------- $ 105 $ -- $ 5 $ -- $ -- $ 100 ======== ======= ======= ====== ====== ========
S-7 265 FOOD 4 LESS SUPERMARKETS, INC. SCHEDULE V -- PROPERTY AND EQUIPMENT 52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993 AND 52 WEEKS ENDED JUNE 27, 1992 (IN THOUSANDS)
BALANCE AT BEGINNING OF OTHER BALANCE AT END PERIOD ADDITIONS RETIREMENTS CHANGES(A) OF PERIOD ------------ --------- ----------- ---------- -------------- 52 WEEKS ENDED JUNE 25, 1994: Land..................................... $ 23,912 $ -- $ 424 $ -- $ 23,488 Buildings................................ 12,827 -- -- -- 12,827 Leasehold improvements................... 81,049 17,292 668 -- 97,673 Store equipment & fixtures............... 129,178 27,324 11,643 3,390 148,249 Transportation equipment................. 31,758 971 470 -- 32,259 Construction in progress................. 757 11,884 -- -- 12,641 Leased property under capital leases..... 77,553 2,575 1,906 -- 78,222 Leasehold interests...................... 93,863 -- 399 -- 93,464 ------------ --------- ----------- ---------- -------------- $450,897 $60,046 $15,510 $ 3,390 $498,823 ========= ======= ======== ======== =========== 52 WEEKS ENDED JUNE 26, 1993: Land..................................... $ 26,952 $ 652 $ 3,692 $ -- $ 23,912 Buildings................................ 12,568 207 126 178 12,827 Leasehold improvements................... 58,846 20,853 1,912 3,262 81,049 Store equipment & fixtures............... 104,473 24,956 2,328 2,077 129,178 Transportation equipment................. 29,415 2,531 188 -- 31,758 Construction in progress................. 8,679 1,601 2,513 (7,010) 757 Leased property under capital leases..... 80,369 115 2,931 -- 77,553 Leasehold interests...................... 92,193 2,552 882 -- 93,863 ------------ --------- ----------- ---------- -------------- $413,495 $53,467 $14,572 $ (1,493) $450,897 ========= ======= ======== ======== =========== 52 WEEKS ENDED JUNE 27, 1992: Land..................................... $ 26,952 $ -- $ -- $ -- $ 26,952 Buildings................................ 12,568 -- -- -- 12,568 Leasehold improvements................... 41,730 19,592 2,476 -- 58,846 Store equipment & fixtures............... 130,497 27,819 21,072 (32,771) 104,473 Transportation equipment................. 28,937 651 173 -- 29,415 Construction in progress................. 1,947 12,201 5,469 -- 8,679 Leased property under capital leases..... 80,399 -- 30 -- 80,369 Leasehold interests...................... 100,710 -- 357 (8,160) 92,193 ------------ --------- ----------- ---------- -------------- $423,740 $60,263 $29,577 $(40,931) $413,495 ========= ======= ======== ======== ===========
- - --------------- (A) Consists of (1) the acquisition of Food Barn in March 1994, (2) final Alpha Beta purchase price allocation adjustments, and (3) gains and losses on involuntary conversion of assets. S-8 266 FOOD 4 LESS SUPERMARKETS, INC. SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT 52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED JUNE 27, 1992 (IN THOUSANDS)
BALANCE AT BALANCE BEGINNING OTHER AT END OF PERIOD ADDITIONS RETIREMENTS CHANGES(A) OF PERIOD ---------- --------- ----------- --------- ---------- 52 WEEKS ENDED JUNE 25, 1994: Buildings................................... $ 2,515 $ 441 $ -- $ -- $ 2,956 Leasehold improvements...................... 25,050 7,097 185 -- 31,962 Store equipment & fixtures.................. 36,506 20,789 1,762 -- 55,533 Transportation equipment.................... 7,036 2,461 337 -- 9,160 Leased property under capital leases........ 20,356 5,591 1,906 -- 24,041 Leasehold interests......................... 5,485 5,001 49 -- 10,437 ---------- --------- ----------- --------- ---------- $ 96,948 $41,380 $ 4,239 $ -- $134,089 ======== ======= ======== ======== ======== 52 WEEKS ENDED JUNE 26, 1993: Buildings................................... $ 1,861 $ 682 $ 24 $ (4) $ 2,515 Leasehold improvements...................... 15,534 9,692 15 (161) 25,050 Store equipment & fixtures.................. 19,818 18,051 673 (690) 36,506 Transportation equipment.................... 5,040 2,180 184 -- 7,036 Leased property under capital leases........ 16,655 5,342 1,641 -- 20,356 Leasehold interests......................... 4,051 1,479 45 -- 5,485 ---------- --------- ----------- --------- ---------- $ 62,959 $37,426 $ 2,582 $(855) $ 96,948 ======== ======= ======== ======== ======== 52 WEEKS ENDED JUNE 27, 1992: Buildings................................... $ 1,252 $ 688 $ 79 $ -- $ 1,861 Leasehold improvements...................... 7,800 8,649 915 -- 15,534 Store equipment & fixtures.................. 12,275 19,224 11,681 -- 19,818 Transportation equipment.................... 3,323 1,751 34 -- 5,040 Leased property under capital leases........ 10,306 6,379 30 -- 16,655 Leasehold interests......................... 2,888 1,207 44 -- 4,051 ---------- --------- ----------- --------- ---------- $ 37,844 $37,898 $12,783 $ -- $ 62,959 ======== ======= ======== ======== ========
- - --------------- (A) Consists of gains and losses on involuntary conversion of assets. S-9 267 FOOD 4 LESS SUPERMARKETS, INC. SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS 52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED JUNE 27, 1992 (IN THOUSANDS)
BALANCE AT PROVISIONS CHARGED TO BALANCE AT BEGINNING CHARGED TO INTEREST OTHER END OF OF PERIOD EXPENSE EXPENSE(B) PAYMENTS CHANGES PERIOD ----------- ----------- ----------- --------- -------- ---------- SELF-INSURANCE LIABILITIES: 52 weeks ended June 25, 1994...... $85,494 $19,880 $ 5,836 $29,506 $ -- $ 81,704 ======== ======== ========= ======= ====== ======= 52 weeks ended June 26, 1993...... $82,559 $38,040 $ 5,865 $40,970 $ -- $ 85,494 ======== ======== ========= ======= ====== ======= 52 weeks ended June 27, 1992...... $59,525 $46,140 $ 4,960 $36,066 $8,000(a) $ 82,559 ======== ======== ========= ======= ====== =======
- - --------------- (a) Reflects self-insurance reserve related to Alpha Beta resulting from the acquisition of Alpha Beta. (b) Amortization of discount on self-insurance reserves charged to interest expense. S-10 268 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 1.1 Form of Dealer Manager Agreement among Food 4 Less, Food 4 Less Holdings, Inc., the subsidiary guarantors named therein, BT Securities Corporation, CS First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation dated as of January , 1995.......... 2.1 Agreement and Plan of Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less, Ralphs Supermarkets, Inc. and the Stockholders of Ralphs Supermarkets, Inc. (incorporated herein by reference to Exhibit 99 to Food 4 Less' Form 8-K dated September 14, 1994)................................................................. 2.1.1 Amendment No. 1 dated as of January 12, 1995, to Agreement and Plan of Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less Holdings, Inc. (a Delaware corporation), Food 4 Less, Ralphs Supermarkets, Inc. and the stockholders of Ralphs Supermarkets, Inc................................................................... 3.1 Certificate of Incorporation of Food 4 Less, as amended (incorporated herein by reference to Exhibit 3.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 25, 1994).................... 3.2 Bylaws of Food 4 Less, as amended (incorporated herein by reference to Exhibit 3.2 to Food 4 Less's Registration Statement on Form S-1, No. 33-31152)............................................................. 4.1 Form of Senior Note Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and Norwest Bank Minnesota, N.A., as trustee, with respect to its Senior Notes due 2004+................................................................. 4.2 Form of Senior Subordinated Note Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee, with respect to its 13.75% Senior Subordinated Notes due 2005+................................................................. 4.3 Form of Senior Subordinated Note Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee, with respect to its Senior Subordinated Notes due 2005 (incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56445)........ 4.4.1 Form of First Supplemental Indenture dated as of , 1995 by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee, with respect to its 10 1/4% Senior Subordinated Notes due 2002 (incorporated herein by reference to Exhibit 4.4.1 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56445).................................. 4.4.2 Form of Second Supplemental Indenture dated as of , 1995 by and between Ralphs Grocery Company (as successor by merger to Food 4 Less) and United States Trust Company of New York, as trustee, with respect to its 10 1/4% Senior Subordinated Notes due 2002 (incorporated herein by reference to Exhibit 4.4.2 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56445)..... 4.5.1 Form of Second Supplemental Indenture dated as of , 1995 by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee, with respect to its 9% Senior Subordinated Notes due 2003 (incorporated herein by reference to Exhibit 4.5.1 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56445)..................... 4.5.2 Form of Third Supplemental Indenture dated as of , 1995 by and between Ralphs Grocery Company (as successor by merger to Food 4 Less) and United States Trust Company of New York, as trustee, with respect to its 9% Senior Subordinated Notes due 2003 (incorporated herein by reference to Exhibit 4.5.2 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56445)...............
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EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 4.6 Senior Note Indenture dated as of April 15, 1992 by and among Food 4 Less, the subsidiary guarantors identified therein and Norwest Bank Minnesota, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to Food 4 Less' Registration Statement on Form S-1, No. 33-46750)............................................................. 4.6.1 First Supplemental Indenture dated as of July 24, 1992 by and among Food 4 Less, Bay Area Warehouse Stores, Inc., and Norwest Bank Minnesota, N.A., as trustee (incorporated herein by reference to Exhibit 4.1.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)...................................... 4.6.2 Form of Second Supplemental Indenture dated as of , 1995 by and among Food 4 Less, the subsidiary guarantors identified therein and Norwest Bank Minnesota, N.A., as trustee, with respect to its 10.45% Senior Notes due 2000+......................................... 4.6.3 Form of Third Supplemental Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and Norwest Bank Minnesota, N.A., as trustee, with respect to its 10.45% Senior Notes due 2000+............................................................. 4.7 Senior Subordinated Note Indenture dated as of June 15, 1991 by and among Food 4 Less, the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.1 to Food 4 Less's Annual Report on Form 10-K for the fiscal year ended June 29, 1991).................... 4.7.1 First Supplemental Indenture dated as of April 8, 1992 by and among Food 4 Less, Food 4 Less GM, Inc. and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992).................................................. 4.7.2 Second Supplemental Indenture dated as of May 18, 1992 by and among Food 4 Less, the Subsidiary Guarantors and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.2 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992).................................................. 4.7.3 Third Supplemental Indenture dated as of July 24, 1992 by and among Food 4 Less, Bay Area Warehouse Stores, Inc. and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.3 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)...................................... 4.7.4 Form of Fourth Supplemental Indenture dated as of , 1995, by and among Food 4 Less, the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee, with respect to its 13 3/4% Senior Subordinated Notes due 2001+............ 4.7.5 Form of Fifth Supplemental Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and the United States Trust Company of New York, as trustee, with respect to its 13 3/4% Senior Subordinated Notes due 2001+........................... 4.8 Credit Agreement dated as of June 17, 1991 by and among Food 4 Less, Alpha Beta Company, The Boys Markets, Inc., Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Initial Lenders and the Designated Issuers, all as identified therein (incorporated herein by reference to Exhibit 4.4 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 29, 1991)...................................... 4.8.1 First Modification Agreement dated as of January 24, 1992 by and among Food 4 Less, Alpha Beta Company, The Boys Markets, Inc., Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.5.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)..............................
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EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 4.8.2 Second Modification Agreement dated as of April 13, 1992 by and among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.5.2 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)................................................................. 4.8.3 Third Modification Agreement dated as of September 15, 1992 by and among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.5.3 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)........................................................ 4.8.4 Fourth Modification Agreement dated as of October 9, 1992 by and among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.5.4 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)................................................................. 4.8.5 Fifth Modification Agreement dated as of December 21, 1992 by and among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Chemical Bank (as successor in interest to Manufacturers Hanover Trust Company), as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 19.1 to Food 4 Less' Quarterly Report on Form 10-Q for the fiscal year ended April 3, 1993)................................................................. 4.8.6 Sixth Modification Agreement dated as of November 22, 1994 by and among Food 4 Less, the subsidiaries named therein, as borrowers, and Bankers Trust Company, Citicorp North America, Inc. and Chemical Bank as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Partners, all as identified therein............................................................... 4.8.7 Seventh Modification Agreement dated as of January 25, 1995 by and among Food 4 Less, the subsidiaries named therein, as borrowers, and Bankers Trust Company, Citicorp North America, Inc. and Chemical Bank as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Partners, all as identified therein............................................................... 4.9 Bank commitment letter by and among Food 4 Less, the guarantors named therein and Bankers Trust Company, as agent, and the financial institutions identified therein....................................... 5.1 Opinion of Latham & Watkins regarding the legality of the Senior Notes due 2004, the 13.75% Senior Subordinated Notes due 2005, the 10.45% Senior Notes due 2000, as amended, and the 13.75% Senior Subordinated Notes due 2001, and the guarantees of the Subsidiary Guarantors, as amended, including consent............................................ 5.2 Opinion of Irwin, Clutter & Severson regarding the guarantee of Falley's, Inc. ....................................................... 8.1 Opinion of Latham & Watkins regarding certain tax matters with respect to the Senior Notes due 2004, the 13.75% Senior Subordinated Notes due 2005, the 10.45% Senior Notes due 2000, as amended, and the 13.75% Senior Subordinated Notes due 2001, as amended, including consent..... 10.1 Lease dated as of June 17, 1991 by and between Food 4 Less and American Food and Drug, Inc. relating to La Habra, California property (incorporated herein by reference to Exhibit 10.4 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 29, 1991)...
E-3 271
EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 10.2 Stockholders Agreement dated as of June 23, 1989 by and among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by reference to Exhibit 10.16 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152)............................................... 10.2.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by reference to Exhibit 10.58 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152).................................. 10.2.2 Letter Agreement dated as of June 27, 1990 by and among Peter J. Sodini, The Boys Markets, Inc., and certain affiliates, officers, directors and employees of Food 4 Less (incorporated herein by reference to Exhibit 10.39.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 30, 1990)......................... 10.2.3 Assignment and Assumption Agreement dated as of August 22, 1990 by and between Peter J. Sodini and Ronald W. Burkle with respect to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by reference to Exhibit 10.16.2 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 30, 1990)........................................................ 10.2.4 Amendment dated as of December 31, 1992 by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less and Ronald W. Burkle to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by reference to Exhibit 10.6.2 to Food 4 Less Holdings, Inc.'s Registration Statement on Form S-4, No. 33-59214)............................................................. 10.3 Stockholders Agreement dated as of June 23, 1989 by and among Food 4 Less, Food 4 Less, Inc. and George G. Golleher (incorporated herein by reference to Exhibit 10.17 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152)............................................... 10.3.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and George G. Golleher (incorporated herein by reference to Exhibit 10.59 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152)..................... 10.3.2 Amendment dated as of December 31, 1992 by and among Food 4 Less Holdings, Inc., Food 4 Less, Food 4 Less, Inc. and George G. Golleher to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and George G. Golleher (incorporated herein by reference to Exhibit 10.8.2 to Food 4 Less Holdings, Inc.'s Registration Statement on Form S-4, No. 33-59214).................................................... 10.4 Letter Agreement dated as of September 14, 1994 by and among FFL Partners, Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less and Falley's Inc. relating to certain obligations arising under the Falley's, Inc. Stock Ownership Plan and Trust, as amended (incorporated herein by reference to Exhibit 10.4 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 25, 1994)... 10.5 Consulting Agreement dated as of June 27, 1988 by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.38 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152)............................................................. 10.5.1 Letter Agreement dated as of December 10, 1990 amending Consulting Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.17.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 29, 1991)... 10.6 Employment Agreement dated as of July 1, 1994 between Food 4 Less and Harley DeLano (incorporated herein by reference to Exhibit 10.9 to Food 4 Less' Annual Report on Form 10-K dated June 25, 1994).......... 10.7 Employment Agreement dated as of July 1, 1994 between Food 4 Less and Greg Mays (incorporated herein by reference to Exhibit 10.10 to Food 4 Less' Annual Report on Form 10-K dated June 25, 1994)................. 10.8 Amended and Restated Tax Sharing Agreement dated as of June 17, 1991 by and among Food 4 Less, Inc., Food 4 Less and the subsidiaries of Food 4 Less (incorporated herein by reference to Exhibit 10.20 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 29, 1991)................................................................. 12.1 Statements regarding computations of ratios of earnings to fixed charges+..............................................................
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EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 21.1 Subsidiaries of Food 4 Less (incorporated herein by reference to Exhibit 22.1 to Food 4 Less' Annual Report on Form 10-K dated June 25, 1994)................................................................. 23.1 Consent of KPMG Peat Marwick LLP, independent certified public accountants........................................................... 23.2 Consent of Arthur Andersen LLP, independent public accountants........ 23.3 Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1 to the Registration Statement).................................... 23.4 Consent of Director Nominee Byron E. Allumbaugh+...................... 23.5 Consent of Director Nominee Alfred A. Marasca+........................ 23.6 Consent of Director Nominee Patrick L. Graham+........................ 23.7 Consent of Irwin, Clutter & Severson (included in the opinion filed as Exhibit 5.2 to the Registration Statement)............................ 24 Power of Attorney of directors and officers of Food 4 Less (included in the signature pages in Part II of the Registration Statement)+..... 25.1 Statement of Eligibility and Qualification on Form T-1 of Norwest Bank Minnesota, N.A., as trustee, under the Indenture for the Senior Notes due 2004+............................................................. 25.2 Statement of Eligibility and Qualification on Form T-1 of United States Trust Company of New York, as trustee, under the Indenture for the 13.75% Senior Subordinated Notes due 2005+........................ 25.3 Statement of Eligibility and Qualification on Form T-1 of United States Trust Company of New York, as trustee, under the Indenture for the Senior Subordinated Notes due 2005 (incorporated herein by reference to Exhibit 25.1 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56445)..................... 99.1 Letter of Transmittal and Consent with respect to the Exchange Offers and the Solicitation.................................................. 99.2 Notice of Guaranteed Delivery with respect to the Exchange Offers and the Solicitation...................................................... 99.3 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees with respect to the Exchange Offers and the Solicitation.......................................................... 99.4 Letter to Clients with respect to the Exchange Offers and the Solicitation.......................................................... 99.5 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9................................................... 99.6 Letter to Noteholders from Officer of Food 4 Less with respect to the Exchange Offers and the Solicitation..................................
- - --------------- * To be filed by amendment. + Previously filed. E-5 EX-1.1 2 FORM OF DEALER MANAGER AGREEMENT 1 EXHIBIT 1.1 DEALER MANAGER AGREEMENT January 25, 1995 BT SECURITIES CORPORATION CS FIRST BOSTON CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION c/o BT Securities Corporation One Bankers Trust Plaza New York, New York 10006 Ladies and Gentlemen: Food 4 Less Supermarkets, Inc., a Delaware corporation ("Food 4 Less"), intends to merge (the "Merger") with and into Ralphs Supermarkets, Inc., a Delaware corporation ("RSI"), with RSI surviving the Merger (as such surviving company, the "Surviving Company"), pursuant to an Agreement and Plan of Merger dated as of September 14, 1994 (as amended through the date hereof, the "Merger Agreement"), by and among Food 4 Less, Food 4 Less, Inc. ("F4L"), Food 4 Less Holdings, Inc. ("Holdings"), RSI and the stockholders of RSI. Upon consummation of the Merger, it is anticipated that the Surviving Company will merge with its wholly owned subsidiary, Ralphs Grocery Company, a Delaware corporation ("RGC"), with the Surviving Company surviving such merger (the "Subsequent Merger", and together with the Merger, the "Mergers"). Upon consummation of the Mergers, the Surviving Company will change its name to "Ralphs Grocery Company" ("Ralphs"). Prior to the Merger, (i) F4L intends to merge with Holdings, with Holdings surviving such merger (the "F4L Merger") and (ii) immediately following the F4L Merger, Holdings will merge with and into its newly formed wholly-owned subsidiary incorporated in Delaware ("New Holdings"), with New Holdings surviving such Merger (the "Delaware Merger" and together with the F4L Merger, the "Equity Merger"). In connection with the Mergers, Food 4 Less proposes to offer (collectively, the "F4L Exchange Offers") (i) to holders of its 10.45% Senior Notes due 2000 (the "Old F4L 10.45% Notes") and its 13.75% Senior Subordinated Notes due 2001 (the "Old F4L 13.75% Notes", and together with the Old 10.45% Notes, the "Old F4L Notes") upon the terms and subject to the conditions set forth in the Prospectus and Solicitation Statement dated January 25, 1995 (the "F4L Prospectus"), to exchange (a) for each $1,000 principal amount of Old 10.45% Notes, $1,000 principal amount of new Senior Notes due 2004 of 2 the Surviving Company (the "New Senior Notes") and a cash payment and (b) for each $1,000 principal amount of Old 13.75% Notes, $1,000 principal amount of new Senior Subordinated Notes due 2005 of the Surviving Company (the "New F4L Senior Subordinated Notes", and together with the New Senior Notes, the "New F4L Notes") and a cash payment and (ii) to holders of the 9% Senior Subordinated Notes due 2003 of RGC (the "9% RGC Notes") and the 10 1/4% Senior Subordinated Notes due 2002 of RGC (the "10 1/4% RGC Notes", and together with the 9% RGC Notes, the "Old RGC Notes" and together with the Old F4L Notes, the "Old Notes") upon the terms and subject to the conditions set forth in the Prospectus and Solicitation Statement dated January 25, 1995 (the "RGC Prospectus"), to exchange for each $1,000 principal amount of Old RGC Notes, $1,000 principal amount of new Senior Subordinated Notes due 2005 of the Surviving Company (the "New RGC Notes" and together with the New F4L Notes, the "New Notes") and a cash payment. The New F4L Senior Subordinated Notes will be issued pursuant to an Indenture (the "F4L Senior Subordinated Note Indenture") to be entered into by the Surviving Company, as issuer, each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less of Southern California, Inc. and Food 4 Less GM, Inc., as guarantors, (collectively, the "Subsidiary Guarantors") and United States Trust Company of New York, as trustee (the "F4L Senior Subordinated Note Trustee"). The New Senior Notes will be issued pursuant to an Indenture (the "Senior Note Indenture") to be entered into by the Surviving Company, as issuer, the Subsidiary Guarantors, as guarantors, and Norwest Bank Minnesota N.A., as trustee (the "Senior Note Trustee"). The New RGC Notes will be issued pursuant to an Indenture (the "RGC Note Indenture," and together with the F4L Senior Note Indenture and the F4L Senior Subordinated Note Indenture, the "Indentures") to be entered into by the Surviving Company, as issuer, the Subsidiary Guarantors, as guarantors, and United States Trust Company of New York, as trustee (the "RGC Note Trustee" and together with the F4L Senior Subordinated Note Trustee and the Senior Note Trustee, the "Trustees"). The New Notes will be unconditionally guaranteed (the "Guarantees"), on a joint and several basis, by each of the Subsidiary Guarantors pursuant to the terms of the applicable Indenture. As used in this Agreement, the term "Issuers" shall refer collectively to Food 4 Less (or after giving effect to the Mergers, the Surviving Company) and the Subsidiary Guarantors. Concurrently with the F4L Exchange Offers, Food 4 Less is soliciting consents (collectively, the "Consent Solicitations") (i) from the holders of the Old F4L Notes to amendments (the "Proposed F4L Amendments") to certain of the provisions in the respective indentures governing the Old F4L Notes (the "Old F4L Indentures"), all as described in the F4L Prospectus and (ii) from the holders of the Old RGC Notes to 3 amendments (the "Proposed RGC Amendments" and together with the Proposed F4L Amendments, the "Proposed Amendments") to certain of the provisions in the respective indentures governing the Old RGC Notes (the "Old RGC Indentures" and together with the Old F4L Indentures, the "Old Indentures"), all as described in the RGC Prospectus. Upon receipt of the Requisite Consents (as defined in the applicable prospectus) with respect to an issue of Old Notes, the Issuers (in the case of the Old F4L Notes) or RGC (in the case of the Old RGC Notes) will enter into an indenture supplemental to the Old Indenture under which such Old Notes were issued (each, a "Consent Supplemental Indenture") with the trustee under such Old Indenture, which will give effect to the applicable Proposed Amendments. Concurrently with the F4L Exchange Offers, Holdings is soliciting consents (the "Holdings Consent Solicitation", and together with the F4L Exchange Offers and the Consent Solicitations, the "Exchange Offers") from the holders of its 15<% Senior Discount Notes due 2004 (the "Holdings Notes") to amendments (the "Holdings Proposed Amendments") to certain of the provisions in the indenture governing the Holdings Notes (the "Holdings Indenture"), as described in the Prospectus and Solicitation Statement dated January 25, 1995. Following the Equity Merger, New Holdings will assume the Obligations of Holdings under the Holdings Notes and the Holdings Indenture. Upon receipt of the Requisite Consents (as defined in the Holdings Prospectus) New Holdings will enter into an indenture supplemental to the Holdings Indenture (the "Holdings Supplemental Indenture") with the trustee under the Holdings Indenture, which will give effect to the Holdings Proposed Amendments. As used in this Agreement, the term "Registrants" shall refer collectively to Holdings (or after giving effect to the consummation of the Equity Merger, New Holdings) and the Issuers. F4L and the Registrants hereby confirm their agreement with you as follows: 1. Exchange Offer Materials. A registration statement on Form S-4, including a prospectus, subject to completion, has been filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (together with the rules and regulations of the Commission promulgated thereunder, the "Act") by (i) the Issuers with respect to the New Senior Notes, the New F4L Senior Subordinated Notes and the related Guarantees and the Old F4L Notes, after giving effect to the consummation of the Consent Solicitations relating thereto (the "Amended F4L Notes") (File No. 33-56451), (ii) the Issuers with respect to the New RGC Notes and the related Guarantees and the Old RGC Notes, after giving effect to the consummation of the Consent Solicitations relating thereto (the "Amended RGC Notes") (File No. 33-56445) and (iii) Holdings with respect to the Holdings 4 Notes, after giving effect to the consummation of the Holdings Consent Solicitations (the "Amended Holdings Notes", and collectively with the Amended F4L Notes and the Amended RGC Notes, the "Amended Notes") (File No. 33-86356); and one or more amendments to each such registration statement also have been so filed. After the execution of this Agreement, the respective Registrants under each such registration statement will file with the Commission either (x) if such registration statement, as it may have been amended, has been declared by the Commission to be effective under the Act, a prospectus in the form most recently included in an amendment to such registration statement (or, if no such amendment shall have been filed, in such registration statement) with such changes or insertions as are required by Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have been provided to and approved by you prior to the execution of this Agreement, or (y) if such registration statement, as it may have been amended, has not been declared by the Commission to be effective under the Act, an amendment to such registration statement, including a form of prospectus, a copy of which amendment has been furnished to and approved by you prior to the execution of this Agreement. As used in this Agreement, the term "Registration Statement" means each such registration statement, as amended at the time when it was or is declared effective, including all financial schedules and exhibits thereto and including any information omitted therefrom pursuant to Rule 430A under the Act and included in the applicable Prospectus (as hereinafter defined); the term "Preliminary Prospectus" means each prospectus, subject to completion, filed with each such registration statement or any amendment thereto (including the prospectus, subject to completion, if any, included in such Registration Statement or any amendment thereto at the time it was or is declared effective); and the term "Prospectus" means each prospectus included in each Registration Statement, in the form in which each such prospectus was first filed with the Commission pursuant to Rule 424(b) under the Act or, if no prospectus is required to be filed pursuant to said Rule 424(b) with respect to any such Registration Statement, such term means the prospectus included in such Registration Statement. The Registrants agree to furnish you at their own expense with as many copies as you may reasonably request of each Prospectus and the related Consents and Letters of Transmittal, Notices of Guaranteed Delivery, Broker/Dealer Letters, Client Letters, Taxpayer Guidelines, Informational Letters from officers of Food 4 Less (collectively, the "Letters of Transmittal") and all other related offering materials prepared by the Registrants for use in connection with the Exchange Offers. Each Prospectus, together with all attachments thereto, the Consents and Letters of Transmittal and all such other related offering materials, as such materials may be amended, modified or supplemented from time to 5 time in accordance with the terms hereof and thereof, are herein collectively referred to as the "Offering Materials". The Registrants authorize you to use the Offering Materials in connection with the Exchange Offers, and you agree that you shall not use any material in connection therewith other than the applicable Offering Materials and such other materials, if any, as the Registrants may approve. The Registrants agree to cause a copy of the applicable Offering Materials to be mailed to (x) each record holder of Old Notes or Holdings Notes and (y) each beneficial holder of Old Notes or Holdings Notes that is known to any of the Registrants. Thereafter, to the extent practicable until the expiration of the Exchange Offers, each of the Registrants shall use its best efforts to cause copies of the appropriate Offering Materials to be mailed to each person who becomes a record holder of Old Notes or Holdings Notes and each beneficial holder of Old Notes or Holdings Notes that becomes known to the Registrants. The date or dates on which the Offering Materials are first mailed or otherwise distributed to holders of an issue of Old Notes or Holdings Notes is hereinafter referred to as the "Commencement Date". 2. Agreement to Act as Dealer Managers. Each of the Registrants hereby retains each of you, and each of you agrees to act, as exclusive dealer managers and solicitation agents (in either or both such capacities, the "Dealer Managers") to the Registrants in connection with the Exchange Offers, until the earlier of (i) the termination of the Merger Agreement in accordance with its terms and (ii) the date of the consummation (the "Closing") of the Exchange Offers (the "Closing Date"). As Dealer Managers, each of you agrees, severally and not jointly, in accordance with your respective customary practice, to perform those services in connection with the Exchange Offers as are customarily performed by investment banking concerns in connection with exchange offers and consent solicitations of like nature, including, but not limited to, soliciting exchanges and consents pursuant to the Exchange Offers and communicating generally regarding the Exchange Offers with brokers, dealers, commercial banks and trust companies and other persons, including the holders of the Old Notes and the Holdings Notes. (a) Each of the Registrants hereby authorizes each of you to act as Dealer Managers in connection with the Exchange Offers, and, on the basis of the representations, warranties and agreements of F4L, the Registrants and RSI herein contained and subject to the terms and conditions hereof, each of you agree, severally and not jointly, to act as Dealer Managers in connection with the Exchange Offers. (b) The Registrants shall furnish you, or cause each of the transfer agents or registrars for the Old F4L Notes and 6 the Holdings Notes (collectively, the "F4L Transfer Agent and Registrar") to furnish you, as soon as practicable after the Commencement Date, with cards or lists or copies thereof showing the names of persons who were the holders of record of Old F4L Notes and Holdings Notes as of January 20, 1995 and, to the extent available to the Registrants, the beneficial holders of the Old F4L Notes and the Holdings Notes as of the date or dates specified by you, together with their addresses and the principal amount of each issue of Old F4L Notes or Holdings Notes, as the case may be, held by them. RSI shall furnish you, or cause each of the transfer agents for the Old RGC Notes (the "RGC Transfer Agent and Registrar" and together with the F4L Transfer Agent and Registrar, the "Transfer Agent and Registrar") to furnish you, as soon as practicable after the Commencement Date, with cards or lists or copies thereof showing the names of persons who were the holders of record of Old RGC Notes as of January 20, 1995 and, to the extent available to RSI, the beneficial holders of the Old RGC Notes as of the date or dates specified by you, together with their addresses and the principal amount of each issue of Old RGC Notes held by them. Additionally, the Registrants and RSI shall update such information from time to time during the term of this Agreement as reasonably requested by you and to the extent such information is reasonably available to the Registrants or RSI within the time constraints specified. Each of you shall act hereunder as an independent contractor and nothing contained herein or in such information shall make (x) any of you an agent of any of F4L, the Registrants, RSI or any of their respective affiliates or (y) any of F4L, the Registrants or any of their respective affiliates, an agent of any of you or any of your respective affiliates. Nothing contained in this Agreement shall constitute any Dealer Manager a partner of or joint venturer with F4L, any of the Registrants, RSI or any of their respective affiliates. (c) F4L, the Registrants and RSI agree that any reference to any of the Dealer Managers in any Offering Materials or in any press release or other document or communication is subject to such Dealer Manager's prior approval. If any Dealer Manager resigns or its engagement hereunder is terminated prior to the dissemination of the Offering Materials or any other release or communication, no reference shall be made therein to such Dealer Manager. In the event that applicable law requires a reference to any Dealer Manager, RSI, F4L and the Registrants agree to provide such Dealer Manager with prompt notice of such requirement to provide such Dealer Manager a reasonable opportunity to seek an appropriate protective order or other remedy. (d) The Registrants authorize the Dealer Managers to communicate with any information agent or depositary designated or retained by the Registrants with respect to the Exchange 7 Offers (respectively, the "Information Agent" and the "Depositary") regarding the Exchange Offers. (e) In full payment for services rendered and to be rendered hereunder by the Dealer Managers, the Registrants agree to pay the Dealer Managers' fees and to reimburse the Dealer Managers for expenses as follows: (i) At the Closing the Registrants shall pay to the Dealer Managers a fee equal to the sum of (x) 1.0% of the aggregate principal amount of Old Notes accepted for exchange in the Exchange Offers, (y) 0.5% of the aggregate principal amount of Old Notes in respect of which a consent is accepted pursuant to the Exchange Offers (other than any such Old Notes accepted for exchange in the Exchange Offers) and (z) 0.5% of the aggregate principal amount of Holdings Notes in respect of which a consent is accepted pursuant to the Holdings Consent Solicitation. (ii) The Registrants agree to reimburse the Dealer Managers promptly upon demand made from time to time for all reasonable out-of-pocket expenses (including all reasonable fees and expenses of your counsel, Cahill Gordon & Reindel) incurred in connection with their services as Dealer Managers for the Exchange Offers (it being understood that any amount previously paid by the Registrants to the Dealer Managers constituting reimbursement of the Dealer Managers for reasonable out-of-pocket expenses incurred in connection with their services as Dealer Managers for the Exchange Offers shall not be required to be paid again to the Dealer Managers pursuant to this Section 2(e)(ii)). If the Dealer Managers withdraw pursuant to Section 6 hereof or terminate this Agreement pursuant to Section 8 hereof, the Dealer Managers shall nevertheless be entitled to receive reimbursement of all expenses pursuant to this Section 2(e) which have accrued to the date of such withdrawal or termination, as the case may be. The Registrants shall perform their obligations to you set forth in this Section 2(e) and in Section 7 hereof whether or not the Exchange Offers are commenced or Food 4 Less acquires any Old Notes, or Food 4 Less or Holdings receives any consents, pursuant to the Exchange Offers. 3. Certain Covenants. Each of the Registrants covenants with you as follows: (a) Each of the Registrants will use its respective best efforts to cause each of the Registration Statements, if not effective at the time of execution of this 8 Agreement, and any amendments thereto, to become effective promptly. If, at the time that any Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the rules and regulations of the Commission under the Act, then immediately following the execution of this Agreement, the appropriate Registrants will prepare, and thereafter the appropriate Registrants will file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the rules and regulations of the Commission under the Act, copies of an amended Prospectus relating to such Registration Statement, or, if required by such Rule 430A, a post-effective amendment to such Registration Statement (including an amended Prospectus), containing all information so omitted. The Registrants will give each Dealer Manager notice of their intention to file or prepare any amendment to any Registration Statement (including any post-effective amendment) or any amendment or supplement to any Prospectus (including any revised prospectus which the Registrants propose for use by the Dealer Managers in connection with the Exchange Offers which differs from any prospectus on file at the Commission at the time the Registration Statement including such prospectus becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the rules any regulations of the Commission under the Act), will furnish the Dealer Managers with copies of such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which the Dealer Managers or counsel for the Dealer Managers shall reasonably object in writing or which is not in compliance with the Act or the rules and regulations of the Commission under the Act. The Registrants will advise the Dealer Managers, promptly after any of them receives notice thereof, of the time when any Registration Statement or any amendment thereto has been filed or declared effective or any Prospectus or any amendment or supplement thereto has been filed and will provide evidence satisfactory to the Dealer Managers of each such filing or effectiveness. (b) The Registrants will advise the Dealer Managers, promptly after receiving notice or obtaining knowledge thereof, of (i) the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or any amendment thereto or any order preventing or suspending the use of any Preliminary Prospectus or any Prospectus, or any amendment or supplement thereto, (ii) the suspension of the qualification of any of the New Notes or the Amended Notes for offering or sale in any jurisdiction, (iii) the institution, threatening or 9 contemplation of any proceeding for any such purpose or (iv) any request made by the Commission for amending any Registration Statement, for amending or supplementing any Prospectus or for additional information. Each of the Registrants will use its best efforts to prevent the issuance of any such stop order and, if any such stop order is issued, to use its best efforts to obtain the withdrawal thereof as promptly as possible. (c) If, during the Exchange Offers and for such period of time thereafter as the Offering Materials are required by law to be delivered in connection therewith, any event occurs as a result of which it shall, in the reasonable judgment of F4L, the Registrants or their counsel or the Dealer Managers or their counsel, be necessary to amend or supplement any Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or, if for any other reason it is necessary, in the reasonable judgment of any such person, at any time to amend or supplement any Prospectus to comply with the Act, the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder (the "Exchange Act") or any other law, rule or regulation, such person shall promptly inform F4L, the Registrants and the Dealer Managers, and the Registrants shall promptly prepare and furnish copies to you (subject to paragraph (a) of this Section 3) of such amendments or supplements to any such Prospectus, so that either (i) the statements in such Prospectus, as so amended or supplemented, will not, in light of the circumstances under which they were made, be misleading or (ii) such compliance is effected. (d) Each of the Registrants shall comply with the applicable provisions of the Act, the Exchange Act, and the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission promulgated thereunder (the "Trust Indenture Act"), in connection with the Offering Materials, the Exchange Offers and the transactions contemplated hereby and thereby; the Registrants will take on a timely basis all actions necessary or legally required in relation to the Exchange Offers and all other actions contemplated by this Agreement and by the Offering Materials; and (z) the Registrants will take all necessary corporate action to authorize any amendments to or modifications of the Exchange Offers. (e) The Registrants will notify you, not less than two hours prior thereto, of the time when they propose to commence the Exchange Offers or, after commencement, to extend the Exchange Offers and, immediately upon the 10 commencement of the Exchange Offers, the Registrants shall advise or cause the Information Agent or the Depositary to advise you upon your reasonable request from time to time during the period of, and promptly after the expiration of, the Exchange Offers, as to all names and addresses of the holders of the Old Notes which have been tendered for exchange, the aggregate principal amount of Old Notes tendered for exchange and the holders of Holdings Notes in respect of which a consent has been received, the aggregate principal amount of Old Notes tendered for exchange by each holder, and the aggregate principal amount of Holdings Notes in respect of which a consent has been received, during the immediately preceding day, indicating the aggregate principal amount of Old Notes or Holdings Notes, as the case may be, verified to be in proper form for tender or consent, as the case may be, rejected for tender or consent, as the case may be, and being processed; and will notify you promptly following expiration of the Exchange Offers on the Expiration Date (as defined in the Offering Materials), of (i) the aggregate principal amount of Old Notes so deposited, indicating the aggregate principal amount of Old Notes verified to be in proper form for tender or consent, as the case may be, rejected for tender or consent, as the case may be, and being processed and (ii) the aggregate principal amount of Holdings Notes in respect of which a consent has been verified to be in proper form, a consent has been rejected and which are being processed. The Registrants shall promptly give you notice of changes in Expiration Dates with respect to the Exchange Offers. Food 4 Less will not (x) accept Old Notes for exchange or (y) accept consents in respect of Old Notes, and Holdings will not accept consents in respect of Holdings Notes, unless the conditions to the obligations of the Dealer Managers set forth in Section 6 hereof have been satisfied. (f) The Registrants shall advise you promptly of (i) the occurrence of any event which might reasonably be expected to cause the Registrants to amend, withdraw or terminate the Exchange Offers, (ii) the occurrence of any event, or the discovery of any fact, the occurrence or existence of which would cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect, (iii) the issuance of any comment or order or the taking of any other action by the Commission or any other governmental or regulatory agency with respect to the Exchange Offers (and, if in writing, will promptly furnish you a copy thereof), (iv) the occurrence of any event which might reasonably be expected to cause the Registrants to amend or supplement any filing required by the Exchange Act, (v) the issuance or the threatened issuance of any order or the taking of 11 any other action by any administrative or judicial tribunal or governmental agency or instrumentality concerning the Exchange Offers (and, if in writing, will promptly furnish you a copy thereof) and (vi) any other information relating to the Exchange Offers which you may from time to time reasonably request. (g) The Registrants will, without charge, provide (i) to each Dealer Manager and to counsel for the Dealer Managers a signed copy of each registration statement originally filed with respect to New Notes and the Amended Notes and each amendment thereto (in each case including exhibits thereto) and (ii) so long as a prospectus relating to any of the New Notes or the Amended Notes is required to be delivered under the Act, as many copies of each Preliminary Prospectus or the Prospectus or any amendment or supplement thereto as the Dealer Managers may reasonably request. (h) Each of New Holdings and the Surviving Company will make generally available to its security holders as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the rules and regulations of the Commission under the Act) covering a twelve-month period beginning not later than the first day of the fiscal quarter of New Holdings or the Surviving Company, as the case may be, next following the "effective date" (as defined in Rule 158) of the Registration Statement. (i) The Registrants will cooperate with you and your counsel in connection with the registration or qualification of the New Notes and the Amended Notes for offering and sale pursuant to the Exchange Offers under the securities or "Blue Sky" laws of such jurisdictions as you may designate and the continuance of such qualifications in effect for as long as may be necessary to complete the Exchange Offers; provided, however, that in connection therewith none of the Registrants shall be required to (i) qualify to do business as a foreign corporation or as a broker-dealer, (ii) execute a general consent to service of process in any jurisdiction where it is not then so subject, (iii) take any action that would subject it to taxation that it would not otherwise be subject to or (iv) amend the terms of the New Notes or the Amended Notes. The Registrants shall promptly advise you of the receipt by any of them of any notification with respect to the suspension of the qualification or exemption from qualification of the New Notes or the Amended Notes for offering or sale in any jurisdiction or the institution, threatening or contemplation of any proceeding for such purpose. 12 (j) Prior to the Closing Date, each of Holdings (and, upon consummation of the Equity Merger, New Holdings) and Food 4 Less (and, upon consummation of the Mergers, the Surviving Company) will furnish to you, as soon as practicable after they have been prepared by or are available to Holdings (or New Holdings, as the case may be) or Food 4 Less (or the Surviving Company, as the case may be), as the case may be, a copy of any unaudited interim combined financial statements of Holdings (or New Holdings, as the case may be) and its subsidiaries or Food 4 Less (or the Surviving Company, as the case may be) and its subsidiaries, as the case may be, for any period subsequent to the period covered by the most recent financial statements of Holdings and its subsidiaries of Food 4 Less and its subsidiaries, as the case may be, appearing in the Offering Materials. (k) If, prior to the completion of the Exchange Offers, Holdings (or, upon consummation of the Equity Merger, New Holdings) or any of its subsidiaries commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba, or if the information reported in the Offering Materials, if any, concerning the business of Holdings (or New Holdings, as the case may be) or any of its subsidiaries with Cuba or with any person or affiliate located in Cuba changes in any material way, Holdings (or New Holdings, as the case may be) will provide the Florida Department of Banking and Finance notice of such business or change, as appropriate, in a form acceptable to such Department. (l) The Registrants will not commence the mailing of the Offering Materials unless the conditions set forth in Section 6 hereof with respect to the commencement of the Exchange Offers shall have been satisfied and complied with prior to or concurrently with the commencement of such mailing or shall have otherwise been waived in writing by the Dealer Managers. 4. Expenses. In addition to the obligation of the Registrants to reimburse the Dealer Managers for their reasonable out-of-pocket expenses as provided in Section 2(e) hereof, the Registrants, jointly and severally, agree to pay all costs and expenses incident to the performance of their obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 8 hereof, including, but not limited to, 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 registration statements originally filed with respect to the New Notes and the Amended Notes and any amendment thereto, any Preliminary Prospectus, any Prospectus 13 and any amendment or supplement thereto, the Indentures, this Agreement and all other agreements related to the Exchange Offers or the distribution of the New Notes and the Amended Notes and any Blue Sky or legal investment memoranda, (ii) all arrangements relating to the delivery to the Dealer Managers of copies of the foregoing documents, (iii) the fees and disbursements of counsel, accountants and any other experts or advisors retained by the Registrants, (iv) preparation, issuance and delivery to the Dealer Managers of any certificates evidencing the New Notes, (v) the qualification of the New Notes and the Amended Notes and determination of their eligibility for investment under state securities and Blue Sky laws, including filing fees and reasonable fees and disbursements of counsel for the Dealer Managers (including any local counsel retained to render any opinion required by any state securities or Blue Sky authorities) relating thereto, (vi) the fees and disbursements of the Trustees, the trustees under the Old Indentures and the Holdings Indenture and the Transfer Agent and Registrar and Information Agent, (vii) the filing fees of the Commission and the National Association of Securities Dealers, Inc. relating to the New Notes and the Amended Notes, (viii) any meetings with holders of Old Notes and Holdings Notes relating to the Exchange Offers, and (ix) any fees charged by investment rating agencies for the rating of the New Notes and the Amended Notes. 5. Representations and Warranties. (a) Each of the Registrants, jointly and severally, represents and warrants to and agrees with you that, as of the Commencement Date and the Closing Date: (i) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus. When any Preliminary Prospectus was filed with the Commission it (x) complied in all material respects with the requirements of the Act and (y) did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. When each Registration Statement or any amendment thereto was or is declared effective, it (x) complied or will comply in all material respects with the requirements of, the Act and the Trust Indenture Act and (y) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. When each Prospectus or any amendment or supplement thereto is filed with the Commission pursuant to Rule 424(b) (or, if any Prospectus or such amendment or supplement is not required to be so filed, when the Registration Statement or the amendment thereto containing such amendment or supplement to such 14 Prospectus was or is declared effective) and on the Closing Date (as hereinafter defined), each Prospectus, as amended or supplemented at any such time, (x) complied or will comply in all material respects with the requirements of the Act and (y) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing provisions of this paragraph (i) do not apply to statements or omissions made in any Preliminary Prospectus, any Registration Statement or any amendment thereto or any Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Registrants by the Dealer Managers specifically for use therein or to the Statements of Eligibility and Qualification ("Form T-1s") under the Trust Indenture Act of the respective Trustees filed as exhibits to the Registration Statements. (ii) Each of the Registrants 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 Offering Materials. Each of the Registrants has taken all necessary corporate action to authorize the Exchange Offers and the Issuers have taken all necessary corporate action to authorize the exchange of Old Notes pursuant to the Exchange Offers. (iii) The Offering Materials comply as to form in all material respects with all applicable provisions of the Act, the Exchange Act and the Trust Indenture Act, and with all applicable rules or regulations of any governmental or regulatory authority or body, including applicable "Blue Sky" or similar state securities laws or statutes; and no consent or approval of, or filing with, any governmental or regulatory authority or body will be required in connection with the commencement or consummation of the Exchange Offers other than those consents or approvals which will have been obtained or any filing which will have been made prior to the commencement or consummation, as the case may be, of the Exchange Offers. (iv) F4L and each of the Registrants has been duly incorporated and is 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 Offering Materials, and is duly qualified to do business as a foreign corporation in good standing in all other 15 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 F4L and the Registrants (or, after giving effect to the Equity Merger, the Mergers, and the other transactions contemplated by the Offering Materials, New Holdings, the Surviving Company and their subsidiaries) taken as a whole or (y) an adverse effect on the ability of F4L or any Registrant to perform any of its material obligations under any of the agreements, documents or instruments contemplated to be entered into by F4L or any Registrant (or, after giving affect to the Equity Merger and the Mergers, New Holdings or any of its subsidiaries) hereby or by the Offering Materials (collectively, the "Transaction Documents") to which it is a party either before or after giving effect to the Mergers and the other transactions contemplated by the Offering Materials (a "Material Adverse Effect"); each of F4L, Holdings and Food 4 Less has, and upon consummation of the Equity Merger and the Mergers, each of New Holdings and the Surviving Company will have (based upon the assumptions described and referred to in the first paragraph of each Prospectus under the caption, "Pro Forma Capitalization"), the authorized, issued and outstanding capitalization set forth in the Offering Materials; the only direct or indirect subsidiary of F4L is Holdings and the only direct or indirect subsidiary of Holdings is Food 4 Less; the only direct or indirect subsidiaries of Food 4 Less (or, after giving effect to the Equity Merger, the Mergers and the other transactions contemplated by the Offering Materials, the Surviving Company) are the Subsidiary Guarantors; except as aforesaid, none of F4L, Holdings, Food 4 Less or any of the Subsidiary Guarantors 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 Food 4 Less GM, Inc. has an interest in a joint venture with Certified; the outstanding shares of capital stock of each of F4L and each of the Registrants (and, upon consummation of the Equity Merger and the Merger and the other transactions contemplated by the Offering Materials, each of New Holdings, the Surviving Company and each of its subsidiaries) 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 Offering Materials, all of the outstanding shares of capital stock of each of the Subsidiary Guarantors are owned beneficially by Food 4 Less (and, upon consummation of the Mergers and the other 16 transactions contemplated by the Offering Materials, the Surviving Company) free and clear of all liens, encumbrances, security interests, mortgages, pledges, charges or claims. No holders of securities of F4L or any of the Registrants (or, upon consummation of the Equity Merger, the Mergers and the other transactions contemplated by the Offering Materials, New Holdings, the Surviving Company or any of its Subsidiaries) are entitled to have such securities registered under the Registration Statements. (v) The New Notes have been duly and validly authorized by Food 4 Less for issuance and when issued will conform in all material respects to the description thereof in the Offering Materials. The New Notes, when executed by the Surviving Company and authenticated by the applicable Trustee in accordance with the provisions of the applicable Indenture, and delivered to exchanging holders of Old Notes in accordance with the terms of the applicable Offering Materials, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Surviving Company entitled to the benefits of the applicable Indenture and enforceable against the Surviving Company in accordance with their terms, except that the enforcement thereof may be subject to (w) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (x) 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), (y) 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, and (z) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable. Each of the Issuers has all requisite corporate power and authority to execute, deliver and perform its obligations under the Indentures and the Guarantees. Upon consummation of the Mergers, the Surviving Company will have all requisite corporate power and authority to issue and deliver the New Notes and each Subsidiary Guarantor will have all requisite corporate power and authority to issue and deliver its Guarantees to exchanging holders of Old Notes as provided herein and in the Offering Materials. Each Indenture has been duly authorized by the Issuers and, when executed and delivered by the Issuers (assuming the due authorization, execution and delivery thereof by the applicable Trustee), will constitute a valid and legally binding agreement of each of the Issuers, enforceable against each of the Issuers in 17 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 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) The Guarantees have been duly authorized and, when executed and delivered, will, upon the execution, authentication and delivery of the New Notes and 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 enforcement thereof may be subject to (w) 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 the Guarantees of Section 548 of the Bankruptcy Code and comparable provisions of state law, (x) 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), (y) 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, and (z) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable. (vii) Each of the Consent Supplemental Indentures relating to the Old F4L Notes has been duly and validly authorized by the Issuers and each of the Consent Supplemental Indentures will conform in all material respects to the respective descriptions thereof in the 18 Offering Materials. Each of the Consent Supplemental Indentures relating to the Old F4L Notes, when executed and delivered by the Issuers (assuming the due authorization, execution and delivery thereof by the applicable trustee under the applicable Old Indenture and assuming that written consents from the holders of a majority of each issue of Old F4L Notes outstanding authorizing execution of such Consent Supplemental Indentures are valid and binding consents of such holders), will have been duly executed and delivered and will constitute valid and legally binding obligations of the Issuers (and, upon consummation of the Mergers, the Surviving Company and each Subsidiary Guarantor) enforceable against the Issuers (and, upon consummation of the Mergers, the Surviving Company and each Subsidiary Guarantor) 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 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. Upon consummation of the Mergers, each of the Consent Supplemental Indentures relating to the Old RGC Notes will constitute valid and legally binding obligations of the Surviving Company enforceable against the Surviving Company 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 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. (viii) The Holdings Supplemental Indenture has been duly and validly authorized by Holdings and will conform 19 in all material respects to the description thereof in the Offering Materials. The Holdings Supplemental Indenture, when executed and delivered by Holdings (assuming the due authorization, execution and delivery thereof by the trustee under the Holdings Indenture and assuming written consents from the holders of a majority of the outstanding Holdings Notes authorizing execution of the Holdings Supplemental Indenture are valid and binding consents of such holders), will have been duly executed and delivered and will constitute valid and legally binding obligations of Holdings (and, after giving effect to the Equity Merger, New Holdings) enforceable against Holdings (and after giving effect to the Equity Merger, New Holdings) in accordance with its terms, except that the enforcement thereof may be subject to (w) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (x) 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), (y) 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, and (z) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable. (ix) This Agreement has been duly authorized, executed and delivered by F4L and each of the Registrants and, assuming the due authorization, execution and delivery thereof by the Dealer Managers, constitutes the valid and legally binding obligation of F4L and the Registrants enforceable against F4L and the Registrants (and after giving effect to the Equity Merger and the Mergers, New Holdings, the Surviving Company and its subsidiaries) 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 there- for 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 20 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. Except as described in the Offering Materials, no consent, approval, authorization or order of any court or governmental agency or body is required for the performance of this Agreement, the New Notes, the Guarantees, the Indentures, the Consent Supplemental Indentures or any of the other Transaction Documents by F4L or any Registrant (or upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company or any Subsidiary Guarantor) (to the extent each such person is a party thereto) or the consummation by F4L or any Registrant (or upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company or any Subsidiary Guarantor) of any of the transactions contemplated hereby or thereby or by the Offering Materials, except such as have been obtained and such as may be required under securities or "Blue Sky" laws in connection with the Exchange Offers, the Equity Merger and the Mergers or any of such other transactions. None of F4L or any of the Registrants is (and upon consummation of the Equity Merger and the Mergers, none of New Holdings, the Surviving Company or any of the Subsidiary Guarantors will be) (i) in violation of its certificate of incorporation or bylaws, (ii) in violation of any statute, judgment, decree, order, rule or regulation applicable to F4L or any of the Registrants (or upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company or any of the Subsidiary Guarantors) 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 F4L or any of the Registrants (or upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company or any of the Subsidiary Guarantors) is subject, which default would have a Material Adverse Effect. The execution, delivery and performance by the Registrants (and upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company and the Subsidiary Guarantors) of this Agreement, the New Notes, the Guarantees, the Indentures, the Consent Supplemental Indentures and each of the other Transaction Documents (to the extent each such person is a party thereto), and the consummation by F4L and the Registrants (and upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company and the 21 Subsidiary Guarantors) of the transactions contemplated hereby, thereby and by the Offering Materials will not (after giving effect to all amendments and waivers obtained on or prior to the Closing Date which are described in the Offering Materials) conflict with or constitute or result in a breach or violation by F4L or any Registrant (or upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company or any Subsidiary Guarantor) of any of (x) the terms or provisions of, or constitute a default by F4L or any Registrant (or upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company or any Subsidiary Guarantor) 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 applicable to any such person or any of their respective properties, which conflict, breach, violation or default would have a Material Adverse Effect. (x) (x) Immediately after the consummation of the Mergers and the other transactions contemplated by the Offering Materials, the fair value and present fair saleable value of the assets of the Surviving Company and each Subsidiary Guarantor will exceed the sum of its stated liabilities and identified contingent liabilities; and (y) after giving effect to the execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated thereby and by the Offering Materials, none of the Issuers is, nor, upon consummation of the Mergers, will the Surviving Company or any Subsidiary Guarantor be, (a) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (b) unable to pay its debts (contingent or otherwise) as they mature or (c) insolvent. (xi) F4L and each of the Registrants have, and upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company and each of the Subsidiary Guarantors will have, all requisite corporate power and authority to execute, deliver and perform their respective obligations under each of the Transaction Documents (to the extent each is a party thereto). As of the Closing Date, each of the Transaction Documents will have been duly and validly authorized by F4L and each of the Registrants (to the extent each is a party thereto); and, 22 when executed and delivered by F4L and each of the Registrants (to the extent each is a party thereto), each such Transaction Document will constitute a valid and legally binding obligation of F4L and each of the Registrants (and will, upon consummation of the Equity Merger and the Mergers, constitute a valid and legally binding obligation of New Holdings, the Surviving Company and each of the Subsidiary Guarantors), to the extent each is a party thereto, enforceable against each such person in accordance with its terms except that the enforcement thereof may be subject to (w) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally, (x) 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), (y) 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, and (z) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable. (xii) The Equity Merger will have been duly authorized by Holdings and F4L and will have been duly approved by their respective stockholders; the Equity Merger will conform in all material respects to the description thereof in the Offering Materials. The Mergers have been duly authorized by Food 4 Less and have been duly approved by Food 4 Less' stockholders; the Merger Agreement conforms and the Mergers will conform in all material respects to the description thereof in the Offering Materials. All representations and warranties of F4L, Holdings and Food 4 Less set forth in the Merger Agreement were true and correct in all materials respects at the time as of which such representations and warranties were made and will be true and correct at and as of the Commencement Date and the Closing Date as if made at and as of such date (other than to the extent any such representation or warranty is expressly made as to only a certain date). (xiii) Except as disclosed in the Offering Materials, and except as would not individually or in the aggregate have a Material Adverse Effect (w) F4L and each of the Registrants is in compliance with all applicable Environmental Laws (as defined below), (x) F4L and each of the Registrants has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with their requirements, (y) there 23 are no pending, or to the best knowledge of F4L or any of the Registrants threatened, Environmental Claims (as defined below) against F4L or any of the Registrants and (z) F4L and each of the Registrants 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 F4L or any of the Registrants or any of their respective properties or operations and the business operations relating thereto. 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, policy or rule of common law 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. (xiv) The audited consolidated financial statements and schedules of Food 4 Less included in the Offering Materials present fairly the consolidated financial position, results of operations and cash flows of Food 4 Less 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 the unaudited consolidated financial statements of Food 4 Less and the related notes included in the Offering Materials, if any, present fairly the consolidated financial position, results of operations and cash flows of Food 4 Less 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 audited consolidated financial statements and schedules of Holdings included in the Offering Materials present fairly the consolidated financial position, results of operations and cash flows of Holdings 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 the unaudited 24 consolidated financial statements of Holdings and the related notes included in the Offering Materials, if any, present fairly the consolidated financial position, results of operations and cash flows of Holdings 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 audited consolidated financial statements and schedules of New Holdings included in the Offering Materials present fairly the consolidated financial position of New Holdings at the dates 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 the unaudited consolidated financial statements of New Holdings and the related notes included in the Offering Materials, if any, present fairly the consolidated financial position, results of operations and cash flows of New Holdings 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 Offering Materials have been prepared in accordance with applicable requirements of Regulation S-X promulgated under 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 Offering Materials are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. Arthur Andersen LLP, which has audited certain of such financial statements and schedules as set forth in their reports included in the Offering Materials, is an independent public accounting firm as required by the Act. The statistical and market-related data (including, without limitation, the estimated cost savings information) included in the Offering Materials are based on or derived from sources which F4L and the Registrants believe to be reliable and accurate. (xv) Except as described in the Offering Materials, there is not pending or, to the knowledge of F4L or any of the Registrants, threatened, any action, suit, proceeding, inquiry or investigation to which F4L or any Registrant, 25 or to which the property of F4L or any Registrant is subject, before or brought by any court or governmental agency or body, which would if adversely determined have a Material Adverse Effect. (xvi) F4L and each of the Registrants has (and upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company and each of its subsidiaries will have) (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 Indentures 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. F4L and each of the Registrants operates (and upon consummation of the Equity Merger and the Mergers, New Holdings, the Surviving Company and each of its subsidiaries will operate) all material real and personal property leased by it under valid and enforceable leases and has, and upon consummation of the Equity Merger and the Mergers, shall have, 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 F4L or any Registrant 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 of F4L and the Registrants 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 F4L and the Registrants taken as a whole. (xvii) F4L and the Registrants 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 Offering Materials will not alter or impair any such rights. To the best knowledge of F4L and the Registrants, no claims have been asserted by any person to the use of any such 26 Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement related thereto. To the best knowledge of F4L and the Registrants, there is no valid basis for any such claim and the use of such Intellectual Property by F4L and the Registrants does not infringe on the rights of any person. F4L and each Registrant has obtained all licenses, permits, franchises and other governmental authorizations, the lack of which would have a Material Adverse Effect. (xviii) Subsequent to the respective dates as of which information is given in the Offering Materials and except as described therein or contemplated thereby, (x) neither F4L or any of the Registrants 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) neither F4L or any of the Registrants 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. (xix) All taxes, assessments, fees and other charges (including, without limitation, withholding taxes, penalties, and interest) due or claimed to be due from F4L or any of the Registrants 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. F4L and the Registrants know of no actual or proposed additional tax assessments for any fiscal period against F4L or any of the Registrants that, singly or in the aggregate, is reasonably likely to have a Material Adverse Effect. (xx) None of F4L or the Registrants, 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 New Notes 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. (xxi) None of F4L, nor any of the Registrants is now, nor after giving effect to the Equity Merger and the Mergers and the other transactions contemplated by the Offering Materials will New Holdings, the Surviving Company or any Subsidiary Guarantor be, an "investment company" or a company "controlled by" an "investment 27 company" within the meaning of the Investment Company Act of 1940, as amended. (xxii) Except as described in the Offering Materials, there are no consensual encumbrances or restrictions on the ability of any subsidiary of F4L (or after giving effect to the Equity Merger, the Mergers and the other transactions contemplated by the Offering Materials, New Holdings) (x) to pay dividends or make any other distributions on such subsidiary's capital stock or to pay any indebtedness owed to F4L (or after giving effect to the Equity Merger, the Mergers and the other transactions contemplated by the Offering Materials, New Holdings) or any other subsidiary of F4L (or after giving effect to the Equity Merger, the Mergers and the other transactions contemplated by the Offering Materials, New Holdings), (y) to make any loans or advances to, or investments in, F4L (or after giving effect to the Equity Merger, the Mergers and the other transactions contemplated by the Offering Materials, New Holdings) or any other subsidiary of F4L (or after giving effect to the Equity Merger, the Mergers and the other transactions contemplated by the Offering Materials, New Holdings) or (z) to transfer any of its property or assets to F4L (or after giving effect to the Equity Merger, the Mergers and the other transactions contemplated by the Offering Materials, New Holdings or any other subsidiary of F4L (or after giving effect to the Equity Merger and the Mergers and the other transactions contemplated by the Offering Materials, New Holdings). (xxiii) Except as stated in the Offering Materials, none of F4L or any of the Registrants know 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. (xxiv) F4L and each of its subsidiaries is in compliance with all provisions of Section 517.075 of Florida Statutes 1987, as amended. (xxv) Neither F4L nor any of its subsidiaries nor, to the best of their knowledge, any of their 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, stabilization or manipulation of the price of any security of F4L or RSI or any of their respective subsidiaries to facilitate the Exchange Offers. (b) F4L and each of the Registrants, jointly and severally, represents and warrants to and agrees with you that, 28 as of the Closing Date, F4L and the Registrants have delivered to the Dealer Managers a true and correct copy of each of the Transaction Documents, together with all related agreements and all schedules and exhibits thereto, and there have been no material amendments, alterations, modifications or waivers of any of the provisions of any of the Transaction Documents since its date of execution, other than any such amendments, alterations, modifications and waivers as to which the Dealer Managers have been advised in writing and which would not be required to be disclosed in the Offering Materials; each of the Transaction Documents conforms in all material respects to the description thereof in the Offering Materials; and there exists as of the Closing Date (after giving effect to the transactions contemplated by each of the Transaction Documents and the Offering Materials) no event or condition which would constitute a default or an event of default (in each case as defined in each of the Transaction Documents) under any of the Transaction Documents which would result in a Material Adverse Effect or materially adversely affect the ability of F4L, the Registrants or to the best knowledge of F4L and the Registrants, RSI or RGC to consummate the transactions contemplated by the Transaction Documents and the Offering Materials. (c) RSI represents and warrants to and agrees with you that, as of the Commencement Date and the Closing Date: (i) RSI has all the necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and RSI and its subsidiaries have all necessary corporate power and authority to consummate the transactions contemplated hereby and by the Offering Materials. (ii) RSI and each of its subsidiaries has been duly incorporated and is 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 Offering Materials, and 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 RSI and its subsidiaries (or, after giving effect to the Mergers, the Surviving Company and its subsidiaries) taken as a whole or (y) an adverse effect on the ability of RSI or any of its subsidiaries to perform any of its material obligations under any of the Transaction Documents to which it is a party either before 29 or after giving effect to the Mergers and the other transactions contemplated by the Offering Materials (a "Ralphs Material Adverse Effect"); RSI has the authorized, issued and outstanding capitalization set forth in the Offering Materials; [the only direct or indirect subsidiaries of RSI are RGC and Crawford Stores, Inc.]; except as aforesaid, neither RSI nor any of its subsidiaries owns, directly or indirectly, any of the capital stock or other equity securities of any other person; the outstanding shares of capital stock of each of RSI and each of its subsidiaries 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 RSI or any of its subsidiaries; and except as described in the Offering Materials, all of the outstanding shares of capital stock of [each of RGC and Crawford Stores, Inc.] are owned beneficially by RSI free and clear of all liens, encumbrances, security interests, mortgages, pledges, charges or claims. No holders of securities of RSI or any of its subsidiaries are entitled to have such securities registered under the Registration Statements. (iii) Except as described in the Offering Materials, no consent, approval, authorization or order of any court or governmental agency or body is required for the performance of this Agreement or any of the other Transaction Documents by RSI or any of its subsidiaries (to the extent each such person is a party thereto) or the consummation by RSI or any of its subsidiaries of the transactions contemplated thereby or by the Offering Materials, except such as have been obtained and such as may be required under securities or "Blue Sky" laws in connection with the Exchange Offers, the Mergers or any of such transactions. Neither RSI nor any of its subsidiaries is (x) in violation of its certificate of incorporation or bylaws, (y) in violation of any statute, judgment, decree, order, rule or regulation applicable to RSI or any of its subsidiaries which violation would have a Ralphs 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 RSI or any of its subsidiaries is subject, which default would have a Ralphs Material Adverse Effect. The execution, delivery and performance by RSI and its subsidiaries of this Agreement and each of the other Transaction Documents (to the extent each such person is a party thereto), and the consummation by RSI and its subsidiaries of the transactions contemplated hereby, 30 thereby and by the Offering Materials will not (after giving effect to all amendments or waivers obtained on or prior to the Closing Date which are described in the Offering Materials) conflict with or constitute or result in a breach or violation by RSI or any of its subsidiaries of any of (x) the terms or provisions of, or constitute a default by RSI or any of its subsidiaries 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 Ralphs 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 applicable to any such person or any of their respective properties, which conflict, breach, violation or default would have a Ralphs Material Adverse Effect. (iv) Each of the Consent Supplemental Indentures relating to the Old RGC Notes has been duly and validly authorized by RGC. Each of the Consent Supplemental Indentures relating to the Old RGC Notes, when executed and delivered by RGC (assuming the due authorization, execution and delivery thereof by the applicable trustee under the applicable Old Indenture and assuming that written consents from the holders of a majority of each issue of Old RGC Notes outstanding authorizing execution of such Consent Supplemental Indentures are valid and binding consents of such holders), will have been duly executed and delivered and will constitute valid and legally binding obligations of RGC (and, upon consummation of the Mergers, the Surviving Company) enforceable against RGC (and, upon consummation of the Mergers, the Surviving Company) 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 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. 31 (v) RSI and its subsidiaries have all requisite corporate power and authority to execute, deliver and perform their respective obligations under each of the Transaction Documents (to the extent each is a party thereto). As of the Closing Date, each of the Transaction Documents will have been duly and validly authorized by RSI and its subsidiaries (to the extent each is a party thereto); and, when executed and delivered by RSI and its subsidiaries (to the extent each is a party thereto), each such Transaction Document will constitute a valid and legally binding obligation of RSI and its subsidiaries, to the extent each is a party thereto, enforceable against each such person in accordance with its terms except that the enforcement thereof may be subject to (w) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally, (x) 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), (y) 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, and (z) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable. (vi) The Mergers have been duly authorized by RSI and RGC and have been duly approved by their respective stockholders. All representations and warranties of RSI set forth in the Merger Agreement were true and correct in all materials respects at the time as of which such representations and warranties were made and will be true and correct at and as of the Commencement Date and the Closing Date as if made at and as of such date (other than to the extent any such representation or warranty is expressly made as to only a certain date). (vii) Except as disclosed in the Offering Materials, and except as would not individually or in the aggregate have a Ralphs Material Adverse Effect (w) RSI and each of its subsidiaries is in compliance with all applicable Environmental Laws, (x) RSI and each of its subsidiaries 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 RSI threatened, Environmental Claims against RSI or any of its subsidiaries and (z) RSI and each of its subsidiaries does not have knowledge of any circumstances with respect to any of their respective properties or operations that 32 could reasonably be anticipated to form the basis of an Environmental Claim against RSI or any of its subsidiaries or any of their respective properties or operations and the business operations relating thereto. (viii) The audited consolidated financial statements and schedules of RSI (as successor to RGC) and RGC included in the Offering Materials present fairly the consolidated financial position, results of operations and cash flows of RSI (as successor to RGC) and RGC, respectively, 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 the unaudited consolidated financial statements of RSI (as successor to RGC) and the related notes included in the Offering Materials, if any, present fairly the consolidated financial position, results of operations and cash flows of RSI (as successor to RGC) 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 Offering Materials have been prepared in accordance with applicable requirements of Regulation S-X promulgated under 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 Offering Materials are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. KPMG Peat Marwick, which has examined certain of such financial statements and schedules as set forth in their reports included in the Offering Materials, are independent public accounting firms as required by the Act. The statistical and market-related data (including, without limitation, the estimated cost savings information) included in the Offering Materials are based on or derived from sources which RSI believes to be reliable and accurate. (ix) Except as described in the Offering Materials, there is not pending or, to the knowledge of RSI, threatened, any action, suit, proceeding, inquiry or investigation to which RSI or any of its subsidiaries, or to which the property of RSI or any of its subsidiaries is subject, before or brought by any court or governmental agency or body, which would if adversely determined have a Ralphs Material Adverse Effect. 33 (x) RSI and each of its subsidiaries (a) has 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 Indentures and (b) enjoys peaceful and undisturbed possession under all leases to which it is a party as lessee or sublessee, except for defects in title or lack of possession that, in the aggregate, could not reasonably be expected to have a Ralphs Material Adverse Effect. RSI and each of its subsidiaries 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 Ralphs Material Adverse Effect. As to leases with respect to which RSI or any of its subsidiaries 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 Ralphs Material Adverse Effect. All tangible assets and properties of RSI and its subsidiaries 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 RSI and its subsidiaries taken as a whole. (xi) RSI and its subsidiaries 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 Offering Materials will not alter or impair any such rights. To the best of RSI's knowledge, 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. To the best of RSI's knowledge, there is no valid basis for any such claim and the use of such Intellectual Property by RSI and its subsidiaries does not infringe on the rights of any person. RSI and each of its subsidiaries has obtained all licenses, permits, franchises and other governmental authorizations, the lack of which would have a Ralphs Material Adverse Effect. 34 (xii) Subsequent to the respective dates as of which information is given in the Offering Materials and except as described therein or contemplated thereby, (x) none of RSI or any of its subsidiaries 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 RSI or any of its subsidiaries 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. (xiii) All taxes, assessments, fees and other charges (including, without limitation, withholding taxes, penalties, and interest) due or claimed to be due from RSI or any of its subsidiaries 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 Ralphs Material Adverse Effect. RSI knows of no actual or proposed additional tax assessments for any fiscal period against RSI or any of its subsidiaries that, singly or in the aggregate, is reasonably likely to have a Ralphs Material Adverse Effect. (xiv) Neither RSI nor any of its subsidiaries is an "investment company" or a company "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xv) Except as described in the Offering Materials, there are no consensual encumbrances or restrictions on the ability of any subsidiary of RSI (x) to pay dividends or make any other distributions on such subsidiary's capital stock or to pay any indebtedness owed to RSI or any other subsidiary of RSI, (y) to make any loans or advances to, or investments in, RSI or any other subsidiary of RSI or (z) to transfer any of its property or assets to RSI or any other subsidiary of RSI. (xvi) Except as stated in the Offering Materials, RSI does not know 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. (xvii) RSI and each of its subsidiaries is in compliance with all provisions of Section 517.075 of Florida Statutes 1987, as amended. 35 (xviii) Neither RSI nor any of its subsidiaries nor, to the best of their knowledge, any of their 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, stabilization or manipulation of the price of any security of RSI or F4L or any of their respective subsidiaries to facilitate the Exchange Offers. The representations and warranties set forth in this Section 5 shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Indemnified Party referred to in Section 7, (ii) any termination of this Agreement or (iii) any withdrawal by you pursuant to Section 8 or otherwise. 6. Conditions of Dealer Managers' Obligations. Your obligations to act and to continue to act (as the case may be) as Dealer Managers shall be subject, in your sole discretion, to the accuracy of the representations and warranties contained herein as of the Commencement Date and as of the Closing Date as if made on and as of such date (except as expressly provided therein), to the accuracy of the statements of the officers of F4L made pursuant to the provisions hereof, to the performance by F4L, the Registrants and RSI of their covenants and agreements hereunder and to the following additional conditions unless waived in writing by the Dealer Managers: (a) If any Registration Statement originally filed with respect to the New Notes or the Amended Notes or any amendment thereto filed prior to the Closing Date has not been declared effective as of the time of execution hereof, such Registration Statement or such amendment shall have been declared effective not later than 12:00 noon, New York City time, on the date on which the amendment to the Registration Statement originally filed with respect to such New Notes or the Amended Notes, as the case may be, or to such Registration Statement, as the case may be, containing information regarding the initial public offering price of such New Notes has been filed with the Commission, or such later time and date as shall have been consented to by the Dealer Managers; if required, each Prospectus and any amendment or supplement thereto shall have been filed in accordance with Rule 424(b) under the Act; no stop order suspending the effectiveness of any Registration Statement or any amendment thereto or the qualification of any Indenture or any Old Indenture under the Trust Indenture Act shall have been issued and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Registrants or the Dealer Managers, shall be contemplated 36 by the Commission; and the Dealer Managers shall have received a certificate dated the Closing Date and signed by the Chairman, Vice Chairman, President, a Senior Vice President or a Vice President of Holdings (who may rely upon the best of his information and belief), to that effect. (b) There shall not have been any legal action or other administrative proceeding instituted or threatened against any of F4L, RSI or any of their respective subsidiaries or against you relating to Exchange Offers or the Dealer Managers' activities in connection therewith, the Mergers or any of the other transactions contemplated by the Transaction Documents or the Offering Materials. (c) The proceedings taken at or prior to the Closing Date in connection with the Exchange Offers and the other transactions contemplated by the Transaction Documents and the Offering Materials shall be in form and substance reasonably satisfactory to you and your counsel, and such counsel shall have been furnished with all such documents, certificates and opinions as they may reasonably request in order to evidence the accuracy and completeness in all material respects of any of the representations or warranties of F4L, the Registrants or RSI, the performance in all material respects of any covenants of the Issuers theretofore to be performed, or the compliance with any of the conditions herein contained. (d) On the Commencement Date, you shall have received, dated as of such date, (i) the opinion of Latham & Watkins, special counsel for F4L and the Registrants, substantially in the form of Exhibit A hereto, (ii) the opinion of Irwin, Clutter & Severson, special Kansas counsel to F4L and the Registrants, substantially in the form of Exhibit B hereto and (iii) the opinion of Wilkie, Farr & Gallagher, special counsel to RSI and RGC, substantially in the form of Exhibit C hereto. (e) On the Closing Date, you shall have received, dated as of such date, (i) the opinion of Latham & Watkins, special counsel for F4L and the Registrants, substantially in the form of Exhibit D hereto, (ii) the opinion of Irwin, Clutter & Severson, special Kansas counsel to F4L and the Registrants, substantially in the form of Exhibit E hereto and (iii) the opinion of Wilkie, Farr & Gallagher, special counsel to RSI and RGC, substantially in the form of Exhibit F hereto. (f) On the Closing Date, you shall have received an opinion, dated as of such date, of Cahill Gordon & Reindel, counsel for the Dealer Managers, with respect to the sufficiency of certain corporate proceedings and other 37 legal matters relating to this Agreement, and such other related matters as the Dealer Managers 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. (g) On the Commencement Date and the Closing Date, you shall have received from Arthur Andersen LLP, independent public accountants for F4L and the Registrants, letters dated, respectively, the Commencement Date and the Closing Date, in form and substance reasonably satisfactory to the Dealer Managers and Cahill Gordon & Reindel, counsel for the Dealer Managers. (h) On the Commencement Date and the Closing Date, you shall have received from KPMG Peat Marwick, independent public accountants for RSI and RGC, letters dated, respectively, the Commencement Date and the Closing Date, in form and substance reasonably satisfactory to the Dealer Managers and Cahill Gordon & Reindel, counsel for the Dealer Managers. (i) On the Closing Date, the Dealer Managers shall have received copies of all certificates, documents and opinions delivered under the Transaction Documents in connection with the Mergers and the Financing (as defined in the Offering Materials), together with letters addressed to the Dealer Managers, in form and substance satisfactory to the Dealer Managers, stating that the Dealer Managers may rely on such certificates and opinions as if they had been addressed to the Dealer Managers. (j) Subsequent to the respective dates of the most recent financial statements of Holdings, Food 4 Less and RSI contained in the Offering Materials, there shall have been no material adverse change in the business, condition (financial or other) or results of operations of either (i) F4L and its subsidiaries taken as a whole or (ii) RSI and its subsidiaries taken as a whole (each, a "Material Adverse Change") or any development involving a prospective Material Adverse Change, except as set forth in, or contemplated by, the Offering Materials. (k) None of the Exchange Offers, the issuance of New Notes, the Mergers or any of the other transactions contemplated by any of the Transaction Documents or the Offering Materials shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued or any action, suit or 38 proceeding shall have been commenced with respect to the Exchange Offers, this Agreement, the Mergers or any of the other transactions contemplated by the Offering Materials, before any court or governmental authority. (l) On the Commencement Date and the Closing Date, the Dealer Managers shall have received a certificate, dated such date, of the Vice Chairman, President or any Vice President and the Chief or Principal Financial Officer of F4L to the effect that: (i) The representations and warranties of F4L and the Registrants in this Agreement are true and correct in all material respects as if made on and as of such date, and F4L and the Registrants have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied at or prior to such date (and, in the case of the certificate to be delivered on te Closing Date, after giving effect to the Exchange Offers, and the other transactions contemplated thereby, by the Transaction Documents and by the Offering Materials); (ii) No stop order suspending the effectiveness of any Registration Statement or any amendment thereto or the qualification of any Indenture or any Old Indenture under the Trust Indenture Act has been issued, and no proceedings for those purposes have been instituted or threatened or, to the best of each Registrant's knowledge, as the case may be, are contemplated by the Commission; (iii) Subsequent to the date as of which information is given in the Offering Materials, there has not been any material adverse change, or any developments involving a prospective material adverse change, in the business, condition (financial or other) or results of operations of F4L and its subsidiaries (or after giving effect to the Equity Merger and the Mergers, New Holdings, the Surviving Company and their subsidiaries) taken as a whole; and (iv) Neither the Exchange Offers, the issuance of the New Notes by Food 4 Less hereunder, the issuance of the Guarantees by the Subsidiary Guarantors nor any of the other transactions contemplated hereby, by the Transaction Documents or by the Offering Materials has been enjoined (temporarily or permanently). (m) On the Commencement Date and the Closing Date, the Dealer Managers shall have received a certificate, dated such date, of the Vice Chairman, President or any 39 Vice President and the Chief or Principal Financial Officer of RSI to the effect that: (i) The representations and warranties of RSI in this Agreement are true and correct in all material respects as if made on and as of such date, and RSI and its subsidiaries have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied at or prior to such date (and, in the case of the certificate to be delivered on the Closing Date, after giving effect to the Exchange Offers, and the other transactions contemplated hereby, by the Transaction Documents and by the Offering Materials); and (ii) Subsequent to the date as of which information is given in the Offering Materials, there has not been any material adverse change, or any developments involving a prospective material adverse change, in the business, condition (financial or other) or results of operations of RSI and its subsidiaries taken as a whole. (n) On or before the Closing Date, the Registrants and RGC and the applicable trustees under the Old Indentures shall have executed and delivered the appropriate Consent Supplemental Indentures, each of which shall be reasonably satisfactory in form and substance to the Dealer Managers and Cahill Gordon & Reindel, counsel for the Dealer Managers, and each such Agreement shall be in full force and effect. (o) On or before the Closing Date, Holdings and the trustee under the Holdings Indenture shall have executed and delivered the Holdings Supplemental Indenture, which shall be reasonably satisfactory in form and substance to the Dealer Managers and Cahill Gordon & Reindel, counsel to the Dealer Managers, and such Agreement shall be in full force and effect. (p) On the Closing Date, the Dealer Managers shall have received a certificate, dated such date, of the Vice Chairman, President or any Vice President and the Chief or Principal Financial Officer of F4L to the effect that: (i) There have been no material amendments, alterations, modifications, or waivers of any provisions of any of the Transaction Documents since the date of the execution and delivery thereof by the parties thereto; and 40 (ii) F4L and the Registrants, to the extent each is a party thereto, have complied in all material respects with all agreements and covenants in the Transaction Documents and performed in all material respects all conditions specified therein contemplated by the Offering Materials to be complied with or performed by them at or prior to the Closing. (q) On the Closing Date, the Dealer Managers shall have received a certificate, dated such date, of the Vice Chairman, President or any Vice President and the Chief or Principal Financial Officer of RSI to the effect that RSI and its subsidiaries, to the extent each is a party thereto, have complied in all material respects with all agreements and covenants in the Transaction Documents and performed in all material respects all conditions specified therein contemplated by the Offering Materials to be complied with or performed by them at or prior to the Closing. (r) On the Closing Date, the Dealer Managers shall have received (i) a letter, dated the Closing Date, from Houlihan, Lokey, Howard & Zukin, Inc. with respect to the solvency of the Surviving Company and its subsidiaries in form, scope and substance reasonably satisfactory to the Dealer Managers and (ii) an environmental audit report from [ ] in form, scope and substance reasonably satisfactory to the Dealer Managers. (s) On the Closing Date, F4L, the Registrants, RSI and RGC shall have, to the extent each is a party thereto, complied in all material respects with all agreements and covenants in the Transaction Documents and performed all conditions specified therein (other than agreements or covenants which have been waived but only if such waivers are not required to be set forth in the Offering Materials) to be complied with or performed at or prior to the Closing, and each of the Transaction Documents shall be in full force and effect. (t) The Equity Merger shall have been consummated on the terms and conditions set forth in the Offering Materials. (u) On the Closing Date: (1) the Certificates of Merger with respect to the Mergers shall be any form and substance satisfactory to the Dealer Managers and Cahill Gordon & Reindel, counsel for the Dealer Managers, shall have been pre-cleared for filing with the Secretary of State of the State of Delaware and shall be ready in all respects for filing immediately upon 41 consummation of the Exchange Offers and the other transactions contemplated by the Offering Materials to be consummated prior to the Mergers; (2) the New Credit Facility (as defined in the Offering Materials) with aggregate commitments thereunder of not less than $1,075,000,000 shall be in full force and effect, no event shall have occurred and no event shall have failed to occur, which would relieve the lenders under the New Credit Facility (the "Lenders") of their obligation to advance funds, or preclude them from advancing funds to Food 4 Less thereunder, and concurrently with the Closing the Lenders shall have advanced funds under the New Credit Facility in an amount at least equal to $750,000,000 under the term loan facilities and such additional amounts under the revolving credit facility as are necessary to fund the Mergers and related transactions; (3) The New Notes and Guarantees to be issued to exchanging holders of Old Notes shall have been executed by the applicable Issuers and delivered to the applicable Trustee pursuant to the applicable Indenture, and each Trustee shall have authenticated such securities in accordance with the applicable Indenture; (4) New Holdings shall have received at least $150,000,000 in cash from institutional investors as consideration for the issuance and sale by New Holdings of shares of capital stock of New Holdings on the terms and conditions described in the Offering Materials; New Holdings shall have purchased at least 48% of the outstanding common stock of RSI with the proceeds of such issuance and $100,000,000 aggregate principal amount of its 13% Senior Subordinated Pay In Kind Debentures due 2006, all as described in the Offering Materials. New Holdings shall have contributed such common stock of RSI to the capital of Food 4 Less; New Holdings and Food 4 Less shall have the issued, authorized and outstanding capitalization set forth in the Offering Materials; (5) Simultaneously with the Closing, the Issuers shall have consummated the issuance and sale of $400,000,000 aggregate principal amount of New Senior Notes pursuant to the Public Offering (as defined in the Offering Materials) for gross proceeds of not less than $400,000,000 on terms and conditions satisfactory in form and substance to the Dealer Managers, and Cahill Gordon & Reindel, counsel to the Dealer Managers; and 42 (6) All conditions to the consummation of the Exchange Offers set forth in the Offering Materials shall have been satisfied without waiver and all other transactions contemplated by the Offering Materials to be consummated at or prior to the consummation of the Mergers shall have been consummated. (v) Simultaneously with the Closing, (x) the closing contemplated by the Merger Agreement, including without limitation the Mergers, shall have been consummated in accordance with the terms of the Merger Agreement and (y) immediately following consummation of the Merger, the Subsequent Merger shall have been consummated in accordance with the terms described in the Offering Materials. On or before the Commencement Date and the Closing Date, the Dealer Managers and counsel for the Dealer Managers shall have received such further documents, opinions, certificates and schedules or instruments relating to the business, corporate, legal and financial affairs of F4L and the Registrants and RSI and its subsidiaries as they shall have heretofore reasonably requested. 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 Dealer Managers and counsel for the Dealer Managers. F4L, the Registrants and RSI shall furnish to the Dealer Managers such conformed copies of such opinions, certificates, letters, schedules, documents and instruments in such quantities as the Dealer Managers shall reasonably request. In the event that any of the foregoing conditions is not met when required to be met, then you shall be entitled to withdraw as Dealer Manager in connection with the Exchange Offers without any liability or penalty to you or any other "indemnified party" (as defined in Section 7) and without loss of any right to the payment of all expenses payable hereunder. 7. Indemnification. F4L and the Registrants, jointly and severally, agree to indemnify and hold harmless each Dealer Manager and its respective affiliates, the directors, officers, agents, representatives and employees of such Dealer Manager or its affiliates and each other person, if any, controlling such Dealer Manager and its affiliates (each an "indemnified party") from and against any and all losses, actions, claims, damages or liabilities, and will reimburse any indemnified party for all costs and expenses (including counsel fees) as they are incurred by such indemnified party in connection with investigating, preparing to defend or defending 43 any such action or claim caused by or arising out of, or in connection with, the Exchange Offers (whether or not consummated), including, but not limited to, actions, claims, liabilities or expenses arising out of or based upon any breach of any agreement or representation of F4L, the Registrants or RSI contained in this Agreement, the structuring and development of the Exchange Offers, an untrue statement or alleged untrue statement of a material fact in any of the Offering Materials or an omission or an alleged omission to state a material fact in any of the Offering Materials necessary to make the statements therein not misleading, or the transmittal of the Offering Materials to holders of Old Notes or Holdings Notes, or which arise out of or are based upon any failure by Food 4 Less or Holdings to accept Old Notes or consents properly tendered pursuant to the Exchange Offers; provided, however, that neither F4L nor any of the Registrants will be liable to any indemnified party to the extent that any claims, liabilities, losses, damages, costs or expenses are finally judicially determined by a court of competent jurisdiction to have resulted primarily from the gross negligence or willful misconduct of such indemnified party. Neither F4L nor any Registrant will, without the prior written consent of the Dealer Managers, 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 may be sought by an indemnified party hereunder (whether or not any indemnified party is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the indemnified parties from all liability arising out of such claim, action, suit or proceeding. Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against F4L and the Registrants under this Section 7, notify F4L and the Registrants of the commencement thereof; but the omission so to notify F4L and the Registrants will not relieve F4L and the Registrants from any liability which they may have to any indemnified party otherwise than under this Section 7. In case any such action is brought against any indemnified party, and it notifies F4L and the Registrants of the commencement thereof, F4L and the Registrants will be entitled to participate therein and, to the extent that they may wish 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 any 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 44 those available to any such indemnifying party, then the indemnifying parties 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 parties 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 parties will not be liable to such indemnified party under this Section 7 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 parties 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 jurisdiction arising out of the same general allegations or circumstances, designated by the Dealer Managers, representing the indemnified parties, who are parties to such action or actions) or (ii) the indemnifying parties have authorized the employment of counsel for the indemnified party at the expense of the indemnifying parties. After such notice from the indemnifying parties to such indemnified party, the indemnifying parties 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 parties, unless such indemnified party waived its rights under this Section 7, in which case the indemnified party may effect such a settlement without such consent. In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 7 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 Exchange Offers 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 such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by F4L and the Registrants on the one hand 45 and the indemnified parties on the other shall be deemed to be in the same proportion as (i) the aggregate principal amount of Old Notes and Holdings Notes solicited for exchange or consent pursuant to the Exchange Offers bears to (ii) the fees paid or proposed to be paid by F4L and the Registrants to such indemnified party under this Agreement. The indemnity, reimbursement and contribution obligations of F4L and the Registrants under this Agreement shall be in addition to any rights that a Dealer Manager or any other indemnified party may have at common law or otherwise. F4L, the Registrants and the Dealer Managers agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if F4L and the Registrants on the one hand and the indemnified parties 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. Notwithstanding any other provision of this paragraph, the indemnified parties shall not be obligated to make contributions hereunder that in the aggregate exceed the total fees received by the Dealer Managers under this Agreement, less the aggregate amount of any damages that the indemnified parties have otherwise been required to pay for which indemnification is provided for hereunder. For purposes of this paragraph, each person, if any, who controls either of the Dealer Managers 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 Dealer Managers. 8. Termination. (a) This Agreement may be terminated (i) by the Dealer Managers at any time upon notice to F4L and the Registrants if (A) F4L or any of the Registrants shall mail or otherwise distribute or propose to mail or otherwise distribute any supplement to any Offering Materials to which the Dealer Managers shall reasonably object or which shall be reasonably disapproved by its counsel, (B) at any time prior to the Closing, the Exchange Offers are terminated or withdrawn for any reason (other than failure of the Dealer Managers to perform their obligations hereunder) or any restraining order or other injunctive order shall have been issued or any action, suit or proceeding shall have been commenced with respect to the Exchange Offers, this Agreement, the Mergers or any of the other transactions contemplated by the Offering Materials, before any court or governmental authority which makes it inadvisable for the Dealer Managers, in their discretion, to continue to act as Dealer Managers hereunder or (C) there is a good faith disagreement between the Dealer Managers, F4L or any of the Registrants with respect to a material term or condition of the Exchange Offers or the Offering Materials, or (ii) by F4L and the Registrants upon notice to the Dealer Managers, if there is a good faith disagreement between the Dealer Managers and F4L and the 46 Registrants with respect to a material term or condition of the Exchange Offers or the Offering Materials. (b) Termination of this Agreement pursuant to this Section 8 shall be without liability of any party to any other party except as provided in Section 11 hereof. 9. Notices. Notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be mailed or delivered (a) to F4L and the Registrants: c/o Food 4 Less, Inc. 777 South Harbor Boulevard La Habra, California 90631 Attention: Mark A. Resnik, Esq. with a copy to: Latham & Watkins 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Attention: Pamela Kelly, Esq. or (b) to the Dealer Managers: c/o BT Securities Corporation One Bankers Trust Plaza New York, New York 10005 Attention: Lori Finkel with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Attention: William M. Hartnett, Esq. Any notice given hereunder may be made by telecopier or telephone, but if so made shall be subsequently confirmed in writing. 10. Tombstone. F4L and the Registrants acknowledge that the Dealer Managers may at any time after the issuance of any New Notes place an announcement in such newspapers and periodicals as they may choose, at their own cost (but subject to the reasonable approval of the Registrants), stating that they acted as dealer managers to F4L and the Registrants in connection with the Exchange Offers. 11. Survival. The provisions of Section 4 hereof, the indemnity and contribution agreements contained in Section 7 hereof and the respective representations and warranties set forth in Section 5 hereof shall remain operative 47 and in full force and effect regardless of (i) any investigation made by or on behalf of any Dealer Manager, or by or on behalf of any affiliate of such Dealer Manager or any person controlling such Dealer Manager or affiliate, (ii) consummation of the Exchange Offers or (iii) any termination of this Agreement or of any Dealer Manager's engagement hereunder, and shall be binding upon and shall inure to the benefit of, any successors, assigns, heirs and personal representatives of F4L and the Registrants, the Dealer Managers, RSI and the indemnified parties referred to in Section 7 hereof. 12. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without reference to its principles of conflicts of laws. 13. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 14. Headings. The section headings in this Agreement have been inserted as a matter of convenience of reference only and are not a part hereof. 15. Joint and Several Obligations. All of the obligations of F4L and the Registrants hereunder shall be joint and several obligations of F4L and each of the Registrants. 48 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 F4L, each Registrant, RSI and the Dealer Managers. Very truly yours, FOOD 4 LESS, INC. By: Name: Mark A. Resnik Title: Secretary FOOD 4 LESS HOLDINGS, INC. By: Name: Mark A. Resnik Title: Secretary FOOD 4 LESS SUPERMARKETS, INC. By: Name: Mark A. Resnik Title: Secretary ALPHA BETA COMPANY, as a Guarantor By: Name: Mark A. Resnik Title: Secretary BAY AREA WAREHOUSE STORES, INC. By: Name: Mark A. Resnik Title: Secretary 49 BELL MARKETS, INC., as a Guarantor By: Name: Mark A. Resnik Title: Secretary CALA CO., as a Guarantor By: Name: Mark A. Resnik Title: Secretary CALA FOODS, INC., as a Guarantor By: Name: Mark A. Resnik Title: Secretary FALLEY'S, INC., as a Guarantor By: Name: Mark A. Resnik Title: Secretary FOOD 4 LESS OF CALIFORNIA, INC., as a Guarantor By: Name: Mark A. Resnik Title: Secretary FOOD 4 LESS MERCHANDISING, INC., as a Guarantor By: Name: Mark A. Resnik Title: Secretary 50 FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC., as a Guarantor By: Name: Mark A. Resnik Title: Secretary FOOD 4 LESS GM, INC. as a Guarantor By: Name: Mark A. Resnik Title: Secretary RALPHS SUPERMARKETS, INC. By: Name: Title: The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT SECURITIES CORPORATION By________________________________ Name: Lori Finkel Title: Managing Director CS FIRST BOSTON SECURITIES CORPORATION By________________________________ Name: Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By________________________________ Name: Title: EX-2.1.1 3 AMEND. #1 DATED 1/12/95, TO AGREE./PLAN OF MERGER 1 EXHIBIT 2.1.1 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER This Amendment No. 1 (this "Amendment"), dated as of January 12, 1995, to the Agreement and Plan of Merger, dated as of September 14, 1994 (the "Merger Agreement"), is by and among Food 4 Less, Inc., a Delaware corporation ("F4L"), Food 4 Less Holdings, Inc., a California corporation ("F4L Holdings"), Food 4 Less Holdings, Inc., a Delaware corporation ("F4L Holdings Delaware"), Food 4 Less Supermarkets, Inc., a Delaware corporation ("F4L Supermarkets"), Ralphs Supermarkets, Inc., a Delaware corporation ("Ralphs Supermarkets"), and The Edward J. DeBartolo Corporation ("EJDC") and the other stockholders of Ralphs Supermarkets (each a "Selling Stockholder"). Capitalized terms not otherwise defined herein have the meanings given to them in the Merger Agreement. WHEREAS, F4L, F4L Holdings, F4L Supermarkets, Ralphs Supermarkets and the Selling Stockholders previously have entered into the Merger Agreement, by which the parties agreed to merge F4L Supermarkets with and into Ralphs Supermarkets (the "Merger") in accordance with the terms and conditions of the Merger Agreement and Section 251 of the General Corporation Law of the State of Delaware (the "GCL"); WHEREAS, the parties desire to amend certain provisions of the Merger Agreement as more fully set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: 1. Mergers of F4L into F4L Holdings and F4L Holdings into F4L Holdings Delaware. Notwithstanding anything to the contrary contained in the Merger Agreement, the parties acknowledge that on or prior to the Closing Date, (a) F4L will be merged with and into F4L Holdings, the separate existence of F4L (except as may be continued by operation of law) shall cease, and F4L Holdings shall be the surviving corporation in such merger; and (b) F4L Holdings thereupon will be merged with and into F4L Holdings Delaware, the separate existence of F4L Holdings (except as may be continued by operation of law) shall cease, and F4L Holdings Delaware shall continue as the surviving corporation following such merger. F4L, F4L Holdings and F4L Supermarkets represent and warrant that F4L Holdings Delaware is a wholly-owned subsidiary of F4L Holdings having no assets and liabilities, and that the sole purpose of the merger of F4L Holdings into F4L Holdings Delaware is to change the jurisdiction of incorporation of F4L Holdings from California to Delaware. By operation of the foregoing mergers, F4L Holdings Delaware shall assume all liabilities and obligations of F4L and F4L Holdings under the Merger Agreement, the Indenture and the Registration Rights Agreement, including without limitation the obligation to issue the Debentures and to file with the SEC the Shelf Registration Statement. From and after the merger of F4L Holdings into F4L Holdings Delaware, all references in the Merger Agreement to "F4L Holdings" shall be deemed to be references to F4L Holdings Delaware, and all representations, warranties and covenants of F4L Holdings shall be representations, warranties and covenants of F4L Holdings Delaware, as fully as if they originally had been made by F4L Holdings Delaware. 2 2. Additional Defined Terms. (a) The definition of "Closing Date" in Section 1.1 of the Merger Agreement is hereby amended to read as follows: "Closing Date" shall mean March 15, 1995 or such other date as promptly thereafter as of which all of the conditions set forth in Articles VIII and IX shall have been satisfied or duly waived or, if F4L and Ralphs Supermarkets shall mutually agree upon a different date, the date upon which they, with the consent of EJDC, shall have mutually agreed upon in writing. (b) Section 1.2 of the Merger Agreement is hereby amended to include the following terms defined in the amended Sections set forth opposite such term:
Term Section ---- ------- Accrued Interest Amounts 2.6(e) Acquisition Consideration 2.6(a) Constituent Corporations 2.3 EAR 2.7 EAR Plan 2.7 Effective Date 2.4 Fractional Amounts 2.1(b) Merger Consideration 2.6(a) Option 2.7 Purchase Consideration 2.1(a) Share Purchase 2.1(a) Surviving Corporation 2.2
(c) All references in Articles III through XII of the Merger Agreement to the "Merger Consideration" are hereby amended to read "Acquisition Consideration." (d) All references in the Merger Agreement to the "Merger" are hereby deemed to incorporate by reference the "Share Purchase" except where the context otherwise requires. (e) All references in the Merger Agreement to the "Agreement" and all references in this Amendment to the "Merger Agreement" are hereby deemed to incorporate by reference this Amendment. 3. Amendment of Article II. Article II of the Merger Agreement is hereby amended to read in full as follows: "ARTICLE II The Share Purchase and Merger Section 2.1 The Share Purchase. On the Closing Date, immediately prior to the filing of the certificate of merger with the Delaware Secretary of State in accordance with Section 2.4 below: 2 3 (a) F4L Holdings Delaware will purchase 12,184,418.99116 Shares (the "Share Purchase"), pro rata from the Selling Stockholders in proportion to their respective holdings, for per Share consideration consisting of $12.31060748 in cash and $8.2074 principal amount of Debentures (or the pro rata portion of such cash and Debentures, in the case of fractional shares) (collectively, and together with the cash amounts referred to in Section 2.1(b) below, the "Purchase Consideration"). The Purchase Consideration payable to each Selling Stockholder, and the number of shares to be sold by each of them in the Share Purchase, is set forth in Schedule 2.1. (b) Debentures will be issued only in denominations of $1000 and integral multiples of $1000. A Selling Stockholder will not be entitled to receive Debentures in principal amounts less than $1000, or in principal amounts in excess of $1000 (or an integral multiple thereof) but less than the next highest integral multiple ("Fractional Amounts"), but instead will be entitled to receive cash in lieu of any such Fractional Amount. (c) F4L Holdings Delaware will immediately contribute the 12,184,418.99116 Shares acquired in the Share Purchase to the capital of F4L Supermarkets. Section 2.2 The Merger. At the Effective Date, immediately following the Share Purchase and in accordance with this Agreement and the GCL (and subject to the provisions of Section 2.10 hereof), F4L Supermarkets shall be merged with and into Ralphs Supermarkets, the separate existence of F4L Supermarkets (except as may be continued by operation of law) shall cease, and Ralphs Supermarkets shall continue as the surviving corporation. As constituted from and after the Effective Date, Ralphs Supermarkets hereinafter sometimes is referred to as the "Surviving Corporation." Section 2.3 Effect of the Merger. When the Merger has been effected, the Surviving Corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises, of a public as well as of a private nature, of F4L Supermarkets and Ralphs Supermarkets (the "Constituent Corporations"); all property, real, personal and mixed, and all debts due on whatever account and all choses in action, and all and every other interest, of or belonging to or due each of the Constituent Corporations shall be vested in the Surviving Corporation without further act or deed; and the title to any real estate, or any interest therein, vested in F4L Supermarkets, Ralphs Supermarkets or the Surviving Corporation shall not revert or be in any way impaired by reason of the Merger. The Surviving Corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the Constituent Corporations so merged; any claim existing or action or proceeding pending by or against any of the Constituent Corporations may be prosecuted as if the Merger had not taken place, or the Surviving Corporation may be substituted in its place. The Surviving Corporation shall have all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under the GCL, and neither the rights of creditors nor any liens upon the respective properties of the Constituent Corporations and the Surviving Corporation shall be impaired by the Merger; all with the effect set forth in the GCL. Section 2.4 Consummation of the Merger. As soon as is practicable after the satisfaction or waiver of the conditions hereinafter set forth, the parties hereto will cause the Merger to be consummated by filing with the Secretary of State of Delaware a certificate of merger in such form as required by, and executed in accordance with, the relevant provisions of the GCL (the time of such filing being the "Effective Date"). Section 2.5 Restated Certificate of Incorporation; Bylaws; Directors and Officers. The Restated Certificate of Incorporation and Bylaws of the Surviving Corporation shall be the Certificate 3 4 of Incorporation and Bylaws of Ralphs Supermarkets, as in effect immediately prior to the Effective Date, until thereafter amended as provided therein and under the GCL, except that the Restated Certificate of Incorporation of the Surviving Corporation shall provide for the authorized capitalization and for the number of directors set forth in the certificate of merger filed with the Delaware Secretary of State. Section 2.6 Conversion of Securities. At the Effective Date, by virtue of the Merger and without any action on the part of F4L Supermarkets, Ralphs Supermarkets, the Surviving Corporation or the holder of any of the following securities: (a) Each Share (or fractional Share) issued and outstanding immediately prior to the Effective Date, except for the Shares held by F4L Supermarkets, shall be cancelled and extinguished and be converted into and become a right to receive $20.51800748 in cash (or the pro rata portion of such cash, in the case of fractional Shares) (collectively, the "Merger Consideration," and together with the Purchase Consideration and the Accrued Interest Amounts (as defined in Section 2.6(e) below), the "Acquisition Consideration"). Each Selling Stockholder hereby waives all dissenters', appraisal and other rights arising under Section 262 of the GCL (or comparable provisions of any applicable laws of other jurisdictions) with respect to its Shares in the Merger. The Merger Consideration payable to each Selling Stockholder is set forth in Schedule 2.1. At the Effective Date, each Share (or fractional Share) held by F4L Supermarkets shall be cancelled and extinguished without payment of consideration. (b) Each share of Common Stock, par value $0.01 per share, of F4L Supermarkets issued and outstanding immediately prior to the Effective Date shall be converted into and become one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation. Each share of Preferred Stock, par value $0.01 per share, of F4L Supermarkets issued and outstanding immediately prior to the Effective Date shall be cancelled and extinguished without payment of consideration. (c) All notes and other debt instruments of the Constituent Corporations which are outstanding at the Effective Date shall continue to be outstanding subsequent to the Effective Date as debt instruments of the Surviving Corporation, if permitted by their respective terms and provisions. (d) There shall be withheld from the cash consideration set forth in Sections 2.1(a) and 2.6(a) any amounts lawfully required to be withheld and paid over to any taxing authority with respect to any Selling Stockholder (whether by reason of receipt of the Acquisition Consideration or any other consideration received in, or in connection with, the transactions contemplated by the Merger Agreement); it being agreed, however, that except as otherwise required as a result of a change after the date hereof in law (including court decisions), regulations or administrative interpretation thereof: (i) if the Company provides a FIRPTA certificate as set forth in Section 7.1(h) hereof (and F4L Supermarkets has no reason to believe that such certificate is not true and complete), no portion of the cash consideration shall be withheld pursuant to sections 897 and 1445 of the Code, and (ii) if such Selling Stockholder provides an opinion of counsel in form and substance reasonably satisfactory to F4L Supermarkets and to F4L Supermarkets' counsel to the effect that no portion of the Acquisition Consideration to be received by such Selling Stockholder is subject to withholding under sections 1441 or 1442 of the Code, no amount of the cash consideration shall be withheld pursuant to sections 1441 or 1442 of the Code. (e) If the Closing shall occur on or after March 16, 1995, the Acquisition Consideration payable to each Selling Stockholder shall include an additional cash amount equal to the amount of simple interest accrued on the Purchase Consideration (including the principal amount of Seller 4 5 Debentures) and the Merger Consideration payable to such Selling Stockholder, calculated on the basis of the number of full days elapsed from 8:00 a.m. (New York time) March 16, 1995 to the Closing and prorated based on a 360-day year (collectively, the "Accrued Interest Amounts"). The rate of interest applicable to the Accrued Interest Amounts shall be (i) the rate announced from time to time by Bankers Trust Company as then being its prime rate of interest plus (ii) 1%. Section 2.7 Ralphs Supermarkets Stock Options and Related Matters. At or immediately prior to the Effective Date, each then outstanding stock option (an "Option") to purchase Shares, heretofore granted under the Ralphs Holding Company Nonqualified Stock Option Plan dated February 3, 1992 (whether or not such Option is then exercisable) shall be cancelled, exercised or surrendered by the holder thereof, without payment of consideration for such cancellation or surrender (or payment of Acquisition Consideration with respect to any Shares acquired upon exercise thereof) in excess of $880,000 (including the principal amount of any Debentures issued as Acquisition Consideration with respect to Shares acquired upon exercise thereof). At or immediately prior to the Effective Date, each then outstanding equity appreciation right (an "EAR") heretofore granted pursuant to the Company's Equity Appreciation Plan, as amended through the date hereof (the "EAR Plan"), will be paid in accordance with its terms. In the event that F4L (or any of its subsidiaries) and the holders of such options or EARs enter into any agreement to modify or cancel a portion of the options or EARs held by such person in connection with the consummation of the Merger, the Company will execute such documentation as may be reasonably requested by F4L (or any of its subsidiaries) to reflect such modification or cancellation. Section 2.8 Closing. The Closing shall take place on the Closing Date at 10:00 A.M., Los Angeles time, at the offices of Latham & Watkins, 633 West Fifth Street, Los Angeles, California 90071, or at such other time and place as shall be agreed upon by the parties. At the Closing (a) the Selling Stockholders and Ralphs Supermarkets, as applicable, will deliver to F4L Supermarkets (i) certificates representing 100% of the issued and outstanding Shares, in accordance with the provisions of Section 2.9, (ii) corporate minute books, stock transfer books and Bylaws of Ralphs Supermarkets, (iii) certificates of each Selling Stockholder and of Ralphs Supermarkets (signed on behalf of such Selling Stockholder or Ralphs Supermarkets, as applicable, by the Chairman, the President or a Vice President of each of them) to the effect that the conditions set forth in Article VIII hereof (but only insofar as such conditions relate to such Selling Stockholder or Ralphs Supermarkets, as applicable) have been satisfied (except as waived by F4L Supermarkets), (iv) an opinion of Willkie Farr & Gallagher, counsel to Ralphs Supermarkets and EJDC, who may rely, as to matters of California and Ohio law, on an opinion of Troy & Gould, counsel to Ralphs Supermarkets and an opinion of Squire, Sanders & Dempsey, counsel to EJDC, and an opinion of Milbank, Tweed, Hadley & McCloy, special tax counsel to Ralphs Supermarkets, relating to the matters set forth in Exhibit B, and opinions of counsel to each Selling Stockholder other than EJDC, relating to the matters set forth in Exhibit C, (v) the certificate of incorporation of Ralphs Supermarkets certified by the Secretary of State of Delaware and certificates of good standing of Ralphs Supermarkets in Delaware and California, (vi) incumbency certificates with respect to the officers of Ralphs Supermarkets and of each Selling Stockholder, (vii) the resignation of such members of the Board of Directors of Ralphs Supermarkets and Ralphs Grocery as shall be specified by F4L Supermarkets in writing at least ten days prior to the Closing Date and (viii) such other certificates, instruments or other documents as F4L Supermarkets may reasonably request, in each case in form and substance reasonably satisfactory to F4L Supermarkets; and (b) F4L Holdings Delaware and F4L Supermarkets, as applicable, will cause to be delivered to each Selling Stockholder (i) the cash portion of the Acquisition Consideration due to it by wire transfer in immediately available funds to an account specified by such Selling Stockholder, (ii) the Debenture portion of the Acquisition Consideration due to it by delivery of one or more Debentures in appropriate principal amount, (iii) certificates of F4L 5 6 Holdings Delaware and F4L Supermarkets (signed on behalf of each of them by the President or a Vice President of each of them) to the effect that the conditions set forth in Article IX hereof have been satisfied (except as waived by Ralphs Supermarkets and the Selling Stockholders), (iv) an opinion of Latham & Watkins, counsel to F4L Holdings Delaware and F4L Supermarkets relating to the matters set forth in Exhibit D, (v) the certificates of incorporation of F4L Holdings Delaware and F4L Supermarkets certified by the Secretary of State of Delaware and certificates of good standing of F4L Holdings Delaware in Delaware and F4L Supermarkets in Delaware and California, (vi) incumbency certificates with respect to the officers of F4L Holdings Delaware and F4L Supermarkets, (vii) the solvency opinion referred to in Section 9.8, and (viii) such other certificates, instruments or other documents as Ralphs Supermarkets or any Selling Stockholder may reasonably request, in each case in form and substance reasonably satisfactory to Ralphs Supermarkets or such Selling Stockholder. Section 2.9 Exchange of Certificates. (a) From and after the Effective Date, each holder of a certificate or certificates representing Shares shall surrender such certificate or certificates to the Surviving Corporation, duly endorsed without recourse except as provided herein, as the Surviving Corporation may require, and shall receive in exchange therefor the Acquisition Consideration. At the Effective Date, the holder of a certificate or certificates representing Shares shall have no rights with respect to such Shares other than to surrender such certificate or certificates pursuant to this Section 2.9. No interest shall accrue on the Acquisition Consideration. If the Acquisition Consideration (or any portion thereof) is to be delivered to any person other than the person in whose name the certificate or certificates representing Shares surrendered in exchange therefor is registered, it shall be a condition to such exchange that the person requesting such exchange shall pay to the Surviving Corporation any transfer or other taxes required by reason of the payment of the Acquisition Consideration to a person other than the registered holder of the certificate or certificates so surrendered, or shall establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Notwithstanding the foregoing, neither the Surviving Corporation nor any other party hereto shall be liable to a holder of Shares for any Acquisition Consideration delivered to a public official pursuant to applicable abandoned property, escheat and similar laws. (b) After the Effective Date, there shall be no transfers of any Shares on the stock transfer books of the Surviving Corporation. If, after the Effective Date, certificates formerly representing Shares are presented to the Surviving Corporation, they shall be cancelled and exchanged for the Acquisition Consideration in accordance with this Section 2.9. Section 2.10 Alternative Transaction Structure. At the election of F4L, the transactions contemplated by this Agreement may be effected through a merger of a newly-formed shell subsidiary of F4L Supermarkets with and into Ralphs Supermarkets in lieu of the Merger of F4L Supermarkets with and into Ralphs Supermarkets, or through such other form of transaction as F4L may determine to be appropriate, provided that such merger or other form does not result in any consequences to any Selling Stockholder which are less favorable to such Selling Stockholder than the consequences which would have resulted from the Merger, and appropriate conforming changes to this Agreement satisfactory to the Selling Stockholders are made." 4. Amendment of Section 6.14. Section 6.14 of the Merger Agreement is hereby amended by deleting the last sentence of the first paragraph hereof and inserting the following two sentences: "F4L Holdings agrees that it will, or that it will cause F4L Supermarkets or another Affiliate to, effective as of the Closing Date, execute a guarantee of the obligations of Ralphs Supermarkets and 6 7 its subsidiaries in favor of the DIR, which guarantee shall be similar to the EJDC Guarantee and shall cover the period from and after the Closing Date. EJDC agrees that it will, immediately prior to the Closing Date, notify the DIR that the EJDC Guarantee will be terminated as of the Closing Date with respect to periods on or after the Closing Date, and F4L Holdings agrees that it will, or that it will cause F4L Supermarkets or another Affiliate to, execute on or prior to the Closing Date such documents as are reasonably necessary to effectuate such termination, all in accordance with DIR procedures." 5. Amendment of Article IX. Article IX of the Merger Agreement is hereby amended to add the following new Section 9.13 at the end thereof: "Section 9.13 Ralphs Grocery Merger. The Selling Stockholders shall have received evidence reasonably satisfactory to them that all of the conditions precedent to the consummation of the merger of Ralphs Grocery with and into the Surviving Corporation have been satisfied or waived and that such merger will be consummated immediately following the effectiveness of the Merger on the Closing Date." 6. Amendment of Section 11.1(b). Section 11.1(b) of the Merger Agreement is hereby amended (i) to delete the date "January 16, 1995" appearing in the second line thereof and to substitute in its place the date "March 31, 1995" and (ii) to delete the date "March 31, 1995" appearing in the third line thereof and to substitute in its place the date "April 30, 1995." 7. Schedules. Schedule 2.5(a) of the Merger Agreement is hereby deleted and the attached Schedule 2.1 is hereby substituted in its place and incorporated herein by reference. 8. Exhibit A. Exhibit A (Form of Indenture) of the Merger Agreement is hereby deleted and the attached Exhibit A (Form of Indenture) is hereby substituted in its place and incorporated herein by reference. 9. Exhibit G. Exhibit G (Form of Registration Rights Agreement) of the Merger Agreement is hereby amended as more fully described below. (a) The following sentence is hereby added at the end of Section 2 of the Registration Rights Agreement: "It is understood that a pledge to an institution or to an agent for one or more institutions made at any time while the Shelf Registration Statement is effective shall be deemed to be a pledge pursuant to an effective Registration Statement." (b) Section 7(l) is hereby amended to read as follows: "(l) cause all Registrable Securities covered by the Shelf Registration Statement to be listed on each securities exchange on which similar securities issued by the Company or any of its subsidiaries are then listed;" 10. Terms and Conditions. Except as specifically modified herein, all other terms and conditions of the Merger Agreement shall remain in full force and effect. 7 8 IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the parties as of the day first above written. "F4L": FOOD 4 LESS, INC. By: _________________________ Name: Title: "F4L HOLDINGS": FOOD 4 LESS HOLDINGS, INC. By: _________________________ Name: Title: "F4L HOLDINGS DELAWARE": FOOD 4 LESS HOLDINGS, INC. By: _________________________ Name: Title: "F4L SUPERMARKETS": FOOD 4 LESS SUPERMARKETS, INC. By: _________________________ Name: Title: "RALPHS SUPERMARKETS": RALPHS SUPERMARKETS, INC. By: _________________________ Name: Title: "SELLING STOCKHOLDERS": THE EDWARD J. DEBARTOLO CORPORATION By: _________________________ Name: Title: S-1 9 CAMDEV PROPERTIES INC. By: _________________________ Name: Title: BANK OF MONTREAL By: _________________________ Name: Title: BANQUE PARIBAS By: _________________________ Name: Title: FEDERATED DEPARTMENT STORES, INC. By: _________________________ Name: Title: S-2 10 SCHEDULE 2.1 CONSIDERATION TO RSI SHAREHOLDERS
# shares purchased # shares convt'd mrgr cash purch price debentures # RSI shares owned (Section 2.1) (Section 2.6) (Section 2.1(a)) (Section 2.1(a)) ------------------ ------------------ --------------------- ----------------- -------------- EJDC 15,440,600.00000 7,352,666.66429 8,087,933.33571 $ 90,515,793.24 $ 60,346,000 Camdev Properties, Inc. 3,276,681.37923 1,560,324.46579 1,716,356.91344 $ 19,208,542.04 $ 12,806,000 Bank of Montreal 2,591,815.11029 1,234,197.67117 1,357,617.43912 $ 15,193,723.08 $ 10,129,000 Banque Paribas 2,591,815.11029 1,234,197.67117 1,357,617.43912 $ 15,193,723.08 $ 10,129,000 Federated Department Stores, Inc. 1,686,368.28990 803,032.51874 883,335.77116 $ 9,885,818.13 $ 6,590,000 ---------------- ---------------- ---------------- --------------- ------------ Total 25,587,279.88971 12,184,418.99116 13,402,860.89855 $149,997,599.57 $100,000,000
cash in lieu of fract tot cash purch price cash payable in merger cash total (Section 2.1(b)) (Section 2.1) (Section 2.6) (purch + mrgr) --------------------- -------------------- ---------------------- --------------- EJDC $ 276.38 $ 90,516,069.62 $165,948,276.68 $256,464,346.30 Camdev Properties, Inc. $ 207.02 $ 19,208,749.06 $ 35,216,223.99 $ 54,424,973.05 Bank of Montreal $ 553.97 $ 15,194,277.05 $ 27,855,604.77 $ 43,049,881.82 Banque Paribas $ 553.97 $ 15,194,277.05 $ 27,855,604.77 $ 43,049,881.82 Federated Department Stores, Inc. $ 809.09 $ 9,886,627.23 $ 18,124,289.96 $ 28,010,917.19 --------- --------------- --------------- --------------- Total $2,400.43 $150,000,000.00 $275,000,000.17 $425,000,000.17
Per share amounts Purchase price (Section 2.1) -------------- cash $12.3106074800 debentures $ 8.2074000000 --------------- -------------- Total $20.5180074800 Merger consideration (Section 2.6) -------------------- cash $20.5180074800
11 SCHEDULE 2.1 CONSIDERATION TO RSI SHAREHOLDERS cash purch $150,000,000.00 deb purch $100,000,000.00
12 EXHIBIT A - - ------------------------------------------------------------------------------- FOOD 4 LESS HOLDINGS, INC. AND NORWEST BANK MINNESOTA, N.A. AS TRUSTEE ________ INDENTURE Dated as of ___________ __, 1995 ________ $100,000,000 13% Senior Subordinated Pay-in-Kind Debentures due 2007 - - ------------------------------------------------------------------------------- 13 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 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10; 13.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 13.2 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10; 13.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 13.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 - - -----------------------
N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 14 TABLE OF CONTENTS
PAGE ---- ARTICLE I - DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2. Incorporation by Reference of TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE II - THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.4. Paying Agent To Hold Assets in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 2.13. CUSIP Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE III - REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.2. Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE IV - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.3. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.4. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.5. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.6. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 4.7. Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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Page ---- Section 4.8. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.9. SEC Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.10. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.12. Limitation on Incurrences of Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 4.13. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.14. Limitation on Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.15. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 4.16. Limitation on Senior Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.17. Limitation on Preferred Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . 38 ARTICLE V - SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 5.1. When Holdings May Merge, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE VI - DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.7. Rights of Holders To Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE VII - TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.6. Reports By Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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Page ---- Section 7.9. Successor Trustee by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.11. Preferential Collection of Claims Against Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE VIII - LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 8.6. Repayment to Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 ARTICLE IX - AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 9.3. Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 9.5. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.6. Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE X - MEETINGS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.1. Purposes for Which Meetings May Be Called . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.2. Manner of Calling Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.3. Call of Meetings by Holdings or Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.4. Who May Attend and Vote at Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment . . . . . . . . 59 Section 10.6. Voting at the Meeting and Record To Be Kept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting . . . . . . 60 ARTICLE XI - SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.1. Securities Subordinated to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.2. No Payment on Securities in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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Page ---- Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . 63 Section 11.5. Obligations of Holdings Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . . . . . 64 Section 11.7. Application by Trustee of Assets Deposited with It. . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities . . . . . . . . . . . . . . . . . 66 Section 11.10. Right of Trustee to Hold Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.11. Article Eleven Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . 66 ARTICLE XII - SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.1. Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.2. Conditions to Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . 67 ARTICLE XIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.3. Communications by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.6. Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.9. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
iv 18 INDENTURE dated as of ________ __, 1995, between FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"), and Norwest Bank Minnesota, N.A., a National Banking Association, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the 13% Senior Subordinated Pay-in-Kind Debentures due 2007: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "Acquired Indebtedness" means Indebtedness of a person or any of its subsidiaries existing at the time such person becomes a Subsidiary or assumed in connection with the acquisition of assets from such person and not incurred by such person in connection with, or in anticipation or contemplation of, such person becoming a Subsidiary or such acquisition. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of this Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of Holdings or any of its Subsidiaries. "Affiliate Obligation" means any contractual obligation (not constituting Indebtedness) between Holdings and any Affiliate, other than obligations relating to the purchase or sale of goods in the ordinary course of business made in compliance with Section 4.11 hereof. "Affiliate Transaction" shall have the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or co-Registrar. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise), made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than Holdings or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other 1 19 disposition, or series of related sales, transfers or other dispositions, (i) involving only Excluded Assets, (ii) resulting in Net Proceeds to Holdings or any Subsidiary of $500,000 or less or (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of Holdings or any Subsidiary with a Lien on such assets, which Lien is permitted under this Indenture, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law. "Average Life" means, as of any date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payments of such debt security multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any person, the Board of Directors of such person or any committee of the Board of Directors of such person duly authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such person. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person, including Preferred Stock. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii) and (v) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two 2 20 highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means (I) the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of Holdings such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of Holdings (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of Holdings' Board of Directors or (II) Holdings ceasing to own 100% of the outstanding voting securities entitled to vote on a regular basis to elect a majority of the Board of Directors of the Company. "Change of Control Date" shall have the meaning provided in Section 4.14. "Change of Control Offer" shall have the meaning provided in Section 4.14. "Change of Control Payment Date" shall have the meaning provided in Section 4.14. "Company" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, Ralphs Supermarkets (to be renamed Ralphs Grocery Company) following the Merger. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received by, such person or a subsidiary of such person not subject to any Payment Restriction, provided, however, that with respect to the net income of Holdings, the net income of the Company and its subsidiaries shall not be so excluded, notwithstanding the existence of any such Payment 3 21 Restriction, so long as the terms of any such consensual Payment Restriction limiting the payment of dividends are not materially more restrictive at the time of determination of Consolidated Net Income than the most restrictive Payment Restriction limiting the payment of dividends in effect on the Issue Date; and (c)(i) the net income (or loss) of any other person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of such person or any of its subsidiaries and any gains on pension reversions received by such person or any of its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any of its subsidiaries of any securities of such person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C) any other restructuring reserves or charges (provided, however, that any cash payments actually made with respect to the liabilities for which such restructuring reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case, incurred by Holdings or any of its Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by Holdings and its Subsidiaries resulting from earthquakes and (ix) with respect to Holdings and its Subsidiaries, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Covenant Defeasance" shall have the meaning provided in Section 8.3. "Credit Agent" means, at any time, the then-acting Administrative Agent as defined in and under the Credit Agreement, which initially shall be ____________________. Holdings shall promptly notify the Trustee of any change in the Credit Agent. "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among the Company, certain of its subsidiaries, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness incurred to refund or refinance the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or such agreement. Holdings shall promptly notify the Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. 4 22 "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Capital Stock" means, (i) with respect to any person, any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security into which it is convertible, puttable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (a) redeemable or repurchasable solely at the option of such person or (b) issued to employees of Holdings or its Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated; and (ii) with respect to any Subsidiary of Holdings, any Preferred Stock issued by a Subsidiary of Holdings other than Preferred Stock issued to Holdings. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credit) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring reserve or charge referred to in clause (v) above (and was not otherwise deducted in the computation of Consolidated Net Income of such person for such period). "Event of Default" shall have the meaning provided in Section 6.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Excluded Assets" means assets of Holdings or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. 5 23 "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of Holdings, any original issue discount on the Senior Discount Notes and the Securities but excluding amortization of debt issuance costs and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period, but excluding the amortization of debt issuance costs) and (ii) dividend requirements on Capital Stock of such person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock)) paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) and excluding items eliminated in consolidation. For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such person (as evidenced by a Board Resolution) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as Holdings may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "Forward Period" shall have the meaning set forth in the definition of Operating Coverage Ratio contained in this Section 1.1. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the date of this Indenture. "Holder" means the person in whose name a Security is registered on the Registrar's books. 6 24 "Holdings" means the party named as such above, until a successor replaces it in accordance with the terms of this Indenture, and thereafter means such successor. "incur" shall have the meaning set forth in Section 4.12. "Indebtedness" means with respect to any person, without duplication, (i) all liabilities, contingent or otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person or, if there is no such maximum fixed repurchase price, the liquidation preference of such Disqualified Capital Stock, plus accrued but unpaid dividends; (iii) reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes hereof, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of Holdings, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any 7 25 Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or a nationally recognized investment banking firm that is, in the reasonable judgment of the Board of Directors of Holdings, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to Holdings and its Affiliates. "Initial Public Offering" means an underwritten primary public offering of common stock of Holdings at a time when Holdings has not previously issued or sold any equity securities in an underwritten transaction pursuant to a registration statement filed pursuant to the Securities Act. "Initial Public Offering Consummation Date" means the first date on which Holdings or the Company receives any proceeds from an Initial Public Offering. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by a purchase of assets, in any transaction or series of related transactions, individually or in the aggregate, in an amount greater than $5 million, share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances, or to permit the purchase of Qualified Capital Stock of Holdings or any Subsidiary and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of first issuance of the Securities under this Indenture. "Legal Defeasance" shall have the meaning provided in Section 8.2. 8 26 "Legal Holiday" shall have the meaning provided in Section 13.7. "Letter of Credit Obligations" means Indebtedness of Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of Section 4.12, the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien hereunder. "Loan Documents" means the Credit Agreement and all promissory notes, guarantees, security agreements, pledge agreements, deeds of trust, mortgages, letters of credit and other instruments, agreements and documents executed pursuant thereto or in connection therewith, including all amendments, supplements, extensions, renewals, restatements, replacements or refinancings thereof, or other modifications (in whole or in part, and without limitation as to amount, terms, conditions, covenants or other provisions) thereof from time to time. "Maturity Date" means ________ __, 2007. "Merger" means (i) the merger of the Company into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of RGC into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated as of September 14, 1994, by and among Food 4 Less, Inc., a Delaware corporation, Holdings, Food 4 Less Holdings, Inc., a California corporation, Ralphs Supermarkets, the Company and the stockholders of Ralphs Supermarkets, as such agreement is in effect on the Issue Date. "Net Cash Proceeds" means Net Proceeds of (i) the sale of Qualified Capital Stock of Holdings or (ii) any Asset Sale, in each case, in the form of cash or Cash Equivalents. "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 9 27 after payment of expenses, taxes, commissions and the like incurred in connection therewith, (and, in the case of any Asset Sale, net of the amount of cash applied to repay Indebtedness secured by the asset involved in such Asset Sale) whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt as determined with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution) and (b) in the case of any conversion or exchange of any outstanding Indebtedness or Disqualified Capital Stock of such person for or into shares of Qualified Capital Stock of Holdings, the sum of (i) the fair market value of the proceeds received by Holdings in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the holder to Holdings upon such conversion or exchange. "New F4L Senior Notes" means the ___% Senior Notes due 2004 of the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New F4L Subordinated Notes" means the 13.75% Senior Subordinated Notes due 2005 of the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New F4L Senior Note Indenture" means the indenture pursuant to which the New F4L Senior Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "New F4L Subordinated Note Indenture" means the indenture pursuant to which the New F4L Subordinated Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "New Notes" means the ___% Senior Subordinated Notes due 2005 of the successor to the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New Note Indenture" means the indenture pursuant to which the New Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "Officer" means, with respect to any person, the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Controller, or the Secretary of such person. "Officers' Certificate" means, with respect to any person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such person and otherwise complying with the requirements of Sections 13.4 and 13.5. 10 28 "Operating Coverage Ratio" means with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT" for the Pro Forma Period shall be calculated, in the case of Holdings, after giving effect on a pro forma basis to the Merger as if it had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by this Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the legal counsel may be an employee of or counsel to Holdings or the Trustee. "Other Obligations" has the meaning set forth in Section 11.1 hereof. "Pari Passu Indebtedness" means, with respect to Holdings, Indebtedness that ranks pari passu in right of payment to the Securities (whether or not secured by any Lien). "Paying Agent" shall have the meaning provided in Section 2.3, except that, for the purposes of Articles Three and Eight and Section 4.14, the Paying Agent shall not be Holdings or any Subsidiary. 11 29 "Payment Restriction" means, with respect to a Subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person, or (c) transfer any of its properties or assets to such person or any other subsidiary of such person, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The Yucaipa Companies or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P., or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of Holdings or any Subsidiary, or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of Holdings or any Subsidiary or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its subsidiaries pursuant to (i) the term loans under the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $750 million, less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the provisions of Section 4.15 subsequent to the Issue Date, (ii) the revolving credit facility under the Credit Agreement (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the provisions of Section 4.15, and (iii) any guarantee by Holdings of the Indebtedness referred to in the foregoing clauses (i) and (ii); (b) Indebtedness of Holdings or a Subsidiary owed to and held by Holdings or a Subsidiary; (c) Indebtedness incurred by Holdings or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of Holdings and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the first anniversary of the Merger) and (ii) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon this clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of Holdings and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the third anniversary of the Merger); (d) Indebtedness incurred by Holdings or any Subsidiary in connection with capital expenditures in an aggregate principal amount not exceeding $150 million, provided that such capital expenditures relate solely to the integration of the operations of Ralphs Supermarkets, the Company, and their respective subsidiaries as described in that certain Registration Statement of Holdings dated ______, 1995; (e) Indebtedness of Holdings or 12 30 any Subsidiary incurred under Foreign Exchange Agreements and Interest Swap Obligations; (f) guarantees incurred in the ordinary course of business, by Holdings or a Subsidiary, of Indebtedness of any other person in aggregate not to exceed $25 million at any time outstanding; (g) guarantees by Holdings or a Subsidiary of Indebtedness incurred by a wholly-owned Subsidiary so long as the incurrence of such Indebtedness incurred by such wholly-owned Subsidiary is permitted under the terms of this Indenture; (h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (j) other Indebtedness outstanding on the Issue Date (after giving effect to the Merger); (k) Indebtedness arising from guarantees of Indebtedness of Holdings or any Subsidiary or other agreements of Holdings or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by Holdings and its Subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by Holdings or any Subsidiary in the ordinary course of business; (m) Indebtedness of Holdings with respect to the Senior Discount Notes and the Securities as in effect on the Issue Date (including the accretion of the Senior Discount Notes and the issuance of Secondary Securities in lieu of cash interest payments pursuant to the terms of this Indenture as in effect on the Issue Date); and (n) additional Indebtedness of Holdings or any Subsidiary in an amount not to exceed $200 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with Sections 4.3 and 4.11, (vi) Investments in any Subsidiary or by any Subsidiary in Holdings or any other Subsidiary in other Subsidiaries, and (vii) additional Investments in an aggregate amount not exceeding $5 million. "Permitted Payments" means any (i) payment by Holdings or any Subsidiary to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar services during such period pursuant to that certain Consulting Agreement, dated as of the Issue Date, between Holdings, the Company and The Yucaipa Companies, as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date, and (ii) any payment by Holdings or any Subsidiary, (a) in connection with repurchases of outstanding shares of Holdings' common stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by Holdings or any Subsidiaries to participants in employee benefit plans upon any termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed 13 31 $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period). "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of Holdings, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person, and (v) any investment fund or investment entity that is a subsidiary of such person or a permitted transferee of such person. "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of such person's preferred or preference stock, whether outstanding on the date hereof or issued after the Issue Date, and including, without limitation, all classes and series of preferred or preference stock of such person. "principal" of any Indebtedness (including the Securities) means the principal of such Indebtedness plus the premium, if any, on such Indebtedness. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as interpreted by Holdings' chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Pro Forma Period" shall have the meaning set forth in the definition of Operating Coverage Ratio contained in this Section 1.1. "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. 14 32 "Ralphs Supermarkets" means Ralphs Supermarkets, Inc., a Delaware corporation, until a successor replaces it and thereafter means such successor. "Record Date" means the Record Dates specified in the Securities; provided that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Securities. "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Securities. "Reference Period" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.1. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (a), (c), (d), (h), (j) and (m) of the definition thereof) incurred in accordance with this Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Registrar" shall have the meaning provided in Section 2.3. "Registration Rights Agreement" means the registration rights agreement dated as of the Issue Date by and among Holdings, the Company and the stockholders of Ralphs Supermarkets with respect to the Securities. 15 33 "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by Holdings or any Subsidiary as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment (without regard to the $5 million threshold in the definition thereof), in each case reasonably related to the business of Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Indebtedness. "Restricted Debt Prepayment" means the purchase, redemption, acquisition or retirement for value by Holdings, prior to the scheduled maturity or prior to any scheduled repayment of principal or any sinking fund payment in respect of any Subordinated Indebtedness. "Restricted Payment" means any (i) Stock Payment or (ii) Investment (other than a Permitted Investment) or (iii) Restricted Debt Prepayment. "RGC" means Ralphs Grocery Company, a Delaware corporation, until a successor replaces it and thereafter means such successor. "SEC" means the Securities and Exchange Commission. "Secondary Securities" has the meaning set forth in Section 2.2. "Securities" means the 13% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings, including any Secondary Securities issued in respect thereof, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Senior Discount Notes" means the 15.25% Senior Discount Notes due 2004 of Food 4 Less Holdings, Inc., issued pursuant to an indenture dated as of December 15, 1992, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under this Indenture. "Senior Discount Note Indenture" means the indenture pursuant to which the Senior Discount Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. 16 34 "Senior Indebtedness" means the principal of, premium, if any, and interest on (such Senior Indebtedness being deemed to include for all purposes of Article XI of this Indenture the amount required to fully secure in cash undrawn Letter of Credit Obligations under the Loan Documents and such interest on Senior Indebtedness being deemed to include for all purposes of Article XI interest accruing after the filing of a petition initiating any proceeding pursuant to any Bankruptcy Law in accordance with and at the rate (including any rate applicable upon any default, to the extent lawful) specified in any document evidencing the Senior Indebtedness, whether or not the claim for such interest is allowed as a claim after such filing in any proceeding under such Bankruptcy Law) any Indebtedness of Holdings (and, in the case of the Loan Documents, all obligations of Holdings for fees, expenses, indemnities and other amounts payable thereunder or in connection therewith), whether outstanding on the Issue Date or thereafter created, incurred, assumed or guaranteed or in effect guaranteed by Holdings (including, without limitation, Indebtedness under the Loan Documents), unless, in the case of any particular Indebtedness, the instrument creating or evidencing such Indebtedness expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of Holdings from time to time owed or guaranteed by Holdings with respect to the Credit Agreement and the Senior Discount Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) any Pari Passu Indebtedness or any Subordinated Indebtedness, (ii) any Indebtedness constituting Disqualified Capital Stock, (iii) Indebtedness of Holdings to any Subsidiary, (iv) that portion of any Indebtedness which is incurred in violation of Section 4.12 of this Indenture, (v) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of Holdings or of any Subsidiary (including, without limitation, amounts owed for compensation), (vi) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, and (vii) any liability for federal, state, local or other taxes owed or owing by Holdings. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each Subsidiary that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the date hereof) or (b) material to the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. "Stock Payment" means, with respect to any person, (a) the declaration or payment by such person, either in cash or in property, of any dividend on (except, in the case of Holdings, dividends payable solely in Qualified Capital Stock of Holdings), or the making by such person or any of its subsidiaries of any other distribution in respect of, such person's Qualified Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), or (b) the redemption, repurchase, retirement or other acquisition for value by such person or any of its subsidiaries, directly or indirectly, of such person's Qualified Capital Stock (and, in 17 35 the case of a Subsidiary, Qualified Capital Stock of Holdings) or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), other than, in the case of Holdings, through the issuance in exchange therefor solely of Qualified Capital Stock of Holdings; provided, however, that in the case of a Subsidiary, the term "Stock Payment" shall not include any such payment with respect to its Capital Stock or warrants, rights or options to purchase or acquire shares of any class of its Capital Stock that are owned solely by Holdings or a wholly-owned Subsidiary. "Subordinated Indebtedness" means Indebtedness of Holdings that is subordinated in right of payment to the Securities. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than 50% of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of Holdings. "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as amended, as in effect on the date on which this Indenture is qualified under the TIA, except as otherwise provided in Section 9.3. "Transaction Date" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.1. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "U.S. Government Obligations" shall have the meaning provided in Section 8.4. 18 36 "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "wholly-owned Subsidiary" means any Subsidiary all of the shares of Capital Stock of which (other than permitted Preferred Stock and directors' qualifying shares) are at the time directly or indirectly owned by Holdings. "Yearly Period" means each fiscal year of Holdings; provided that the first Yearly Period shall begin on the Issue Date and shall end on January 28, 1996. Section 1.2. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means Holdings or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. 19 37 Section 1.3. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE II THE SECURITIES Section 2.1. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage or as required by the Registration Rights Agreement. Holdings and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, Holdings and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.2. Execution and Authentication. An Officer or an Assistant Secretary, shall sign (either of whom shall, in each case, have been duly authorized by all requisite corporate actions) the Securities for Holdings by manual or facsimile signature. If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. 20 38 A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities, excluding Secondary Securities, for original issue in the aggregate principal amount of up to $100,000,000 upon a written order of Holdings in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $100,000,000, except for any Securities that may be issued pursuant to the immediately following paragraph and except as provided in Section 2.7 and 2.8. Upon the written order of Holdings in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of Holdings. Holdings may, on each Interest Payment Date prior to (and including) [the Interest Payment Date five years after the Issue Date], at its option and in its sole discretion, pay interest in additional Securities ("Secondary Securities") in lieu of the payment in whole or in part of interest in cash on the Securities as provided in paragraph 1 of the Securities. Holdings shall give written notice to the Trustee of the amount of interest to be paid in Secondary Securities not less than five Business Days prior to the relevant Interest Payment Date, and the Trustee or an authenticating agent (upon written order of Holdings signed by an Officer of Holdings given not less than five nor more than 45 days prior to such Interest Payment Date) shall authenticate for original issue (pro rata to each Holder of any Securities of such record date) Secondary Securities in an aggregate principal amount equal to the amount of cash interest not paid on such Interest Payment Date. Except as set forth in the following paragraph each issuance of Secondary Securities in lieu of the payment of interest in cash on the Securities shall be made pro rata with respect to the outstanding Securities, and Holdings shall have the right to aggregate amounts of interest payable in the form of Secondary Securities to a Holder of outstanding Securities and issue to such Holder a single Secondary Security in payment thereof. Any Secondary Securities may be denominated a separate series if Holdings deems it necessary to do so in order to comply with any law or other applicable regulation or requirement, with appropriate distinguishing designations. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof except that Secondary Securities or Securities issued upon registration of transfer of such Secondary Securities may be in denominations of other than $1,000; provided that Holdings may at its option pay cash in lieu of issuing Secondary Securities in any denominations of less than $1,000. 21 39 The Trustee may appoint an authenticating agent reasonably acceptable to Holdings to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holdings and Affiliates of Holdings. Section 2.3. Registrar and Paying Agent. Holdings shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon Holdings in respect of the Securities and this Indenture may be served. Holdings may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve Holdings of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. Holdings may act as its own Registrar or Paying Agent except that for the purposes of Articles Three and Eight and Sections 4.4 and 4.14, neither Holdings nor any Subsidiary shall act as Paying Agent. The Registrar shall keep a register of the Securities and of their transfer and exchange. Holdings, upon notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional paying agent. Holdings initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. Holdings shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. Holdings shall notify the Trustee, in advance, of the name and address of any such Agent. If Holdings fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. Section 2.4. Paying Agent To Hold Assets in Trust. Holdings shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets and/or Secondary Securities held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by Holdings or any other obligor on the Securities), and shall notify the Trustee of any Default by Holdings (or any other obligor on the Securities) in making any such payment. If Holdings or a Subsidiary acts as Paying Agent, it shall segregate such assets and/or Secondary Securities and hold them as a separate trust fund. Holdings at any time may require a Paying Agent to distribute all assets and/or Secondary Securities held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets and/or Secondary Securities held by it to the Trustee and to account for any assets so distributed. Upon 22 40 distribution to the Trustee of all assets that shall have been delivered by Holdings to the Paying Agent, the Paying Agent shall have no further liability for such assets and/or Secondary Securities. Section 2.5. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, Holdings shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. Section 2.6. Transfer and Exchange. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of the Registrar are met. The Registrar need not transfer or exchange any Securities selected for redemption. Also, it need not transfer or exchange any Securities for a period of 30 days before a selection of Securities to be redeemed. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall make the exchange as requested if the requirements of the Registrar are met. Holdings shall cooperate with the Registrar in meeting its requirements. To permit transfers, registration and exchanges, the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any transfer, registration or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or 9.5. Section 2.7. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, Holdings shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or Holdings, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both Holdings and the Trustee, to protect Holdings, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. Holdings may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security shall constitute an additional obligation of Holdings. Section 2.8. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee, including the Secondary Securities, except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A 23 41 Security does not cease to be outstanding because Holdings or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.7 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.7. If on a Redemption Date or the Maturity Date the Paying Agent (other than Holdings or any Subsidiary) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. Section 2.9. Treasury Securities. In determining whether the Holders of the required aggregate principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by Holdings or any of its Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows or has reason to know are so owned shall be disregarded. Notwithstanding the foregoing and except as otherwise provided by the TIA, a majority of Securities not owned by Holdings or any of its Affiliates shall be sufficient to approve any such direction, waiver or consent. Section 2.10. Temporary Securities. Until definitive Securities are ready for delivery, Holdings may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that Holdings considers appropriate for temporary Securities. Without unreasonable delay, Holdings shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Section 2.11. Cancellation. Holdings at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than Holdings or any Subsidiary), and no one else, shall cancel and, at the written direction of Holdings, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7, Holdings may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If Holdings or any Subsidiary shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. 24 42 Section 2.12. Defaulted Interest. If Holdings defaults in a payment of interest on the Securities, it shall, unless the Trustee fixes another record date pursuant to Section 6.10, pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by Holdings for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, Holdings shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Section 2.13. CUSIP Number. Holdings in issuing the Securities may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. ARTICLE III REDEMPTION Section 3.1. Notices to Trustee. If Holdings elects to redeem Securities pursuant to Paragraph 5 of the Securities it shall notify the Trustee of the Redemption Date and aggregate principal amount of the Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders (at Holdings' expense) at least 30 days (unless a shorter notice shall be satisfactory to the Trustee) but not more than 60 days before the Redemption Date. Any notice given pursuant to this Section 3.1 may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. Section 3.2. Selection of Securities To Be Redeemed. If fewer than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata, by lot or by such other method as the Trustee considers to be fair and appropriate and in such manner as complies with applicable legal and stock exchange requirements, if any. Securities in denominations of less than $1,000 shall be redeemed first. Thereafter the Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify Holdings in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the 25 43 aggregate principal amount thereof to be redeemed. Securities in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.3. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, Holdings shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed at such Holder's registered address, with a copy to the Trustee. At Holdings' request, the Trustee shall give the notice of redemption in Holdings' name and at Holdings' expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) that, unless Holdings defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the aggregate principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof to be redeemed), as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. Section 3.4. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price. 26 44 Section 3.5. Deposit of Redemption Price. On or before the Redemption Date, Holdings shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date (other than Securities or portions thereof called for redemption on that date which have been delivered by Holdings to the Trustee for cancellation). The Paying Agent shall promptly return to Holdings any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of Holdings, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If Holdings complies with the preceding paragraph, then, unless Holdings defaults in the payment of such Redemption Price, interest on the Securities to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. If a Security is redeemed on or after a Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Security was registered at the close of business on such Record Date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of Holdings to comply with the first paragraph of this Section 3.5, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.1 hereof. Section 3.6. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV COVENANTS Section 4.1. Payment of Securities. Holdings shall pay the principal amount of, premium, if any, and interest on, as the case may be, the Securities on the dates and in the manner provided in the Securities. An installment shall be considered paid on the date it is due if the Trustee or Paying Agent (other than Holdings or a Subsidiary) holds on that date U.S. Legal Tender and/or, to the extent permitted by Section 2.2, Secondary Securities designated for and sufficient to pay the installment. Holdings shall pay interest on overdue principal (including post-petition interest in any proceeding under any Bankruptcy Law, to the extent allowable as a claim in any such proceeding) at the same rate borne by the Securities and it shall pay interest (including post- 27 45 petition interest in any proceeding under any Bankruptcy Law, to the extent allowable as a claim in any such proceeding) on overdue installments of interest (without regard to any applicable grace period) at the same rate borne by the Securities, to the extent lawful. Section 4.2. Maintenance of Office or Agency. Holdings shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.3. Holdings shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time Holdings shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.2. Section 4.3. Limitation on Restricted Payments. Holdings shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) Holdings or such Subsidiary could not incur at least $1 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12, or (c) the aggregate amount expended for all Restricted Payments, including such Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment, as determined in good faith by the Board of Directors of Holdings, which determination shall be evidenced by a Board Resolution), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such Consolidated Net Income is a loss, minus 100% of such loss) of Holdings earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by Holdings from any person (other than a Subsidiary) from the issuance and sale (including upon exchange or conversion for other securities of Holdings) subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from Holdings or any Subsidiary, until and to the extent such borrowing is repaid) plus (iii) 100% of the aggregate net cash proceeds received by Holdings as capital contributions to Holdings after the Issue Date, plus (iv) $25,000,000. Notwithstanding the foregoing, if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of Holdings or the repurchase, redemption, or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of Holdings, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of Holdings with an Average Life 28 46 equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid, and (4) Permitted Payments; provided that (x) the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (ii) of the definition of "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and (y) no amounts paid pursuant to clause (3) above or clause (i) of the definition of "Permitted Payments" shall be so counted. Prior to making any Restricted Payment under the first paragraph of this Section 4.3, Holdings shall deliver to the Trustee an Officers' Certificate setting forth the computation by which the amount available for Restricted Payments pursuant to such paragraph was determined. The Trustee shall have no duty or responsibility to determine the accuracy or correctness of this computation and shall be fully protected in relying on such Officers' Certificate. Section 4.4. Corporate Existence. Except as otherwise permitted by Article Five, Holdings shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each such Significant Subsidiary and the rights (charter and statutory) and franchises of Holdings and each such Significant Subsidiary; provided, however, that Holdings shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Significant Subsidiaries, any such existence, right or franchise, if the Board of Directors of Holdings or such Significant Subsidiary, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of Holdings or any such Significant Subsidiary. Section 4.5. Payment of Taxes and Other Claims. Holdings shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that Holdings shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim if either (a) the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and an adequate reserve has been established therefor to the extent required by GAAP or (b) the failure to make such payment or effect such discharge (together with all other such failures) would not have a material adverse effect on the financial condition or results or operations of Holdings and its Subsidiaries taken as a whole. 29 47 Section 4.6. Maintenance of Properties and Insurance. (a) Holdings shall cause all properties used or useful to the conduct of its business or the business of any Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times unless the failure to so maintain such properties (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole; provided, however, that nothing in this Section 4.6 shall prevent Holdings or any Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is either (i) in the ordinary course of business, (ii) in the good faith judgment of the Board of Directors of Holdings or the Subsidiary concerned, or of the senior officers of Holdings or such Subsidiary, as the case may be, desirable in the conduct of the business of Holdings or such Subsidiary, as the case may be, or (iii) is otherwise permitted by this Indenture. (b) Holdings shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of Holdings, are adequate and appropriate for the conduct of the business of Holdings and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of Holdings or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of Holdings, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries, taken as a whole. Section 4.7. Compliance Certificate; Notice of Default. (a) Holdings shall deliver to the Trustee within 120 days after the end of Holdings' fiscal year an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his knowledge Holdings during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no Default or Event of Default occurred during such year or, if such signers do know of such a Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should Holdings elect to change the manner in which it fixes its fiscal year end. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, Holdings shall deliver to the Trustee within 30 48 120 days after the end of each fiscal year a written statement by Holdings' independent certified public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof. (c) Holdings shall, so long as the Securities are outstanding, deliver to the Trustee, within five Business Days after any officer becomes aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action Holdings is taking or proposes to take with respect thereto. Section 4.8. Compliance with Laws. Holdings shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. Section 4.9. SEC Reports and Other Information. (a) To the extent permitted by applicable law or regulation, whether or not Holdings is subject to the requirements of Section 13 or 15(d) of the Exchange Act, Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. Holdings shall file with the Trustee, within 5 days after it files the same with the SEC, copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to this Section 4.9. Holdings shall also comply with the other provisions of TIA Section 314(a). If Holdings is not permitted by applicable law or regulations to file the aforementioned reports, Holdings (at its own expense) shall file with the Trustee and mail, or cause the Trustee to mail, to Holders at their addresses appearing in the register of Securities maintained by the Registrar at the time of such mailing within 5 days after it would have been required to file such information with the SEC, all information and financial statements, including any notes thereto and with respect to annual reports, an auditors' report by an accounting firm of established national reputation, and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," comparable to the disclosure that Holdings would have been required to include in annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if Holdings was subject to the requirements of such Section 13 or 15(d) of the Exchange Act. 31 49 (b) At any time when Holdings is not permitted by applicable law or regulations to file the aforementioned reports, upon the request of a Holder of Securities, Holdings will promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of such Securities designated by such Holder, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act. Section 4.10. Waiver of Stay, Extension or Usury Laws. Holdings covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive Holdings from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) Holdings hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.11. Limitation on Transactions with Affiliates. (a) Neither Holdings nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of Holdings or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under Section 4.11(b) and (y) Affiliate Transactions in the ordinary course of business, that are fair to Holdings or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided, that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such transaction or series of transactions complies with clause (y) above, (B) with respect to Affiliate Transactions involving aggregate payments in excess of $5 million and less than $15 million, Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above and that such Affiliate Transaction has received the approval of a majority of the disinterested members of the Board of Directors of Holdings or the Subsidiary, as the case may be, or, in the absence of any such approval by the disinterested members of the Board of Directors of Holdings or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and that such Independent Financial Advisor has provided 32 50 written confirmation of such determination to the Board of Directors and (C) with respect to Affiliates Transactions involving aggregate payments in excess of $15 million, Holdings or such Subsidiary, as the case may be, shall have delivered to the Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. (b) The provisions of Section 4.11(a) shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of Section 4.3, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of Holdings or any Subsidiary, as determined by the Board of Directors of Holdings or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among Holdings and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture, (v) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders in any material respect, (vi) the existence of, or the performance by Holdings or any of its Subsidiaries of its obligations under the terms of, any stockholder agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by Holdings or any of its Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders in any material respect, (vii) transactions permitted by, and complying with, the provisions of Section 5.1, and (viii) purchases or sales of goods or services or other transactions with suppliers, in each case, in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which are fair to Holdings or any Subsidiary, in the reasonable determination of the Board of Directors, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Section 4.12. Limitation on Incurrences of Additional Indebtedness.1/ Holdings will not, and will not permit any Subsidiary, directly or indirectly, to incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the Securities or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness, (i) Holdings - - -------------------- 1. This Section 4.12 will conform to the covenant in the new public securities, as appropriately modified to be applicable to Holdings and its subsidiaries. 33 51 may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of Holdings would be greater than 2.0 to 1.0 and (ii) the Company or any subsidiary of the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of the Company would be greater than 2.0 to 1.0. Section 4.13. Limitation on Liens. Holdings will not create, incur, assume or suffer to exist any Lien of any kind securing any Pari Passu Indebtedness, any Subordinated Indebtedness or any Affiliate Obligation upon any property or assets of Holdings owned on the Issue Date or acquired after the Issue Date, or any income or profits therefrom, unless the Securities are secured equally and ratably with (or prior to in the case of Subordinated Indebtedness) to the obligation or liability secured by such Lien, and except for any Lien securing Acquired Indebtedness created prior to the incurrence of such Indebtedness by Holdings, provided that any such Lien only extends to the assets that were subject to such Lien securing such Acquired Indebtedness prior to the related acquisition by Holdings. Section 4.14. Limitation on Change of Control. (a) Upon the occurrence of a Change of Control (the "Change of Control Date"), each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to the offer described in paragraph (b), below (the "Change of Control Offer"), at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Prior to the mailing of the notice to Holders provided for in paragraph (b) below, but in any event within 30 days following the Change of Control Date, Holdings shall cause the Company to either (a) repay in full and terminate all commitments under Indebtedness under the Credit Agreement to the extent the terms thereof require repayment upon a Change of Control (or offer to repay in full and terminate all commitments under all such Indebtedness under the Credit Agreement and repay the Indebtedness owed to each lender which has accepted such offer), or (b) obtain the requisite consents under the Credit Agreement, the terms of which require repayment upon a Change of Control, to permit the repurchase of the Securities as provided for in this Section 4.14. Holdings shall first comply with the covenant in the immediately preceding sentence before Holdings shall be required to repurchase Securities pursuant to this Section 4.14, and any failure to so comply shall constitute an Event of Default under this Indenture. Within 10 days after any Change of Control Date requiring Holdings to make a Change of Control Offer pursuant to this Section 4.14, Holdings shall so notify the Trustee. (b) The Change of Control Offer shall be made to all Holders and the notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. Within 30 days following any Change of Control Date, Holdings shall send, by first class mail, a notice to each Holder, with copies to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state: 34 52 (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Securities tendered will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the aggregate principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Holder shall tender Securities, and each Security purchased and each such new Security issued by Holdings shall be, in a principal amount of $1,000 or integral multiples thereof (except for Secondary Securities that were issued in denominations other than $1,000); and (8) the circumstances and relevant facts regarding such Change of Control, including information available to Holdings concerning the Person or Persons acquiring control and such historical or pro forma financial information as Holdings reasonably deems appropriate under the circumstances. (c) On or before the Change of Control Payment Date, Holdings shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by Holdings. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price; provided that each such new Security shall be in the 35 53 principal amount of $1,000 or integral multiples thereof. Holdings will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 4.14, the Trustee shall act as the Paying Agent. (d) Holdings, to the extent applicable and if required by law, will comply with Rule 14e-1 under the Exchange Act and any other applicable provisions of the federal securities laws in connection with a Change of Control Offer. Section 4.15. Limitation on Asset Sales. (a) Neither Holdings nor any of its Subsidiaries will consummate an Asset Sale, unless (a) Holdings or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold; and (b) upon consummation of an Asset Sale, Holdings or the applicable Subsidiary will, within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (1) a Related Business Investment (2) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, or (3) an investment in properties and assets that will be used in the business of Holdings and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto; (ii) apply or cause to be applied such Net Cash Proceeds to the repayment of Senior Indebtedness or Pari Passu Indebtedness of Holdings or any Indebtedness of any Subsidiary; (iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of Notes tendered to Holdings for purchase at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase pursuant to an offer to purchase made by Holdings as set forth below (a "Net Proceeds Offer"), provided, however, that if at any time any noncash consideration received by Holdings or any Subsidiary in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such cash shall constitute Net Cash Proceeds for purposes of this Section 4.15 and shall be applied in accordance with clause (b) above within 365 days of the receipt of such cash; and provided further, however, that if at any time any security deposits or other amounts used to secure Letter of Credit Obligations pursuant to clause b(iii) above are returned to Holdings or any Subsidiary, then such security deposits or other amounts shall constitute Net Cash Proceeds for purposes of this Section 4.15 and shall be applied in accordance with clause (b) above within 365 days of the receipt of such security deposits or other amounts. A Net Proceeds Offer as a result of an Asset Sale made by the Company or one of its subsidiaries shall not be required to be in excess of the Net Cash Proceeds of such Asset Sale less the Net Cash Proceeds actually applied in accordance with clauses (b)(i), (ii) or (iii) above; provided, however, that Holdings shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, (x) the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets which are acquired or constructed by Holdings or a Subsidiary subsequent to the Issue Date, provided that such sale and substantially concurrent lease-back occurs within 180 days following such acquisition or the completion of such construction, as the case may be, and (y) the proceeds of which in the aggregate do not exceed $20 million. 36 54 (b) Notice of a Net Proceeds Offer pursuant to this Section 4.15 shall be mailed, by first class mail, by Holdings not less than 305 days nor more than 335 days after the relevant Asset Sale to all Holders at their last registered addresses, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.15 and that all Securities tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Securities tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, Holdings shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by Holdings so that only Securities in denominations of $1,000 or multiples thereof shall be purchased, except for Secondary Securities that were issued in denominations other than $1,000); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Proceeds Purchase Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; and (7) that Holders whose Securities were purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. On or before the Proceeds Purchase Date, Holdings shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above, (ii) deposit with the Paying Agent U.S. Legal 37 55 Tender sufficient to pay the purchase price of all Securities to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by Holdings. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price. Holdings will publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. (c) Holdings will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities pursuant to a Net Proceeds Offer. Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer shall be returned by the Trustee to Holdings. Section 4.16. Limitation on Senior Subordinated Indebtedness. Holdings will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the Securities. Section 4.17. Limitation on Preferred Stock of Subsidiaries. Holdings will not permit any of its Subsidiaries to issue any Preferred Stock (other than to Holdings or a wholly-owned Subsidiary), or permit any person (other than Holdings or a wholly-owned Subsidiary) to own or hold an interest in any Preferred Stock of any such Subsidiary, unless such Subsidiary would be entitled to incur Indebtedness in accordance with the provisions of Section 4.12 in the aggregate principal amount equal to the aggregate liquidation value of such Preferred Stock. Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. Holdings shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Loan Documents as in effect on the Issue Date, as any such Payment Restriction may apply to any present or future Subsidiary, (ii) the Senior Discount Note Indenture, the New F4L Senior Note Indenture, the New F4L Subordinated Note Indenture, the New Note Indenture and any other agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to Section 4.12), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.12 and 4.13 that limit the right of the debtor to dispose of the assets securing such 38 56 Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole, than those provided for in such Indebtedness being refinanced, refunded, extended or renewed, and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 4.12; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect of the Issue Date. ARTICLE V SUCCESSOR CORPORATION Section 5.1. When Holdings May Merge, Etc. (a) Holdings, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case: (1) either Holdings shall be the continuing person, or the person (if other than Holdings) formed by such consolidation or into which Holdings is merged or to which all or substantially all of the properties and assets of Holdings as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (Holdings or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of Holdings under the Securities and this Indenture; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of Holdings immediately preceding the transaction and (B) the Surviving Person could incur at least $1 of Indebtedness other than Permitted Indebtedness pursuant to Section 4.12; and 39 57 (3) immediately before and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of Holdings shall be deemed to be the transfer of all or substantially all of the properties and assets of Holdings. Section 5.2. Successor Corporation Substituted. Upon any consolidation or merger or any transfer of all or substantially all of the assets of Holdings or any adoption of a Plan of Liquidation by Holdings in accordance with Section 5.1, the surviving person formed by such consolidation or into which Holdings is merged or to which such transfer is made, (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, Holdings under this Indenture with the same effect as if such surviving person had been named as Holdings herein; provided, however, that solely for purposes of computing amounts described in subclause (c) of Section 4.3, any such surviving person shall only be deemed to have succeeded to and be substituted for Holdings with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. When a successor corporation assumes all of the obligations of Holdings hereunder and under the Securities and agrees to be bound hereby and thereby, the predecessor shall be released from such obligations. ARTICLE VI DEFAULT AND REMEDIES Section 6.1. Events of Default. An "Event of Default" occurs if: (1) Holdings defaults in the payment of interest on the Securities when the same becomes due and payable and the default continues for a period of 30 days; (2) Holdings defaults in the payment of the principal of the Securities when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise (including the failure to repurchase Securities tendered pursuant to the requirements set forth in Sections 4.14 and 4.15), whether or not such payment shall be prohibited by the provisions of Article Eleven hereof; (3) Holdings fails to comply with any of its other agreements or covenants in, or provisions of, the Securities or this Indenture and the default continues for the period and after the notice specified below; 40 58 (4) there shall be a default under any bond, debenture, or other evidence of Indebtedness of Holdings or of any Significant Subsidiary or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any such Indebtedness, whether such Indebtedness now exists or shall hereafter be created, if both (A) such default either (i) results from the failure to pay such Indebtedness at its stated final maturity (that is, the date of the last principal installment of any installment Indebtedness under the instrument or agreement pursuant to or under which such Indebtedness was created or is evidenced) or (ii) relates to an obligation (including any obligation to pay interest, to purchase such Indebtedness or to pay the principal of such Indebtedness, other than the obligation to pay any principal of such Indebtedness at its stated final maturity) and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated final maturity) and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $25 million or more at any one time; (5) Holdings or any Significant Subsidiary (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; (6) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of Holdings or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of Holdings or any Significant Subsidiary, (B) appoint a Custodian of Holdings or any Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (7) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of Holdings and its Subsidiaries; or (8) any final judgments or order for payment of money in excess of $25 million shall be rendered against Holdings or any Significant Subsidiary by a court of competent jurisdiction and shall remain undischarged for a period of 60 days after such judgment becomes final and nonappealable. A Default under clause (3) above (other than in the case of any Defaults resulting from any Default under Section 4.3, 4.14 or 5.1, which Defaults shall be Events of Default with the notice specified in this paragraph but without the passage of time specified in this paragraph) 41 59 is not an Event of Default until the Trustee notifies Holdings, or the Holders of at least 25% in aggregate principal amount of the outstanding Securities notify Holdings and the Trustee, of the Default, and Holdings does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in aggregate principal amount of the Securities then outstanding. When a Default is cured, it ceases. Section 6.2. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 6.1(5) or (6) with respect to Holdings or any Significant Subsidiary) occurs and is continuing, the Trustee may, by notice to Holdings (and, if any Indebtedness is outstanding under the Credit Agreement or any Loan Documents is otherwise in effect, to the Credit Agent), or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by written notice to Holdings and the Trustee, and the Trustee shall (with notice to the Credit Agent if any Indebtedness is outstanding under the Credit Agreement or any Loan Document is otherwise in effect), upon the request of such Holders, declare the aggregate principal amount of the Securities outstanding, together with accrued but unpaid interest thereon to the date of payment, to be due and payable and, upon any such declaration, the same shall become and be due and payable; provided, that so long as the Credit Agreement shall be in force and effect, if any such Event of Default shall have occurred and be continuing, any such acceleration shall not be effective until the earlier of (a) five Business Days following a notice of acceleration given to Holdings and the Credit Agent under the Credit Agreement and only if upon such fifth Business Day such Event of Default shall be continuing or (b) the acceleration of any Indebtedness under the Credit Agreement. If an Event of Default specified in Section 6.1(5) or (6) occurs with respect to Holdings or any Significant Subsidiary, all unpaid principal and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. Upon payment of such principal amount, interest, and premium, if any, all of Holdings' obligations under the Securities and this Indenture, other than obligations under Section 7.7, shall terminate. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the non-payment of the principal and interest on the Securities which have become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, and (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. (b) In the event of a declaration of acceleration under this Indenture because an Event of Default set forth in Section 6.1(4) has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default 42 60 has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. Section 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. Subject to Sections 6.7 and 9.2, the Holders of at least a majority in aggregate principal amount of the outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (1) and (2) of Section 6.1. When a Default or Event of Default is waived, it is cured and ceases. Section 6.5. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. Subject to Section 7.1, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.6. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee notice of a continuing Event of Default; 43 61 (2) the Holder or Holders of at least 25% in aggregate principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holder or Holders of at least 25% in aggregate principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. Section 6.7. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. Section 6.8. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against Holdings or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to Holdings or any other obligor upon the Securities, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee 44 62 and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.7; Second: if the Holders are forced to proceed against Holdings directly without the Trustee, to the Holders for their collection costs; Third: to the Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Fourth: to Holdings. The Trustee, upon prior notice to Holdings, may fix a record date and payment date for any payment to the Holders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by a Holder or Holders of more than 10% in aggregate principal amount of the outstanding Securities. ARTICLE VII TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. 45 63 Section 7.1. Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person could exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture that are adverse to the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1. (f) The Trustee shall not be liable for interest on any assets received by it except as the Trustee may agree with Holdings. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. 46 64 Section 7.2. Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with Holdings, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. Section 7.4. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for Holdings' use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than the Trustee's certificate of authentication. 47 65 Section 7.5. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on, any Security, including the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer, the Trustee may withhold the notice if and so long as its board of directors, the executive committee of its board of directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. Section 7.6. Reports By Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA Section 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Holders shall be mailed to Holdings and filed with the SEC and each stock exchange, if any, on which the Securities are listed. Holdings shall notify the Trustee if the Securities become listed on any stock exchange. Section 7.7. Compensation and Indemnity. Holdings shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. Holdings shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it including, without limitation, any taxes imposed on the trust or on the income from the Securities. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. Holdings shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it except for such actions to the extent caused by any negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder. The Trustee shall notify Holdings promptly of any claim asserted against the Trustee for which it may seek indemnity. Holdings shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and Holdings shall pay the reasonable fees and expenses of such counsel; provided that Holdings will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between Holdings and the Trustee in connection with such defense as reasonably 48 66 determined by the Trustee. Holdings need not pay for any settlement made without its written consent. Holdings need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure Holdings' payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal of, premium, if any, or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(5) or (6) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.8. Replacement of Trustee. The Trustee may resign by so notifying Holdings. The Holders of a majority in aggregate principal amount of the outstanding Securities may remove the Trustee by so notifying Holdings and the Trustee may appoint a successor Trustee with Holdings' consent. Holdings may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, Holdings shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by Holdings. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to Holdings. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, Holdings or the Holders of at least 10% in aggregate principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. 49 67 If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, Holdings' obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. Section 7.9. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. Section 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of Holdings are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. Section 7.11. Preferential Collection of Claims Against Holdings. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance. Holdings may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article Eight. Section 8.2. Legal Defeasance. Upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.2, Holdings shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from its obligations with respect to all outstanding 50 68 Securities on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that Holdings shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of Holdings, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, payments in respect of the principal, of, premium, if any, and interest on such Securities when such payments are due, (b) Holdings' obligations with respect to such Securities under Article Two and Section 4.2 hereof and the rights, powers, trusts, duties and immunities of the Trustee and Holdings' obligations in connection therewith, and (c) this Article Eight. Subject to compliance with this Article Eight, Holdings may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. Section 8.3. Covenant Defeasance. Upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.3, Holdings shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from its obligations under the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Securities, Holdings may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only to the extent it relates to a breach of any of the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V hereof), 6.1(4) and 6.1(7) hereof shall not constitute Events of Default. Section 8.4. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Securities: 51 69 In order to exercise either Legal Defeasance or Covenant Defeasance: (a) Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Securities, cash in United States dollars, or direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged ("U.S. Government Obligations"), or a combination thereof, in such amounts and at such times as will be sufficient, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Securities to redemption or maturity provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities on the Maturity Date or such redemption date, as the case may be; (b) in the case of an election under Section 8.2 hereof, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that (A) Holdings has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and Legal Defeasance had not occurred; (c) in the case of an election under Section 8.3 hereof, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if deposit and such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Section 6.1(5) or 6.1(6) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit (it being understood that this condition shall not be deemed satisfied until after such 91st day); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or 52 70 any other material agreement or instrument to which Holdings is a party or by which Holdings is bound (and in that connection, the Trustee shall have received a certificate from the administrative agent under the Credit Agreement to that effect with respect to such Credit Agreement if then in effect); (f) Holdings shall have delivered to the Trustee an Opinion of Counsel to the effect that, assuming that no Default or Event of Default shall occur and be continuing under Section 6.1(5) or 6.1(6) during the period ending on the 91st day after the date of deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) Holdings shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by Holdings with the intent of preferring the Holders over the other creditors of Holdings or with the intent of defeating, hindering, delaying or defrauding creditors of Holdings, or others; and (h) Holdings shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.6 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 8.4 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (excluding Holdings or any Affiliate thereof) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. Holdings shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Obligations deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to Holdings from time to time upon the request of Holdings any money or non-callable U.S. Government Obligations held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under 53 71 Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Covenant Defeasance. Section 8.6. Repayment to Holdings. Any money deposited with the Trustee or any Paying Agent in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to Holdings on its request or shall be discharged from such trust; and the Holder of such Security shall thereafter, as a creditor, look only to Holdings for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense of Holdings cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to Holdings. Section 8.7. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then Holdings' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; provided, however, that, if Holdings makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, Holdings shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1. Without Consent of Holders. Holdings, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder; (2) to comply with Article Five; 54 72 (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as from time to time amended, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Internal Revenue Code of 1986, as from time to time amended; (4) to make any other change that does not adversely affect the rights of any Holders; or (5) to comply with any requirements of the SEC in connection with the qualification of this Indenture under the TIA; provided that Holdings has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.1. Section 9.2. With Consent of Holders. Subject to Section 6.7, Holdings, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least fifty one percent in aggregate principal amount of the outstanding Securities, may amend or supplement this Indenture or the Securities, without notice to any other Holders. Subject to Section 6.7, the Holder or Holders of at least fifty one percent in aggregate principal amount of the outstanding Securities may waive compliance by Holdings with any provision of this Indenture or the Securities without notice to any other Holder. Without the consent of each Holder affected, however, no amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may: (1) change the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture or the Securities; (2) reduce the rate or extend the time for payment of interest on any Security; (3) reduce the principal amount of any Security; (4) change the Maturity Date of any Security, or alter the redemption provisions contained in paragraph 5 of the Securities in a manner adverse to any Holder; (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on, or redemption payment with respect to, any Security; (6) make any changes in Section 6.4, 6.7 or this third sentence of this Section 9.2; or 55 73 (7) make the principal of, or the interest on any Security payable with anything or in any manner other than as provided for in this Indenture and the Securities as in effect on the date hereof. Without the consent of the Holder or Holders of at least 66 2/3% of the aggregate principal amount of the outstanding Securities, no change may be made to the provisions of Article Eleven that adversely affects the rights of any Holder under Article Eleven. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, Holdings shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of Holdings to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. In connection with any amendment, supplement or waiver under this Article Nine, Holdings may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. Holdings agrees that no amendment, supplement or waiver under this Article Nine may make any change that adversely affects the rights under Article Eleven of any holders of Senior Indebtedness unless the holders of such Senior Indebtedness consent to the change. Section 9.3. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 9.4. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or Holdings received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. Holdings may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, 56 74 those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (7) of Section 9.2, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. Section 9.5. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if Holdings or the Trustee so determines, Holdings in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 9.6. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. ARTICLE X MEETINGS OF SECURITYHOLDERS Section 10.1. Purposes for Which Meetings May Be Called. A meeting of Holders may be called at any time and from time to time pursuant to the provisions of this Article Ten for any of the following purposes: (a) to give any notice to Holdings or to the Trustee, or to give any directions to the Trustee, or to waive or to consent to the waiving of any Default or Event of 57 75 Default hereunder and its consequences, or to take any other action authorized to be taken by Holders pursuant to any of the provisions of Article Six; (b) to remove the Trustee or appoint a successor Trustee pursuant to the provisions of Article Seven; (c) to consent to an amendment, supplement or waiver pursuant to the provisions of Section 9.2; or (d) to take any other action (i) authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Securities under any other provision of this Indenture, or authorized or permitted by law or (ii) which the Trustee deems necessary or appropriate in connection with the administration of this Indenture. Section 10.2. Manner of Calling Meetings. The Trustee may at any time call a meeting of Holders to take any action specified in Section 10.1, to be held at such time and at such place in New York, New York or elsewhere as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed by the Trustee, first-class postage prepaid, to Holdings and to the Holders at their last addresses as they shall appear on the registration books of the Registrar not less than 10 nor more than 60 days prior to the date fixed for a meeting. Any meeting of Holders shall be valid without notice if the Holders of all Securities then outstanding are present in person or by proxy, or if notice is waived before or after the meeting by the Holders of all Securities outstanding, and if Holdings, any Subsidiary and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3. Call of Meetings by Holdings or Holders. In case at any time Holdings, pursuant to a Board Resolution, or the Holders of not less than 10% in aggregate principal amount of the Securities then outstanding shall have requested the Trustee to call a meeting of Holders to take any action specified in Section 10.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then Holdings or the Holders in the amount above specified may determine the time and place in New York, New York or elsewhere for such meeting and may call such meeting for the purpose of taking such action, by mailing or causing to be mailed notice thereof as provided in Section 10.2, or by causing notice thereof to be published at least once in each of two successive calendar weeks (on any Business Day during such week) in a newspaper or newspapers printed in the English language, customarily published at least five days a week of a general circulation in New York, New York, the first such publication to be not less than 10 nor more than 60 days prior to the date fixed for the meeting. 58 76 Section 10.4. Who May Attend and Vote at Meetings. To be entitled to vote at any meeting of Holders, a person shall (a) be a registered Holder of one or more Securities, or (b) be a person appointed by an instrument in writing as proxy for the registered Holder or Holders of Securities. The only persons who shall be entitled to be present or to speak at any meeting of Holders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of Holdings and its counsel. Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment. Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any action by or any meeting of Holders, in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, and submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think appropriate. Such regulations may fix a record date and time for determining the Holders of record of Securities entitled to vote at such meeting, in which case those and only those persons who are Holders of Securities at the record date and time so fixed, or their proxies, shall be entitled to vote at such meeting whether or not they shall be such Holders at the time of the meeting. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by Holdings or by Holders as provided in Section 10.3, in which case Holdings or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote. At any meeting each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Securities challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman may adjourn any such meeting if he is unable to determine whether any Holder or proxy shall be entitled to vote at such meeting. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Holders. Any meeting of Holders duly called pursuant to the provisions of Section 10.2 or Section 10.3 may be adjourned from time to time by vote of the Holders of a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote, and the meeting may be held as so adjourned without further notice. Section 10.6. Voting at the Meeting and Record To Be Kept. The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their 59 77 representatives by proxy and the principal amount of the Securities voted by the ballot. The permanent chairman of the meeting shall appoint two inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts, setting forth a copy of the notice of the meeting and showing that such notice was mailed as provided in Section 10.2 or published as provided in Section 10.3. The record shall be signed and verified by the affidavits of the permanent chairman and the secretary of the meeting and one of the duplicates shall be delivered to Holdings and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting. Nothing contained in this Article Ten shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Holders under any of the provisions of this Indenture or of the Securities. ARTICLE XI SUBORDINATION Section 11.1. Securities Subordinated to Senior Indebtedness. Anything herein to the contrary notwithstanding, Holdings, for itself and its successors, and each Holder, by accepting a Security, agrees, that the payment of the principal of and interest on and premiums, penalties, fees and other liabilities (including, without limitation, liabilities in respect of any indemnity, reimbursement, compensation or contribution obligations, the occurrence of a Change of Control, any liquidated damage provision, any breach of representation or warranty, or any rights of redemption or rescission under this Indenture, the Merger Agreement and the Registration Rights Agreement or by law or otherwise) ("Other Obligations") with respect to the Securities is subordinated, to the extent and in the manner provided in this Article Eleven, to the prior payment in full in cash of all Senior Indebtedness. This Article Eleven shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness and such holders are made obligees hereunder and any 60 78 one or more of them may enforce such provisions. Holders of Senior Indebtedness need not prove reliance on the subordination provisions hereof. Section 11.2. No Payment on Securities in Certain Circumstances. (a) No direct or indirect payment or distribution shall be made by or on behalf of Holdings (other than a payment in Secondary Securities) on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities (i) upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof and interest thereon shall first be paid in full in cash or (ii) upon the happening of any default in payment of any principal of or interest on any Senior Indebtedness when the same becomes due and payable (a "Payment Default"), unless and until such default shall have been cured or waived or shall have ceased to exist. (b) Without limiting the effect of Section 11.2(a), upon the happening of a default or event of default (other than a Payment Default) (including any event which, with the giving of notice or lapse of time, or both, would become an event of default and including any default or event of default that would result upon any payment with respect to the Securities) with respect to any Senior Indebtedness, as such default or event of default is defined therein or in the instrument or agreement under which it is outstanding, and upon written notice thereof given to Holdings and the Trustee by any holders of such Senior Indebtedness or their Representative specifying an intent to effect a Payment Blockage Period hereunder ("Payment Notice"), then, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment or distribution (other than of Secondary Securities) shall be made by or on behalf of Holdings on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities; provided, however, that this paragraph (b) shall not prevent the making of any payment for a period of (a "Payment Blockage Period") of more than 179 days after a Payment Notice shall have been given (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and Holdings from the Credit Agent or the Representative which gave such Payment Notice, (ii) repayment in full of such Senior Indebtedness or (iii) because the default specified in the Payment Notice is no longer continuing). Subject to the provisions contained in Section 11.2(a) above, Holdings may resume payments on the Securities after such Payment Blockage Period expires. Notwithstanding the foregoing, (i) not more than one Payment Notice shall be given within a period of 360 consecutive days, and (ii) a Payment Notice may only be given (A) if Senior Indebtedness is outstanding under the Credit Agreement at the time of such notice, by the Credit Agent and (B) if no Senior Indebtedness is outstanding under the Credit Agreement at the time of such notice, by a holder or holders (or the Representative of holders) of at least $35,000,000 principal amount of such Senior Indebtedness. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Senior 61 79 Indebtedness whether or not within a period of 360 consecutive days unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In furtherance of the provisions of Section 11.1, if, notwithstanding the foregoing provisions of this Section 11.2, any direct or indirect payment or distribution other than Secondary Securities on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities shall be made by or on behalf of Holdings and received by the Trustee, by any Holder or by any Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent, money for any such payment or distribution shall be segregated and held in trust), at a time when such payment or distribution was prohibited by the provisions of this Section 11.2, then, unless and until such payment or distribution is no longer prohibited by this Section 11.2, such payment or distribution (subject to the provisions of Sections 11.6 and 11.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent, as the case may be, for the benefit of, and shall be immediately paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to all concurrent payments and distributions to or for the holders of Senior Indebtedness. Holdings shall give prompt notice to the Trustee of any default or event of default or any acceleration under any Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness may have been issued. Failure to give such notice shall not affect the subordination of the Securities to Senior Indebtedness provided in this Article Eleven. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or willful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Holdings. Upon any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, upon any dissolution, winding-up, total or partial liquidation or total or partial reorganization of Holdings (including, without limitation, in bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings and whether voluntary or involuntary): (a) the holders of all Senior Indebtedness shall first be entitled to receive payments in full in cash of the principal thereof and interest thereon before the Holders are entitled to receive any payment on account of the principal of or interest on or Other Obligations with respect to the Securities (whether by payment, acquisition, retirement, defeasance, redemption or otherwise) or any other payment or distribution of assets or securities by or on behalf of Holdings; 62 80 (b) any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled except for the provisions of this Article Eleven, including any such payment or distribution that is payable or deliverable by reason of the payment of any other Indebtedness of Holdings being subordinated to the payment of the Securities (except for any such payment or distribution (x) authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of the Securities to the Senior Indebtedness, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law, (y) of securities that (i) are unsecured, (ii) have a Weighted Average Life to Maturity and final maturity that are no shorter than the Weighted Average Life to Maturity of the Securities or any securities issued to the holders of Senior Indebtedness under the Loan Documents pursuant to a plan of reorganization or readjustment and (iii) are subordinated, to at least the same extent as the Securities, to the payment of all Senior Indebtedness then outstanding or (z) of Capital Stock), shall be paid by the liquidating trustee or agent or other person making such a payment or distribution, directly to the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash, after giving effect to all concurrent payments and distributions to or for the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent, money, assets or securities of any kind or character for any such payment or distribution shall be segregated or held in trust) on account of principal of or interest on or Other Obligations with respect to the Securities before all Senior Indebtedness is paid in full in cash, such payment or distribution (subject to the provisions of Sections 11.6 and 11.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash, after giving effect to all concurrent payments and distributions to or for the holders of Senior Indebtedness. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or wilful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay over such payment over to, the holders of Senior Indebtedness or their Representative. Holdings shall give prompt notice to the Trustee prior to any dissolution, winding-up, total or partial liquidation or total or partial reorganization of Holdings or assignment for the benefit of creditors by Holdings. 63 81 Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash of all Senior Indebtedness, the Holders of Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of Holdings applicable to the Senior Indebtedness until all amounts owing on the Securities shall be paid in full in cash, and for the purpose of such subrogation no payments or distributions to the holders of Senior Indebtedness by or on behalf of Holdings, or by or on behalf of the Holders by virtue of this Article Eleven, which otherwise would have been made to the Holders, shall, as between Holdings and the Holders, be deemed to be payment by Holdings to or on account of the Senior Indebtedness, it being understood that the provisions of this Article Eleven are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Eleven shall have been applied, pursuant to the provisions of this Article Eleven, to the payment of all amounts payable under the Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of the Senior Indebtedness in full in cash. Section 11.5. Obligations of Holdings Unconditional. Nothing contained in this Article Eleven or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between Holdings and the Holders, the obligation of Holdings, which is absolute and unconditional, to pay to the Holders the principal of and interest on and Other Obligations in respect of the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of Holdings other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Eleven, of the holders of Senior Indebtedness in respect of cash, property or securities of Holdings received upon the exercise of any such remedy. Upon any payment or distribution of assets or securities of Holdings referred to in this Article Eleven, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of Holdings, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Eleven. Nothing in this Section 11.5 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.7. 64 82 Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received written notice thereof from Holdings or from one or more holders of Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be entitled in all respects conclusively to assume that no such fact exists. Section 11.7. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Section 8.4 shall be for the sole benefit of Holders and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Eleven. Otherwise, any deposit of assets or securities by or on behalf of Holdings with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on or Other Obligations with respect to any Securities shall be subject to the provisions of this Article Eleven; provided that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 11.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent. Nothing contained in this Section 11.7 (except the first sentence of this Section 11.7) shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Eleven. Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce the subordination provisions contained in this Article Eleven shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Holdings or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by Holdings with the terms of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, restate, supplement, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with Holdings and its Subsidiaries all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. No provision in any supplemental indenture that affects the subordination of the Securities or other provisions of this Article Eleven shall be effective against the holders of the Senior Indebtedness who have not consented thereto. 65 83 Each Holder by accepting a Security agrees that the Representative of any Senior Indebtedness (including without limitation, the Credit Agent), in its discretion, without notice or demand and without affecting any rights of any holder of Senior Indebtedness under this Article Eleven, may foreclose any mortgage or deed of trust covering interests in real property secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives any defense to the enforcement by the Representative (including without limitation, the Credit Agent) of any Senior Indebtedness or by any holder of any Senior Indebtedness against such Holder of this Article Eleven after a judicial or nonjudicial sale or other disposition of its interests in real property secured by such mortgage or deed of trust; and such Holder expressly waives any defense or benefits that may be derived from California Civil Code Section Section 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil Procedure Section Section 580a, 580d or 726, or comparable provisions of the laws of any other jurisdiction or any similar statute in effect in any other jurisdiction. Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities. Each Holder by accepting a Security authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Eleven, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of Holdings (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings) tending towards liquidation or reorganization of the business and assets of Holdings, the immediate filing of a claim for the unpaid balance of its or his Securities and Other Obligations in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. Section 11.10. Right of Trustee to Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Eleven in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. 66 84 Section 11.11. Article Eleven Not to Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article Eleven shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.1. Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall in good faith mistakenly pay over or deliver to the Holders of Securities or Holdings or any other person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Eleven or otherwise. Nothing in this Section 11.12 shall affect the obligation of any person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. ARTICLE XII SATISFACTION AND DISCHARGE Section 12.1. Satisfaction and Discharge of the Indenture. This Indenture will be discharged and will cease to be of further effect as to all outstanding Securities when: (a) all Securities theretofore authenticated and delivered (except lost, stolen or destroyed Securities which have been replaced or paid and Securities for whose payment money has theretofore been deposited in trust and thereafter repaid to Holdings) have been delivered to the Trustee for cancellation; or (b) (1) all Securities not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and Holdings has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on the Securities not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (2) Holdings has paid all sums payable by it under this Indenture; and (3) Holdings has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Securities at maturity or the redemption date, as the case may be. Section 12.2. Conditions to Satisfaction and Discharge of the Indenture. 67 85 Holdings shall deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. ARTICLE XIII MISCELLANEOUS Section 13.1. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed duties shall control. Section 13.2. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to Holdings: c/o The Yucaipa Companies 10000 Santa Monica Boulevard Fifth Floor Los Angeles, California 90067 Attention: Mark A. Resnik if to the Trustee: ____________________________________ ____________________________________ ____________________________________ ____________________________________ Attention: Corporate Trust Administration Each of Holdings and the Trustee by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to Holdings and the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 68 86 Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 13.3. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. Holdings, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c). Section 13.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by Holdings to the Trustee to take any action under this Indenture, Holdings shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 13.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.7, shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that with respect to 69 87 matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 13.6. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 13.7. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, Los Angeles, California or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 13.8. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. Section 13.9. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of Holdings or any Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of Holdings shall not have any liability for any obligations of Holdings under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Holder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. Section 13.11. Successors. All agreements of Holdings in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. 70 88 Section 13.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 13.13. Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. 71 89 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the date first written above. Dated: ________ __, 1995 [SEAL] FOOD 4 LESS HOLDINGS, INC. Attest: By: ------------------------------------ Name: Mark A. Resnik Title: Vice President ____________________________ Dated: ________ __, 1995 [SEAL] ---------------------------------------- ---------------------------------------- as Trustee Attest: By: ------------------------------------ Name: Title: ____________________________ S-1 90 EXHIBIT A PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO ORIGINAL ISSUE DISCOUNT AND TREASURY REGULATIONS PROMULGATED THEREUNDER WITH RESPECT TO DEBT INSTRUMENTS ISSUED ON OR AFTER APRIL 4, 1994, THE FOLLOWING INFORMATION IS PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE AMOUNT OF $____ PER FACE AMOUNT; (2) THE ISSUE PRICE OF THIS SECURITY IS $___ PER FACE AMOUNT; (3) THE ISSUE DATE OF THIS SECURITY IS ______ __, ____; AND (4) THE YIELD TO MATURITY OF THIS SECURITY IS __%. FOOD 4 LESS HOLDINGS, INC. 13% Senior Subordinated Pay-in-Kind Debentures due ________ __, 2007 No. $ Food 4 Less Holdings, Inc., a Delaware corporation ("Holdings," which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of dollars, on ________ __, 2007. Interest payment dates: ________________ and _______________ commencing ________ __, ____. Record dates: _________ and _________. Reference is made to the further provisions of this security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, Holdings has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: ________ __, 1995 FOOD 4 LESS HOLDINGS, INC. By: Name: Title: This is one of the Securities described in the within-mentioned Indenture. Dated: ________ __, 1995 __________________________________ as Trustee By: Title: A-1 91 FOOD 4 LESS HOLDINGS, INC. 13% Senior Subordinated Pay-in-Kind Debenture due ________ __, 2007 1. Interest. FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Holdings may, in its sole discretion, issue additional Securities ("Secondary Securities") in lieu of a cash payment of any or all of the interest due on any Interest Payment Date occurring on or prior to [the Interest Payment Date five years after the Issue Date]. If Holdings issues Secondary Securities in lieu of cash payment, in whole or in part, of interest due on any Interest Payment Date occurring on or prior to [the Interest Payment Date five years after the Issue Date], pursuant to this paragraph, it shall give notice to the Trustee not less than 5 Business Days prior to the relevant Interest Payment Date, and shall instruct the Trustee (upon written order of Holdings signed by an Officer of Holdings given not less than 5 nor more than 45 days prior to such Interest Payment Date) to authenticate a Secondary Security, dated such Interest Payment Date, in a principal amount equal to the amount of interest not paid in cash in respect of this Security on such Interest Payment Date. Each issuance of Secondary Securities in lieu of cash payments of interest on the Securities shall be made pro rata with respect to the outstanding Securities. Any such Secondary Securities shall be governed by the Indenture and shall be subject to the same terms (including the maturity date and the rate of interest from time to time payable thereon) as this Security (except, as the case may be, with respect to the title, issuance date and aggregate principal amount). The term Securities shall include the Secondary Securities that may be issued under the Indenture. Holdings will pay interest semi-annually in arrears on ___________ and _________ of each year (the "Interest Payment Date"), commencing ___________, ____. Interest on this Security will accrue from the date of issuance or from the most recent date to which interest has been paid. Interest will be computed on the basis of a 360-day year of twelve 30-day months and actual number of days elapsed. Holdings shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at the rate per annum borne by the Securities. 2. Method of Payment. Holdings shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. Holdings shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender") (or, pursuant to A-2 92 Paragraph 1 hereof, in Secondary Securities). However, Holdings may pay principal and interest by its check payable in such U.S. Legal Tender or by wire transfer of federal funds (or, pursuant to Paragraph 1 hereof, in Secondary Securities). Holdings may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota, N.A. (the "Trustee"), will act as Paying Agent and Registrar. Holdings may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. Holdings or any Subsidiary may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. Holdings issued the Securities under an Indenture, dated as of ________ __, 1995 (the "Indenture"), between Holdings and the Trustee. This Security is one of a duly authorized issue of Securities of Holdings designated as its 13% Senior Subordinated Pay-in-Kind Debentures due 2007. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of Holdings limited in aggregate principal amount to $100,000,000, except for Secondary Securities and except as otherwise provided in the Indenture. 5. Optional Redemption. The Securities may not be redeemed at the option of Holdings prior to ________ __, 2000. Thereafter, upon at least 30 days' but not more than 60 days' notice to the Holders, Holdings may redeem all or any of the Securities at any time at redemption prices equal to the applicable percentage of the principal amount thereof set forth below, plus accrued interest, if any, to the Redemption Date (as defined in the Indenture) if redeemed during the 12-month period beginning ________ __ of the years indicated below:
Applicable Year Percentage ---- ---------- 2000 . . . . . . . . . . . . . . . . . . . . . . . 106.500% 2001 . . . . . . . . . . . . . . . . . . . . . . . 104.875% 2002 . . . . . . . . . . . . . . . . . . . . . . . 103.250% 2003 . . . . . . . . . . . . . . . . . . . . . . . 101.625% 2004 and thereafter . . . . . . . . . . . . . . . . 100.000 %
Notwithstanding the foregoing, prior to ________ __, 1998, Holdings may use the Net Proceeds (as defined in the Indenture) of an Initial Public Offering (as defined in the A-3 93 Indenture) of Holdings or the Company to redeem up to 35% of the Securities at a redemption price equal to 110% of the principal amount thereof plus accrued interest, if any, to the date of redemption. In order to effect the foregoing redemption, Holdings shall send the notice required by Section 3.3 of the Indenture not later than 30 days after the Initial Public Offering Consummation Date (as defined in the Indenture). 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless Holdings defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. In the event of a Change of Control, upon the satisfaction of the conditions set forth in the Indenture, Holdings shall be required to offer to purchase all of the then outstanding Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Holders of Securities which are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. 8. Limitation on Disposition of Assets. Under certain circumstances Holdings is required to apply the net proceeds from Asset Sales to the repayment of Indebtedness of Holdings or any Subsidiary, to make Related Business Investments and certain other investments or to purchase in a Net Proceeds Offer at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest, if any, to the date of purchase, which shall in the aggregate equal the net proceeds required to be applied thereto. 9. Subordination. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of Senior Indebtedness of Holdings whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder, by accepting a Security, agrees to such subordination and authorizes the Trustee to give it effect. A-4 94 10. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000 (other than Secondary Securities which may be in denominations of less than $1,000). A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. No service charge shall be made for any transfer, registration or exchange, but Holdings may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or 9.5 of the Indenture. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agents will pay the money back to Holdings at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 13. Discharge Prior to Redemption or Maturity. If Holdings at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, Holdings will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of fifty one percent in aggregate principal amount, as the case may be, of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, comply with Article Five of the Indenture or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other A-5 95 change that does not adversely affect the rights of any Holder of a Security. An amendment may not make any change that adversely affects the rights under Article 11 of the Indenture of any holders of Senior Indebtedness unless the holders of Senior Indebtedness consent to the change. 15. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Holdings. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with Holdings, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of Holdings shall have any liability for any obligation of Holdings under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. A-6 96 20. Governing Law. The Laws of the State of New York shall govern this Security and the Indenture. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, Holdings will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Security, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. Holdings will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: FOOD 4 LESS HOLDINGS, INC., c/o The Yucaipa Companies, 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067, Attn: Mark A. Resnik. 24. Certain Information Obligations. To the extent permitted by applicable law or regulation, whether or not Holdings is subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. Holdings shall file with the Trustee copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to the Indenture. At any time when Holdings is not permitted by applicable law or regulations to file the aforementioned reports, Holdings shall furnish the Trustee and the Holders with the information that Holdings would have had to provide to the SEC if Holdings had been subject to Section 13 or 15(d) of the Exchange Act. 25. Holdings Indebtedness. Each Holder acknowledges that Holdings is the sole obligor of the Securities and no Subsidiary of Holdings is a co-obligor or a guarantor of the Securities. A-7 97 [FORM OF ASSIGNMENT] I or we assign this Security to_______________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ (Print or type name, address and zip code of assignee) Please insert Social Security or other identifying number of assignee ______________________________________________________________________________ and irrevocably appoint _______________________ agent to transfer this Security on the books of Holdings. The agent may substitute another to act for him. Dated:____________________________ Signed:___________________________________ ______________________________________________________________________________ ______________________________________________________________________________ (Sign exactly as your name appears on the front of this Security) Signature Guarantee:__________________________________________________________ A-8 98 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Security purchased by Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, check the box: Section 4.14 [ ] Section 4.15 [ ] If you want to elect to have only part of this Security purchased by Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, state the amount: $ Date:_________________________ Signature:____________________________________ (Sign exactly as your name appears on the front of this Security) Signature Guarantee:_________________________________________________________ A-9 EX-4.8.6 4 SIXTH MODIFICATION AGREEMENT DATED AS NOV 22, 1994 1 EXHIBIT 4.8.6 SIXTH MODIFICATION AGREEMENT This SIXTH MODIFICATION AGREEMENT, dated as of November 22, 1994, is made by and among (i) Food 4 Less Supermarkets, Inc., a Delaware corporation ("Supermarkets"), (ii) Alpha Beta Company, a California corporation ("Alpha Beta"), Cala Foods, Inc., a California corporation ("Cala"), Falley's, Inc., a Kansas corporation ("Falley's"), and Food 4 Less Merchandising, Inc., a California corporation (together with Alpha Beta, Cala and Falley's, the "Subsidiary Borrowers"), (iii) Bay Area Warehouse Stores, Inc., a California corporation, Bell Markets, Inc., a California corporation, Cala Co., a Delaware corporation, Food 4 Less GM, Inc., a California corporation, Food 4 Less of California, Inc., a California corporation, and Food 4 Less of Southern California, Inc., a Delaware corporation (together with Supermarkets and the Subsidiary Borrowers, the "Loan Parties"), (iv) the Lender Parties (as defined in the Credit Agreement referred to below) whose signatures appear on the execution pages hereof, (v) Bankers Trust Company, Citicorp North America, Inc. ("Citicorp") and Chemical Bank (successor in interest to Manufacturers Hanover Trust Company), as co-agents for the Lender Parties (in such capacity, the "Co-Agents"), and (vi) Citicorp, as administrative agent for the Lender Parties (in such capacity, the "Administrative Agent"). PRELIMINARY STATEMENTS: (1) Supermarkets, the Subsidiary Borrowers, the Lenders, the Designated Issuers of the Lenders, the Co-Agents and the Administrative Agent have entered into a Credit Agreement dated as of June 17, 1991, as amended by the First Modification Agreement dated as of January 24, 1992, the Second Modification Agreement dated as of April 13, 1992, the Third Modification Agreement dated as of September 15, 1992, the Fourth Modification Agreement dated as of October 9, 1992 and the Fifth Modification Agreement dated as of December 31, 1992 (as so amended, the "Credit Agreement"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. (2) The Borrower has requested that the Required Lenders agree to amend certain provisions of the Credit Agreement as set forth herein to provide for the issuance by the Borrower of Notes in registered form. The undersigned Lender Parties have agreed to do so as hereinafter set forth upon the terms and conditions set forth below. 2 2 SECTION 1. Amendments to Credit Agreement. Subject to the fulfillment of the conditions set forth in Section 2 hereof, the Credit Agreement is hereby amended as follows: (a) Section 1.01 of the Credit Agreement is amended by adding the following definitions: "'Non-U.S. Lender' has the meaning set forth in Section 2.05(d)." "'Notes' means any promissory notes (including, without limitation, Registered Notes) delivered by any of the Borrowers pursuant to Section 2.05." "'Registered Note' means a Note that has been issued in registered form pursuant to Section 2.05(d)." "'U.S. Person' means any Person that is created or organized under the laws of the United States of America or any State thereof, or any estate or trust that is subject to United States Federal income taxation regardless of the source of its income." "'U.S. Taxes" means any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States of America or any taxing authority thereof." (b) Section 2.05 of the Credit Agreement is amended by adding at the end thereof a new subsection (d) to read as follows: "(d) Any Lender that is not a U.S. Person (each such Person being a 'Non-U.S. Lender') and that could become completely exempt from withholding of U.S. Taxes in respect of payment of the Obligations due to such Lender hereunder relating to its Term Advances if the Note or Notes evidencing its Term Advances were in registered form for United States Federal income tax purposes, may request, in a notice to Supermarkets and the Agent, (i) the exchange of such Non-U.S. Lender's Note or Notes evidencing its Term Advances for a Registered Note or Registered Notes (in which case Supermarkets agrees to promptly thereafter exchange such Note or Notes for a Registered Note or Registered Notes), or (ii) if Supermarkets has not previously issued a Note or Notes evidencing such Non-U.S. Lender's Term 3 3 Advances, the issuance of a Registered Note or Registered Notes to evidence its Term Advances (in which event Supermarkets agrees to promptly thereafter issue such Registered Note or Registered Notes) (which Notes in either such case shall be in substantially the form of Exhibit L-1, except that it shall be legended on the face thereof as a 'Registered Note' and shall be made payable to such Non-U.S. Lender or its registered assigns). Registered Notes may not be exchanged for Notes that are not in registered form." (c) Section 4.07 (e) of the Credit Agreement is amended by inserting the following after the first sentence thereof: "If a Lender Party provides a form specified in clause (iii) above, such Lender Party shall deliver to Supermarkets an annual certificate stating that (A) such Lender Party is not a 'bank' within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code and (ii) such Lender Party shall promptly notify Supermarkets after it obtains knowledge that any fact set forth in such form or certificate ceases to be true and correct or if it otherwise determines that it is no longer in a position to provide such form or certificate to Supermarkets." (d) Section 10.09 of the Credit Agreement is amended as follows: (i) By inserting after the last parenthetical phrase in clause (iii) of subsection (a) thereof the following: "and, in the case of an assignment of a Registered Note, such Note, duly endorsed by (or accompanied by a written instrumennt of assignment or transfer duly executed by) the assigning Lender (as the registered holder thereof) to the assignee"; (ii) By inserting after the words "Assignment and Acceptance" the first time such words appear in the second sentence of subsection (a) thereof the following: "(which shall not be any earlier than the date on which the Agent so accepts and records the Assignment and Acceptance in the Register)"; 4 4 (iii) By inserting after the words "Administrative Agent" in the first line of subsection (c) thereof the following: ", acting for this purpose as agent for the Borrower,"; (iv) By inserting after the first sentence of subsection (c) thereof the following: "The Agent shall incur no liability of any kind to any Loan Party, any Lender Party or any other Person with respect to its maintenance of the Register or the recordation of information therein."; (v) By deleting the word "may" in the original second sentence of subsection (c) thereof and inserting "shall" in lieu thereof, and by inserting after the word "hereunder" in the same sentence the following: "(and, in the case of Registered Notes, as the owner of the Registered Notes registered to it)"; (vi) By inserting after the words "Eligible Assignee" in subsection (d) thereof the following: "and, in the case of an assignment of a Registered Note, such Note, duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the assigning Lender (as the registered holder thereof) to the assignee"; and (vii) By adding after subsection (d) thereof a new subsection (d-1) to read in its entirety as follows: "(d-1) Upon the acceptance by the Administrative Agent of the Assignment and Acceptance, the parties to such Assignment and Acceptance may at any time request that new Notes be issued to the assigning Lender and the assignee by (i) providing written notice of such request to the Administrative Agent and the applicable Borrower and (ii) delivering such assigning Lender's Notes, duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the assigning Lender to the assignee, to the applicable Borrower (or, in the case of Registered Notes, to the Administrative Agent as agent for Supermarkets) for cancellation and exchange. The Administrative Agent, in the case of Registered Notes, shall register such transfer in the Register and shall 5 5 forward the Registered Notes to Supermarkets for cancellation and exchange. Within five Business Days after its receipt of any Notes for cancellation and exchange pursuant to this subsection (d-1), together with notice from the Administrative Agent that it has accepted and recorded the Assignment and Acceptance, the applicable Borrower, at its own expense, shall execute and deliver to the assignee in exchange for the surrendered Notes a new Note or Notes payable to the order of such assignee (or, in the case of Registered Notes, payable to the assignee or its registered assigns) in an amount in each case equal to the applicable Commitment or Commitments assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained any Commitments hereunder, a new Note or Notes payable to the order of the assigning Lender (or, in the case of Registered Notes, payable to the assignor or its registered assigns) in an amount in each case equal to the applicable Commitment or Commitments retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit L-1, L-2 or L-3, as applicable. The Administrative Agent shall incur no liability of any kind to any Loan Party, any Lender Party or any other Person with respect to the transfer, surrender, cancellation or exchange of the Notes.'' (e) Schedule 1 to Exhibit B (Assignment and Acceptance) to the Credit Agreement is amended by inserting the following prior to the line that begins with the words "Designated Issuer": "Type of Note, if any (indicate Registered or Non-Registered) ____________ ____________ ____________" SECTION 2. Conditions of Effectiveness. The effectiveness of this Sixth Modification Agreement and the amendments set forth in Section 1 hereof shall be subject to receipt by the Administrative Agent of counterparts of this Sixth Modification Agreement executed by (A) Supermarkets, each of the Subsidiary Borrowers, and each of the other Loan Parties and (B) the Required Lenders (or, as to any of the 6 6 Required Lenders, advice satisfactory to the Administrative Agent that such Required Lenders have executed this Sixth Modification Agreement). SECTION 3. Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Sixth Modification Agreement, (i) each reference in the Credit Agreement to its name, "this Agreement", "hereunder", "hereof" or words of like import referring thereto, and each reference in the other Loan Documents to such name, "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby, and (ii) each reference in any Loan Document to any term defined in the Credit Agreement shall mean and be a reference to such term as defined therein after giving effect to the amendments set forth herein. (b) Except as specifically amended above, the Credit Agreement, the Guaranty and all other Loan Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Sixth Modification Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 4. Execution in Counterparts. This Sixth Modification Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. SECTION 5. GOVERNING LAW. THIS SIXTH MODIFICATION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW RULES OF ANY JURISDICTION). 7 S-1 IN WITNESS WHEREOF, the parties hereto have caused this Sixth Modification Agreement to be executed by their respective officers thereunto duly anthorized, as of the date first above written. BORROWERS: FOOD 4 LESS SUPERMARKETS, INC. By: ---------------------------- Title: Vice President ALPHA BETA COMPANY By: ---------------------------- Title: Vice President CALA FOODS, INC. By: ---------------------------- Title: Vice President FALLEY'S, INC. By: ----------------------------- Title: Vice President FOOD 4 LESS MERCHANDISING, INC. By: ----------------------------- Title: Vice President 8 S-2 OTHER LOAN PARTIES: BAY AREA WAREHOUSE STORES, INC. By ----------------------------- Title: Vice President BELL MARKETS, INC. By ----------------------------- Title: Vice President CALA CO. By ----------------------------- Title: Vice President FOOD 4 LESS GM, INC. By ----------------------------- Title: Vice President FOOD 4 LESS OF CALIFORNIA, INC. By ----------------------------- Title: Vice President FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. By ----------------------------- Title: Vice President EX-4.8.7 5 SEVENTH MODIFICATION AGREEMENT DATED JAN 25, 1995 1 Exhibit 4.8.7 SEVENTH MODIFICATION AGREEMENT This SEVENTH MODIFICATION AGREEMENT, dated as of January 23, 1995, is made by and among (i) Food 4 Less Supermarkets, Inc., a Delaware corporation ("Supermarkets"), (ii) Alpha Beta Company, a California corporation ("Alpha Beta"), Cala Foods, Inc., a California corporation ("Cala"), Falley's, Inc., a Kansas corporation ("Falley's"), and Food 4 Less Merchandising, Inc., a California corporation (together with Alpha Beta, Cala and Falley's, the "Subsidiary Borrowers"), (iii) Bay Area Warehouse Stores, Inc., a California corporation, Bell Markets, Inc., a California corporation, Cala Co., a Delaware corporation, Food 4 Less GM, Inc., a California corporation, Food 4 Less of California, Inc., a California corporation, and Food 4 Less of Southern California, Inc., a Delaware corporation (together with Supermarkets and the Subsidiary Borrowers, the "Loan Parties"), (iv) the Lender Parties (as defined in the Credit Agreement referred to below) whose signatures appear on the execution pages hereof, (v) Bankers Trust Company, Citicorp North America, Inc. ("Citicorp") and Chemical Bank (successor in interest to Manufacturers Hanover Trust Company), as co-agents for the Lender Parties (in such capacity, the "Co-Agents"), and (vi) Citicorp, as administrative agent for the Lender Parties (in such capacity, the "Administrative Agent"). PRELIMINARY STATEMENTS: (1) Supermarkets, the Subsidiary Borrowers, the Lenders, the Designated Issuers of the Lenders, the Co-Agents and the Administrative Agent have entered into a Credit Agreement dated as of June 17, 1991, as amended by the First Modification Agreement dated as of January 24, 1992, the Second Modification Agreement dated as of April 13, 1992, the Third Modification Agreement dated as of September 15, 1992, the Fourth Modification Agreement dated as of October 9, 1992, the Fifth Modification Agreement dated as of December 21, 1992 and the Sixth Modification Agreement dated as of November 22, 1994 (as so amended, the "Credit Agreement"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. (2) The Borrower has requested that the Required Lenders agree to amend certain provisions of the Credit Agreement as set forth herein. The undersigned Lender Parties have agreed to do so as hereinafter set forth upon the terms and conditions set forth below. 1 2 SECTION 1. Amendments to Credit Agreement. Subject to the fulfillment of the conditions set forth in Section 3 hereof, the Credit Agreement is hereby amended as follows: (a) Section 1.01 of the Credit Agreement is amended as follows: (i) The following definitions are added to Section 1.01 to read as follows: "Refinancing Date" means May 30, 1995. "Refinancing Event" means that the Borrower shall have fully prepaid the Advances and all other amounts owing to the Lenders under the terms of the Agreement. (ii) The definition of "Earnings" in Section 1.01 is amended by adding the following clause to the end thereof immediately following the words "added to the foregoing sum": "; andprovided further, however, that for purposes of calculating Earnings for any Fiscal Quarter in Fiscal Year 1995, Earnings shall not include non-cash charges up to $8,000,000 in the aggregate for all such Fiscal Quarters incurred in such Fiscal Quarter for the disposition or write-off of Equipment, leases of Equipment or Leases in connection with the remodel and conversion of Stores from one format to another." (iii) The definition of "Adjusted" Net Worth" in Section 1.01 is amended by adding after clause (e) thereof the following: ", plus (f) in the case of Supermarkets and its Subsidiaries on a consolidated basis, an amount equal to the product of (i) 100% minus the Effective Tax Rate for Fiscal Year 1995, times (ii) non-cash charges up to $8,000,000 in the aggregate for Fiscal Year 1995 for the disposition or write-off of Equipment, leases of Equipment or Leases in connection with the remodel and conversion of Stores from one format to another." (b) Section 4.01 of the Credit Agreement is amended by adding after subsection (d) thereof a new subsection (e) to read as follows: "(e) Refinancing Date Fee. In the event that the Refinancing Event shall not have occurred on or before the Refinancing Date, the Borrower hereby agrees to pay to the Administrative Agent on or before June 2, 1995, for the ratable account of the Lenders, a non-refundable fee in an amount equal to 0.25% of the sum of (a) the unpaid principal amount of the Term Advances of the Lenders outstanding as of May 30, 1995 plus (b) the aggregate amount of the Revolving Commitments and Letter of Credit Commitments of the Lenders 2 3 outstanding as of May 30, 1995. The ratable share of each Lender shall be computed on the basis of the sum of the aggregate amount of the Term Advances owing to such Lender plus the aggregate amount of the Revolving Commitments and Letter of Credit Commitments of such Lender, in each case determined as of May 30, 1995." (c) Section 7.02(e)(ii) of the Credit Agreement is amended by (1) deleting the figure under the heading "Amount" opposite "1995" and inserting in lieu of such figure "$58,000,000", and (2) deleting the figure under the heading "Amount" opposite "1996" and inserting in lieu of such figure "$41,000,000". (d) Section 7.02(e)(iii)(A) of the Credit Agreement is amended by deleting the two lines under the heading "Fiscal Year 1995" and inserting in lieu thereof the following: "First Semiannual Period $15,100,000 Second Semiannual Period $15,500,000" (e) Section 7.02(e)(iii)(B) of the Credit Agreement is amended by deleting the two lines under the heading "Fiscal Year 1996" and inserting in lieu thereof the following: "First Semiannual Period $2,000,000 Second Semiannual Period $2,000,000" (f) Section 7.03(a)(ii) of the Credit Agreement is amended by deleting the lines that begin "Second Fiscal Quarter", "Third Fiscal Quarter" and "Fourth Fiscal Quarter" under the heading "Fiscal Year 1995" and inserting in lieu thereof the following: "Second Fiscal Quarter 0.93 to 1.00 Third Fiscal Quarter 0.93 to 1.00 Fourth Fiscal Quarter 1.02 to 1.00" SECTION 2. Seventh Modification Fee. On or before January 25, 1995, the Borrower hereby agrees to pay to the Administrative Agent for the ratable account of each of the Responding Lenders (as hereinafter defined), a non-refundable fee (the "Seventh Modification Fee") in an amount equal to 0.05% of the sum of (a) the unpaid principal amount of the Term Advances of the Responding Lenders outstanding as of January 23, 1995 plus (b) the aggregate amount of the Revolving Commitments and Letter of Credit Commitments of the Responding Lenders outstanding as of January 23, 1995. As used herein, the term "Responding Lenders" shall mean and include each Lender that executes and delivers to the Administrative Agent this Seventh Modification Agreement on or before January 23, 1995 at 5:00 p.m. (Los Angeles time). The obligation of the Borrower to pay the Seventh Modification Fee (a) 3 4 shall be in addition to the Borrower's obligations with respect to any other fees and amounts owing by the Borrower to the Lenders under the Credit Agreement, and (b) shall survive the making and repaying of Advances, the termination of all Letter of Credit Liability and the termination of the Credit Agreement. The ratable share of each such Responding Lender shall be computed on the basis of the sum of the aggregate amount of the Term Advances owing to each such Responding Lender plus the aggregate amount of the Revolving Commitments and Letter of Credit Commitments of each such Responding Lender, in each case determined as of January 23, 1995. SECTION 3. Conditions of Effectiveness. The effectiveness of this Seventh Modification Agreement and the amendments set forth in Section 1 hereof shall be subject to (a) receipt by the Administrative Agent of counterparts of this Seventh Modification Agreement executed by (1) Supermarkets, each of the Subsidiary Borrowers, and each of the other Loan Parties and (2) the Required Lenders (or, as to any of the Required Lenders, advice satisfactory to the Administrative Agent that such Required Lenders have executed this Seventh Modification Agreement), and (b) the payment by the Borrower of the Seventh Modification Fee in accordance with Section 2 hereof. SECTION 4. Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Seventh Modification Agreement, (i) each reference in the Credit Agreement to its name, "this Agreement", "hereunder", "hereof" or words of like import referring thereto, and each reference in the other Loan Documents to such name, "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby, and (ii) each reference in any Loan Document to any term defined in the Credit Agreement shall mean and be a reference to such term as defined therein after giving effect to the amendments set forth herein. (b) Except as specifically amended above, the Credit Agreement, the Guaranty and all other Loan Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Seventh Modification Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 5. Execution in Counterparts. This Seventh Modification Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall 4 5 constitute but one and the same agreement. SECTION 6. GOVERNING LAW. THIS SEVENTH MODIFICATION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW RULES OF ANY JURISDICTION). 5 6 S-1 IN WITNESS WHEREOF, the parties hereto have caused this Seventh Modification Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWERS: --------- FOOD 4 LESS SUPERMARKETS, INC. By: ------------------------------ Title: ALPHA BETA COMPANY By: ------------------------------ Title: CALA FOODS, INC. By: ------------------------------ Title: FALLEY'S, INC. By: ------------------------------ Title: FOOD 4 LESS MERCHANDISING, INC. By: ------------------------------ Title: 7 S-2 OTHER LOAN PARTIES: ------------------ BAY AREA WAREHOUSE STORES, INC. By ---------------------------- Title: BELL MARKETS, INC. By ---------------------------- Title: CALA CO. By ---------------------------- Title: FOOD 4 LESS GM, INC. By ---------------------------- Title: FOOD 4 LESS OF CALIFORNIA, INC. By ---------------------------- Title: FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. By ---------------------------- Title: 8 S-3 CO-AGENTS AND ADMINISTRATIVE AGENT: ---------------------------------- BANKERS TRUST COMPANY, as Co-Agent By: ------------------------------ Title: CITICORP NORTH AMERICA, INC., as Co-Agent and Administrative Agent By: ------------------------------ Vice President CHEMICAL BANK (successor in interest to Manufacturers Hanover Trust Company), as Co-Agent By: ------------------------------ Title: LENDERS: ------- CITICORP NORTH AMERICA, INC. By: ------------------------------ Vice President BANKERS TRUST COMPANY By: -------------------------------- Title: CHEMICAL BANK (successor in interest to Manufacturers Hanover Trust Company) By: ------------------------------ Title: 9 S-4 BANQUE PARIBAS By: ------------------------------ Title: THE CHASE MANHATTAN BANK, N.A. By: ------------------------------ Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED By: ------------------------------ Title: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED By: ------------------------------ Title: THE MITSUBISHI TRUST AND BANKING CORPORATION By: ------------------------------ Title: CAISSE NATIONALE DE CREDIT AGRICOLE By: ------------------------------ Title: 10 S-5 CREDIT LYONNAIS By: ------------------------------ Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH By: ------------------------------ Title: ABN AMRO BANK, N.V., LOS ANGELES INTERNATIONAL BRANCH By: ------------------------------ Title: BANCA COMMERCIALE ITALIANA LOS ANGELES FOREIGN BRANCH By: ------------------------------ Title: BANQUE FRANCAISE DU COMMERCE EXTERIEUR By: ------------------------------ Title: DRESDNER BANK AKTIENGESELLSCHAFT LOS ANGELES AGENCY By: ------------------------------ Title: 11 S-6 RAIFFEISEN ZENTRALBANK OESTERREICH By: ------------------------------ Title: SOCIETE GENERALE By: ------------------------------ Title: THE MITSUI TRUST AND BANKING CO., LIMITED, LOS ANGELES AGENCY By: ------------------------------- Title: UNION BANK By: ------------------------------ Title: UNITED STATES NATIONAL BANK OF OREGON By: ------------------------------ Title: 12 S-7 PILGRIM PRIME RATE TRUST By: ------------------------------ Title: VAN KAMPEN MERRITT PRIME RATE INCOME TRUST By: ------------------------------ Title: BANQUE NATIONALE DE PARIS By: ------------------------------ Title: RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS, B.V. By: CHANCELLOR SENIOR SECURED MANAGEMENT, INC. as Portfolio Advisor By: --------------------------- Title: RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS 2 (ROSA 2) By: CHANCELLOR SENIOR SECURED MANAGEMENT, INC. as Portfolio Advisor By: ------------------------- Title: 13 S-8 STRATA FUNDING By: CHANCELLOR SENIOR SECURED MANAGEMENT, INC. as Portfolio Advisor By: ------------------------- Title: CERES FINANCE LTD. By: CHANCELLOR SENIOR SECURED MANAGEMENT, INC. as Portfolio Advisor By: ------------------------- Title: GIROCREDIT BANK, NEW YORK BRANCH (formerly Girozentrale Vienna) By: ------------------------------ Title: NICHIJUKIN (USA) Limited By: ------------------------------ Title: PROSPECT STREET SENIOR PORTFOLIO, L.P. By: PROSPECT STREET SENIOR LOAN CORP., Managing General Partner By: -------------------------- Title: 14 S-9 BANQUE INDOSUEZ By: ------------------------------ Title: CITIBANK, N.A. By: ------------------------------ Title: MORGAN GUARANTY TRUST CO. By: ------------------------------ Title: DESIGNATED ISSUERS: ------------------ CITIBANK, N.A., as Designated Issuer for Citicorp North America, Inc. By: ------------------------------ Title: Vice President EX-4.9 6 BANK COMMITMENT LETTER BY/AMONG FOOD 4 LESS 1 EXHIBIT 4.9 January 6, 1995 Food 4 Less Supermarkets, Inc. c/o The Yucaipa Companies 10000 Santa Monica Boulevard Fifth Floor Los Angeles, California 90067 Attention: Mr. Ronald W. Burkle Mr. Patrick Graham Re: Acquisition of Ralphs Supermarkets, Inc. Gentlemen: You have advised us that Food 4 Less Supermarkets, Inc. ("F4L"), a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("F4L Holdings"), proposes to acquire (the "Acquisition") all of the outstanding capital stock of Ralphs Supermarkets, Inc. ("RSI"). RSI owns all of the issued and outstanding capital stock of Ralphs Grocery Company ("RG"). Immediately prior to the Acquisition, Food 4 Less, Inc. ("FFL") will merge with F4L Holdings, its wholly-owned subsidiary (the "FFL Merger"), with F4L Holdings being the surviving corporation (such surviving corporation being referred to herein as "Holdings"), and, immediately following the FFL Merger, Holdings will merge with its newly-formed wholly-owned subsidiary incorporated in Delaware, with such subsidiary being the surviving corporation (such surviving corporation being referred to herein as "New Holdings"; the merger of Holdings with and into New Holdings, together with the FFL Merger, being referred to herein as the "Holdings Mergers"). The Acquisition will be consummated by merging RSI with and into F4L with RSI being the surviving corporation (the "F4L Merger"). Upon consummation of the F4L Merger, RG will be merged with and into RSI with RSI being the surviving corporation (the "RG Merger"; the F4L Merger and the RG Merger are hereinafter collectively referred to as the "Mergers"). Upon the consummation of the Holdings Mergers and the Mergers, all of F4L's current subsidiaries will initially be direct or indirect wholly-owned subsidiaries of RSI and RSI will be a wholly-owned subsidiary of New Holdings which will be controlled, directly or indirectly, by an affiliate of The Yucaipa Companies ("Yucaipa"). We are pleased to confirm that Bankers Trust Company ("Bankers Trust") is prepared to commit to provide all of the senior bank financing which is required to consummate the 2 Acquisition, the Mergers and related transactions on the terms and conditions described in this letter up to a maximum aggregate amount of $1,075 million. Bankers Trust welcomes the opportunity to continue its relationship with the F4L companies. Bankers Trust's long-term experience with each of F4L and RG, currently as a Co-Agent and the Agent on their existing bank credit agreements, respectively, provides strong support for its willingness and ability to provide the senior bank financing described herein. The senior bank facilities will consist of a term loan facility of up to $750 million (the "Term Loan Facility") and a six year revolving credit facility of up to $325 million with a $150 million sublimit for letters of credit (the "Revolving Credit Facility"; the Term Loan Facility and the Revolving Credit Facility are hereinafter collectively referred to as the "Bank Facilities"). Based on the assumptions described below, we propose that the Term Loan Facility will consist of a six year Tranche A Loan of up to $375 million, a seven year Tranche B Loan of up to $125 million, an eight year Tranche C Loan of up to $125 million and a nine year Tranche D Loan of up to $125 million. We reserve the right to propose changes in the actual amount, maturity and amortization of each such tranche, however, in the event those assumptions are not met, including the successful consummation of certain consent solicitations and exchange and redemption offers with respect to the existing F4L and RG debt securities described below, or if we determine that to do so would enhance the successful syndication of the Bank Facilities. With respect to the existing public debt securities of F4L, Holdings and RG, you have advised us that F4L currently has outstanding $175 million in aggregate principal amount of 10.45% Senior Notes due April 15, 2000 (the "10.45% Senior Notes") and $145 million in aggregate principal amount of 13.75% Senior Subordinated Notes due June 15, 2001 (the "13.75% Subordinated Notes"); that Holdings currently has outstanding $103.6 million in aggregate face amount ($64 million in estimated accreted value at closing) of 15.25% Senior Discount Notes, Series B due December 15, 2004 (the "15.25% Discount Notes"; the 10.45% Senior Notes, the 13.75% Subordinated Notes and the 15.25% Discount Notes are hereinafter collectively referred to as the "Existing F4L Debt Securities"); and that RG currently has outstanding $150 million in aggregate principal amount of 9% Senior Subordinated Notes due April 1, 2003 (the "9% Subordinated Notes") and $300 million in aggregate principal amount of 10-1/4% Senior Subordinated Notes due July 15, 2002 (the "10-1/4% Subordinated Notes"; the 9% Subordinated Notes and the 10-1/4% Subordinated Notes are hereinafter collectively referred to as the "Existing RG Debt Securities"). To consummate the Acquisition, the Holdings Mergers and the Mergers as proposed, you have advised us that F4L and Holdings intend to undertake consent solicitations and exchange offers (the "F4L Solicitations") with respect to the Existing F4L Debt Securities 2 3 to obtain the necessary amendments to the terms of the Existing F4L Debt Securities, including such covenants in the indentures pursuant to which the Existing F4L Debt Securities have been issued as may be mutually agreed upon, to permit the Acquisition, the Holdings Mergers, the Mergers and related transactions to occur as described herein. You have also advised us that (i) you intend to offer to exchange the Existing RG Debt Securities for an equivalent principal amount of new senior subordinated notes to be issued by F4L and a cash payment as described below and (ii) you intend to solicit certain consents with respect to the Existing RG Debt Securities (the offer and solicitation described in clauses (i) and (ii) are collectively referred to herein as the "RG Solicitations"). You have further advised us that, in order to provide a portion of the financing to consummate the Acquisition and the other transactions contemplated thereby, F4L is offering up to $400 million principal amount of new Senior Notes due 2004 (the "New F4L Senior Notes") in a public offering (the "Public Offering") registered under the Securities Act of 1933, as amended. Following the consummation of the Mergers, it is anticipated that RSI will, if required, make an offer to redeem (the "Change of Control Offer") any then outstanding Existing RG Debt Securities in accordance with the provisions of the indentures governing such securities at a purchase price of 101% of the principal amount thereof plus accrued interest thereon, and RSI will utilize a portion of the Tranche A Term Loan Facility to finance such redemption. Finally, you have advised us that you expect to repay the entire amount of the approximately $175 million in aggregate principal amount of outstanding real estate mortgages of RG (the "Mortgage Debt") plus accrued interest and premiums thereon. The proceeds of (w) the Term Loan Facility, (x) approximately $24 million of the Revolving Credit Facility, (y) the Public Offering, together with (z) not less than $10 million in cash contributions to New Holdings invested by the management of RG (in the form of a cancellation of their rights to receive certain cash payments at closing), and not less than $150 million in other cash contributions to New Holdings (the "Equity Contributions"), will be used (i) to pay a $425.9 million cash purchase price for the RSI common stock, (ii) to refinance certain existing bank indebtedness of RG of approximately $296 million, (iii) to refinance certain existing bank indebtedness of F4L of approximately $170 million, (iv) to repay in full the approximately $175 million in principal amount of Mortgage Debt, (v) to pay up to $22.8 million in equity appreciation rights of RSI, (vi) to make cash payments to redeem Existing RG Debt Securities in the Change of Control Offer, and (vii) to pay approximately $143 million in fees, expenses, premiums, accrued interest and other costs in connection with the Acquisition, the Holdings Mergers, the Mergers, the F4L Solicitations, the RG Solicitations, the prepayment of the Mortgage Debt and the related transactions. In addition, (i) F4L will issue (x) additional New F4L Senior Notes, and make a cash payment in an 3 4 aggregate amount to be mutually agreed upon, in exchange for an equivalent principal amount of its 10.45% Senior Notes, (y) new senior subordinated notes due 2005 (the "New F4L Senior Subordinated Notes"), and make a cash payment in an aggregate amount to be mutually agreed upon, in exchange for an equivalent principal amount of its 13.75% Subordinated Notes, and (z) up to $450 million in aggregate principal amount of new senior subordinated notes (the "F4L Senior Subordinated Notes"), and make a cash payment in an aggregate amount to be mutually agreed upon, in exchange for an equivalent principal amount of Existing RG Debt Securities. As part of the F4L Solicitations, Holdings will seek consents from the holders of the 15.25% Discount Notes to certain amendments to the indenture pursuant to which such securities were issued and will make a cash payment to the holders thereof in an aggregate amount to be mutually agreed upon. The amount of the New F4L Senior Notes and the 10.45% Senior Notes outstanding at any time will not exceed $575 million in aggregate principal amount; the amount of the New F4L Senior Subordinated Notes and the 13.75% Subordinated Notes outstanding at any time will not exceed $145 million in aggregate principal amount; and the aggregate principal amount of the Term Loans the proceeds of which are used to redeem the Existing RG Debt Securities, plus the amount of the F4L Senior Subordinated Notes and of the Existing RG Debt Securities outstanding at any time will not exceed $450 million in aggregate principal amount. You have also advised us that in addition to the $425.9 million in cash to be paid for the RSI common stock, the shareholders of RSI will receive $100 million in initial principal amount of New Holdings 13% Senior Subordinated Pay-In-Kind Debentures Due 2007 (the "Seller Debentures"). The Seller Debentures will not mature or amortize prior to the twelfth anniversary of the date of the consummation of the Acquisition (the "Closing Date") and will pay interest through the issuance of additional Seller Debentures for not less than five years following the Closing Date. The RSI common stock purchased with the proceeds of the Equity Contributions and in consideration of the issuance of the Seller Debentures shall be contributed as equity capital to F4L by New Holdings. The Bank Facilities as described in this letter and on Annex A attached hereto assume (i) that the F4L Solicitations and RG Solicitations are obtained on terms that are satisfactory to you and to Bankers Trust, (ii) that the New F4L Senior Notes issued in the Public Offering are issued on terms that are satisfactory to you and to Bankers Trust, (iii) that not less than 80% of the 10.45% Senior Notes and of the 13.75% Subordinated Notes are exchanged for the additional New F4L Senior Notes and the New F4L Senior Subordinated Notes, respectively, (iv) that not less than 80% of the 9% Subordinated Notes and the 10-1/4% Subordinated Notes are exchanged for F4L Senior Subordinated Notes, and (v) that the Mortgage Debt is repaid in full. In the event that such assumptions are not accurate, we reserve the right to suggest alternative financing 4 5 structures, including without limitation, modifying the amounts, maturities and amortization of the Term Loan Facility. Upon consummation of the Acquisition and the Mergers, total other indebtedness for borrowed money of RSI and its subsidiaries expected to be outstanding will not exceed $158 million in aggregate principal amount, including approximately $137 million in capital lease obligations and approximately $21 million in mortgage debt and all other indebtedness. Upon consummation of such Acquisition and the Mergers, the remaining portion of the Revolving Credit Facility will be available to be used by RSI (as the surviving corporation in the Mergers) and certain of its subsidiaries to provide for the working capital requirements and other corporate purposes of RSI and its subsidiaries and the Letter of Credit Facility will be available to be used for commercial letters of credit and standby letters of credit for RSI and its subsidiaries. Bankers Trust intends to arrange for other banks, financial institutions and other "accredited investors" (as defined in Securities and Exchange Commission regulations; each such bank, financial institution and accredited investor, including Bankers Trust, being a "Lender" and collectively, the "Lenders") to provide a portion of the Bank Facilities and Bankers Trust will act as agent for the Lenders (in such capacity, the "Administrative Agent"). Certain of the terms of each of the Bank Facilities are set forth in Annex A attached hereto (the "Term Sheet"). We have reviewed certain historical and pro forma financial statements of RSI and F4L and their respective subsidiaries and met with representatives of F4L and with members of management of F4L and we are pleased to advise you that the results of our business and financial due diligence investigation of RSI and F4L and their respective subsidiaries to date are satisfactory. However, Bankers Trust's commitment to provide the financings described in this letter is subject to our continuing satisfaction that there has not occurred a material adverse change in the business, operations, condition (financial and otherwise) and prospects of RSI and F4L and their respective subsidiaries, our continuing satisfaction with the structure of the Acquisition, including the tax, accounting and legal consequences thereof, and the satisfaction of the conditions to be set forth in the definitive documentation relating to the Bank Facilities including, without limitation, those conditions set forth in the Term Sheet. It is understood that you (and your advisors) will continue to fully cooperate with Bankers Trust with respect to its ongoing due diligence analysis and review (including, but not limited to, by providing adequate access to the records and management of RSI and F4L and their respective subsidiaries). In the event that such ongoing due diligence review discloses information relating to conditions or events not previously disclosed to us or relating to new information or additional developments concerning conditions or events 5 6 previously disclosed to us which we believe may have a material adverse effect on the condition (financial or otherwise), assets, properties, business or prospects of RSI and F4L and their respective subsidiaries, taken as a whole, or any such conditions set forth in such definitive documentation are not satisfied, we may, in our sole discretion, suggest alternative financing amounts or structures that ensure adequate protection for the Lenders or decline to participate in the proposed financing. F4L hereby represents and covenants that based on its review and analysis, to its knowledge (a) all information, other than Projections (as defined below), which has been or is hereafter made available to Bankers Trust or the Lenders by F4L or RSI or any of their representatives in connection with the transactions contemplated hereby (the "Information") has been reviewed and analyzed by F4L in connection with the performance of its own due diligence and is, or in the case of Information made available after the date hereof will be, complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein, in light of the circumstances under which such statements were or are made, not materially misleading and (b) all financial projections concerning RSI and F4L and their respective subsidiaries that have been or are hereafter made available to Bankers Trust or the Lenders by RSI or F4L or any of their representatives in connection with the transactions contemplated hereby (the "Projections") have been or, in the case of Projections made available after the date hereof, will be prepared in good faith based upon reasonable assumptions (it being understood that the Projections are subject to significant uncertainties and contingencies, many of which are beyond the control of F4L and/or RSI, and that no assurance can be given that such Projections will be realized). F4L agrees to supplement the Information and the Projections from time to time until the Closing Date so that the representation and warranty made in the preceding sentence is correct on the Closing Date. In arranging and syndicating the Bank Facilities, Bankers Trust will be using and relying on the Information and the Projections without independent verification thereof. The representations and covenants contained in this paragraph shall remain effective until a definitive financing agreement is executed and thereafter the representations contained herein shall be superseded by those contained in such definitive financing agreement. The reasonable costs and expenses (including the reasonable fees and expenses of counsel to Bankers Trust, reasonable professional fees of consultants and other experts and reasonable out-of-pocket expenses of Bankers Trust, including without limitation syndication expenses) arising in connection with the preparation, execution and delivery of this letter and the definitive financing agreements and the syndication of the Bank Facilities shall be for the account of F4L. F4L further 6 7 agrees to indemnify and hold harmless each of the Lenders (including Bankers Trust) and each director, officer, employee and affiliate thereof (each an "indemnified person") from and against any losses, claims, damages, liabilities or other expenses to which a Lender or such indemnified persons may become subject, insofar as such losses, claims, damages, liabilities (or actions or other proceedings commenced or threatened in respect thereof) or other expenses arise out of or in any way relate to the Acquisition, the Holdings Mergers, the Mergers and related transactions, or any of the statements contained in this letter or relating to the extension of the financing contemplated by this letter, or any use or intended use of the proceeds of any of the loans and other extensions of credit contemplated by this letter, and to reimburse each of the Lenders and each indemnified person for any reasonable legal or other expenses incurred in connection with investigating, defending or participating in any such investigation, litigation or other proceeding (whether or not such Lender or any such person is a party to any investigation, litigation or proceeding out of which any such expenses arise); provided, however, that the indemnity contained herein shall not apply to the extent that such losses, claims, damages, liabilities or other expenses result from the gross negligence or willful misconduct of such Lender or indemnified person. The obligations to indemnify each Lender and such indemnified persons and pay such legal and other expenses shall remain effective until a definitive financing agreement is executed and thereafter the indemnification and expense reimbursement obligations contained herein shall be superseded by those contained in such definitive financing agreement. Neither Bankers Trust nor any other Lender shall be responsible or liable to any other party or any other person for consequential damages which may be alleged as a result of this letter. In connection with the services to be provided hereunder by Bankers Trust, Bankers Trust may employ the services of its affiliates, including, without limitation, BT Securities Corporation. Bankers Trust may share with such affiliates, and such affiliates may share with Bankers Trust, any information concerning F4L and RSI; provided that Bankers Trust and such affiliates agree to hold any non-public information confidential in accordance with their respective customary policies relating to non-public information. Any such affiliate so employed (and its directors, officers, employees and affiliates) shall be entitled to all of the benefits afforded to Bankers Trust hereunder. This letter is confidential and shall not be disclosed by you to any person other than your accountants, attorneys and, to the extent approved by Bankers Trust, other advisors, and to RSI and its attorneys and, to the extent approved by Bankers Trust, other advisors, and then only on a confidential basis and in connection with the Acquisition, the Mergers and the related transactions contemplated herein. Additionally, you may make 7 8 such disclosures of this letter as are required by law or judicial process or as may be required or appropriate in response to any summons or subpoena or in connection with any litigation. This letter supersedes any prior letters from Bankers Trust with respect to the subject matter hereof including without limitation our letters dated August 25, 1994 and November 14, 1994. Our offer will terminate on January 10, 1995, unless on or before that date you sign and return an enclosed counterpart of this letter together with an executed copy of the accompanying letter concerning certain fee arrangements. The Bank Facilities referred to herein shall in no event be available unless the Acquisition and related transactions have been consummated on or prior to March 15, 1995. This letter agreement shall be construed in accordance with the internal laws of the State of New York. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 8 9 We appreciate having been given the opportunity by you to be involved in this transaction and we look forward to continuing our relationship with the F4L companies in the future. Very truly yours, BANKERS TRUST COMPANY By: __________________________ Title: _______________________ AGREED AND ACCEPTED THIS ___ day of January, 1995 FOOD 4 LESS SUPERMARKETS, INC. By:_____________________ Title:__________________ S-1 10 ANNEX A FOOD 4 LESS SUPERMARKETS, INC. SUMMARY OF TERMS BANK FACILITIES The following summarizes certain terms for a senior bank term loan facility and a senior bank revolving credit facility to be utilized in connection with the proposed acquisition of Ralphs Supermarkets, Inc. by Food 4 Less Supermarkets, Inc. All terms defined in the financing letter to which this Annex A is attached and not otherwise defined herein shall have the same meanings when used herein. I. THE BANK FACILITIES Borrowers: Food 4 Less Supermarkets, Inc. ("F4L") will be the borrower under the Term Loan Facility and a borrower under the Revolving Credit Facility; in connection with the consummation of the Acquisition, Ralphs Supermarkets, Inc. ("RSI") will be merged with and into F4L with RSI being the surviving corporation (the "F4L Merger"); upon consummation of the F4L Merger, Ralphs Grocery Company ("RG") will be merged with and into RSI, with RSI being the surviving corporation; after such mergers, extensions of credit under the Revolving Credit Facility will be incurred by RSI and certain of its subsidiaries. The Lenders: Bankers Trust and a syndicate of banks, financial institutions and other accredited investors (the "Lenders"). Co-Agents for the Lenders: Bankers Trust and such other Lenders as may be mutually agreed upon by Bankers Trust and F4L (the "Co-Agents"). Administrative Agent for the Lenders: Bankers Trust (in such capacity, the "Administrative Agent"). Type and Amount: The Bank Facilities shall consist of the Term Loan Facility and the Revolving Credit Facility. Term Loan Facility. The Term Loan Facility will consist of Tranche A Loans, Tranche B Loans, Tranche C Loans and Tranche D Loans. The Lenders' commitments to lend the Tranche A Loans, the Tranche B Loans, the Tranche C Loans and the Tranche D Loans will terminate 1 11 immediately upon the consummation of the Acquisition; provided that up to $90 million of the Tranche A Term Loan Facility may be available for up to 90 days after the Closing Date to redeem the Existing RG Debt Securities in the event that any Change of Control Offer is required to be made for such securities. Tranche A Loans. The Tranche A Loans will mature on the date six years from the Closing Date and be in an original principal amount of up to $375 million. If the amount of the Existing RG Debt Securities exchanged in the RG Solicitations exceeds $360 million, then the amount available for borrowing under the Tranche A Term Loan Facility shall be reduced, on a dollar-for-dollar basis, to the extent that the amount of proceeds from the Public Offering is not reduced from $400 million. The Tranche A Loans will be required to be amortized, commencing in the fifteenth month after the Closing Date, in quarterly installments in aggregate annual amounts of $45 million in the second year; $75 million in the third year; $80 million in the fourth year; $85 million in the fifth year; and $90 million in the sixth year; provided that in the event that less than $375 million of the Tranche A Loans are utilized, the annual amounts of amortization payments set forth above shall be reduced on a pro rata basis. Tranche B Loans. The Tranche B Loans will mature on the date seven years from the Closing Date and be in an original principal amount of up to $125 million. The Tranche B Loans will be required to be amortized in equal quarterly installments in aggregate annual amounts of $1.25 million for the first six years and $117.5 million in the seventh year. Tranche C Loans. The Tranche C Loans will mature on the date eight years from the Closing Date and be in an original principal amount of up to $125 million. The Tranche C Loans will be required to be amortized in equal quarterly installments in aggregate annual amounts of $1.25 million for the first seven years and $116.25 million in the eighth year. 2 12 Tranche D Loans. The Tranche D Loans will mature on the date nine years from the Closing Date and be in an original principal amount of up to $125 million. The Tranche D Loans will be required to be amortized in equal quarterly installments in aggregate annual amounts of $1.25 million for the first eight years and $115 million in the ninth year. The amounts, amortization payments and maturities of the Term Loan Facility are subject to modification in the event that the F4L Solicitations, the RG Solicitations and the Public Offering are not consummated on mutually agreeable terms as described in "Certain Conditions Precedent to Initial Funding--Issuance of F4L Senior Subordinated Notes;--Public Offering;--F4L Solicitations" below, or Bankers Trust believes that such modification would enhance the successful syndication of the Bank Facilities. Revolving Credit Facility. The Revolving Credit Facility will mature on the same date as the Tranche A Loan and be in an amount of up to $325 million under which working capital loans may be made and commercial or standby letters of credit in the maximum aggregate amount of up to $150 million may be issued. Up to $30 million of the Revolving Credit Facility will be available as a swingline facility. Use of Proceeds: The proceeds of (v) the Term Loan Facility, (w) approximately $24 million of the Revolving Credit Facility, (x) the Public Offering, together with (y) not less than $10 million in cash contributions invested by the RG management (in the form of a cancellation of their rights to receive certain cash payments at closing), and not less than $150 million in proceeds from the issuance of preferred stock, all of which shall be contributed by New Holdings to F4L as common equity and (z) the issuance of up to $450 million of F4L Senior Subordinated Notes shall be used as follows: 1. to pay the cash component of the purchase price for the stock of RSI of approximately $425.9 million; the remaining purchase price will be paid through the issuance of the Seller Debentures by New Holdings; 3 13 2. to refinance approximately $296 million of existing bank indebtedness of RG and approximately $170 million of existing bank indebtedness of F4L; 3. to exchange up to $450 million principal amount of Existing RG Debt Securities for F4L Senior Subordinated Notes plus a cash payment, and to redeem Existing RG Debt Securities in any Change of Control Offer (provided that the aggregate outstanding principal amount of F4L Senior Subordinated Notes, Existing RG Debt Securities and Term Loans the proceeds of which are used to redeem Existing RG Debt Securities shall not exceed $450 million); 4. to repay in full the approximately $175 million in principal amount of the Mortgage Debt; 5. to pay up to $22.8 million in RSI equity appreciation rights; 6. to pay up to $143 million of fees, expenses, premiums, accrued interest and other costs associated with the Acquisition and the Mergers (including without limitation the payment of a $9 million consulting fee to Edward J. DeBartolo Corporation, Inc.), the Bank Facilities, the F4L Solicitations, the RG Solicitations, the Public Offering, the Change of Control Offer, if any, the prepayment of the Mortgage Debt and the related transactions described herein. A portion of the Tranche A Term Loan Facility, equal to the principal amount of Existing RG Debt Securities not exchanged in the RG Solicitations, but in no event to exceed $90 million, may be available in a single draw as soon as practicable (but not later than 90 days) after the Closing Date to redeem any such Existing RG Debt Securities tendered in any Change of Control Offer. The Revolving Credit Facility will be available to provide for the working capital requirements and general corporate purposes of RSI and its subsidiaries and to issue commercial letters of credit and standby letters of credit to support workers' compensation contingencies 4 14 and for other corporate purposes to be agreed upon. Security: All extensions of credit to RSI and guaranties of subsidiaries of RSI will be secured by all personal property of RSI and its subsidiaries, including a pledge of the stock of all subsidiaries of RSI. The guaranty of New Holdings will be secured by a pledge of the stock of F4L and, upon consummation of the merger of F4L into RSI, RSI. In an abundance of caution, the Bank Facilities shall also be secured by first priority liens on all unencumbered real property fee interests of RSI and its subsidiaries and RSI and its subsidiaries shall use their reasonable economic efforts to provide the Lenders with a first priority lien on all unencumbered leasehold interests of RSI and its subsidiaries. To effect liens securing the Bank Facilities, F4L and its subsidiaries (including, upon consummation of the Mergers, RSI and its subsidiaries) shall execute and deliver to Administrative Agent all security agreements, financing statements, deeds of trust, mortgages and other documents and instruments as are necessary to grant a first priority perfected security interest in and lien upon all their respective properties, subject to customary permitted liens to be agreed upon. Negative pledge on all assets of RSI and its subsidiaries, subject to exceptions to be agreed upon. Guarantors: New Holdings and all active subsidiaries of F4L. The aggregate assets and revenues of inactive subsidiaries that are not guarantors shall be de minimis in amount. Interest Rates: All amounts outstanding under the Bank Facilities shall bear interest, at F4L's option, as follows: A. With respect to the Tranche A Loans and loans made under the Revolving Credit Facility: (i) at the Base Rate plus 1.25% per annum; or 5 15 (ii) at the reserve adjusted Euro-Dollar Rate plus 2.50% per annum. B. With respect to the Tranche B Loans: (i) at the Base Rate plus 1.75% per annum; or (ii) at the reserve adjusted Euro-Dollar Rate plus 3.00% per annum. C. With respect to the Tranche C Loans: (i) at the Base Rate plus 2.125% per annum; or (ii) at the reserve adjusted Euro-Dollar Rate plus 3.375% per annum. D. With respect to the Tranche D Loans: (i) at the Base Rate plus 2.50% per annum; or (ii) at the reserve adjusted Euro-Dollar Rate plus 3.75% per annum. The foregoing interest rates on the Tranche A Loans and the Revolving Credit Facility and the fees payable under the Revolving Credit Facility on letters of credit, will be reduced in increments of 0.25% per annum (but not more than .50% per annum for all such reductions in the aggregate) after the Term Loan Facility has been reduced by such amounts, and during such times as the ratio of EBITDA (to be defined) to cash interest expense for the four most recently concluded fiscal quarters exceeds such ratios, as are mutually agreed upon. Loans outstanding under the swingline facility shall bear interest at the Base Rate plus .75% per annum (subject to adjustment as described in the preceding paragraph) and such outstanding loans shall not constitute usage of the Revolving Credit Facility for purposes of calculating the commitment fee. As used herein, the terms "Base Rate" and "reserve adjusted Euro-Dollar Rate" shall have meanings customary and appropriate for 6 16 financings of this type, and the basis for calculating accrued interest and the interest periods for loans bearing interest at the reserve adjusted Euro-Dollar Rate shall be customary and appropriate for financings of this type. After the occurrence of a default, interest shall accrue at a rate equal to the rate on loans bearing interest at the rate determined by reference to the Base Rate plus an additional two percentage points (2.00%) per annum and shall be payable on demand. Interest Payments: Quarterly for Base Rate Loans; on the last day of selected interest periods (which shall be 1, 2, 3 and 6 months) for Euro-Dollar Loans (and at the end of every three months, in the case of interest periods of longer than three months); and upon prepayment, in each case payable in arrears and computed on the basis of a 360-day year. Interest Rate Protection: Within 120 days of the Closing Date, RSI will obtain interest rate protection by interest rate swaps, caps or other agreements satisfactory to Administrative Agent against increases in interest rates with respect to a notional amount equal to not less than one-third of the Term Loans outstanding on the Closing Date for a period of not less than two years. Letter of Credit Fees: The fees payable on the standby letters of credit shall be equal to the sum of (i) an amount, to be shared by all Lenders pro rata, equal to the applicable margin over the reserve adjusted Euro-Dollar Rate under the Revolving Credit Facility (as the same may be adjusted) plus (ii) an additional .25% per annum to be retained by the Lender issuing the standby letter of credit. The fees payable on the commercial letters of credit shall be equal to the sum of (i) an amount, to be shared by all Lenders pro rata, equal to the applicable margin over the reserve adjusted Euro-Dollar Rate under the Revolving Credit Facility (as the same may be adjusted) minus 1.00% per annum plus (ii) an additional .25% per annum to be retained by the Lender issuing the commercial letter of credit. Fees on all letters of credit shall be based upon the amount available for drawing under such outstanding letters of credit. 7 17 Commitment Fees: Commitment fees equal to .50% per annum times the undrawn portion of the Tranche A Term Loan Facility shall accrue from the Closing Date to the date of drawing thereof or the date of termination of such undrawn commitment (which shall be no later than 90 days after the Closing Date) and shall be payable upon such drawing or termination. Commitment fees equal to .50% per annum times the daily average unused portion of the Revolving Credit Facility shall accrue from the Closing Date and shall be payable quarterly in arrears and at maturity. Voluntary Prepayments: The Bank Facilities may be prepaid in whole or in part without premium or penalty (Euro-Dollar Rate Loans prepayable only on the last days of related interest periods) and the Lenders' commitments relative thereto reduced or terminated upon such notice and in such amounts as may be agreed upon. Voluntary prepayments of the Term Loan Facility shall be applied ratably among Tranche A Loans, Tranche B Loans, Tranche C Loans and Tranche D Loans and shall be applied to scheduled amortization payments pro rata. Mandatory Prepayments: RSI shall make the following mandatory prepayments (subject to certain basket amounts to be negotiated in the definitive financing agreements): 1. prepayments in the amount of all of the net after-tax cash proceeds of the sale or other disposition of any property or assets of RSI or its subsidiaries, other than net cash proceeds of sales or other dispositions of inventory or obsolete equipment in the ordinary course of business, reinvestment of the proceeds from the sale of any store in like assets within 9 months of such sale and the sale/ leaseback of any store within 6 months of the completion of such store and other exceptions to be negotiated, payable no later than the third Business Day following the date of receipt or other date such payment becomes due; 2. prepayments in the amount of the net cash proceeds received from the issuance of certain debt securities of New Holdings or its subsidiaries with exceptions to be 8 18 agreed upon, payable no later than the first Business Day following the date of receipt; 3. prepayments in an amount equal to 50% (the "Equity Repayment Amount"), of the net cash proceeds received from the issuance of equity securities of New Holdings, payable no later than the first Business Day following the date of receipt; provided that a portion of the Equity Repayment Amount may be used to redeem, retire or repurchase other indebtedness of New Holdings or RSI in an amount to be mutually agreed upon; 4. prepayments in the amount of all proceeds received from any pension plan reversion, payable upon receipt; and 5. prepayments in an amount equal to 75% (the "Cash Flow Repayment Amount") of excess cash flow (to be defined), payable within 90 days of fiscal year-end; provided that a portion of the Cash Flow Repayment Amount may be used to redeem, retire or repurchase other indebtedness of New Holdings or RSI in an amount to be mutually agreed upon. All mandatory prepayments shall be applied ratably between Tranche A Loans, Tranche B Loans, Tranche C Loans and Tranche D Loans and to scheduled amortization payments of the Tranche A Loans, Tranche B Loans, Tranche C Loans and Tranche D Loans pro rata. Mandatory prepayments allocated to the Tranche B Loans, Tranche C Loans and Tranche D Loans will be used to make an offer for such Loans and, to the extent not accepted by the holders of such Loans, 50% may be retained by RSI and the remaining 50% will be applied to the prepayment of the Tranche A Loans. Clean-Down: Loans outstanding under the Revolving Credit Facility shall be reduced to $75 million for not less than 30 consecutive days during each consecutive twelve-month period. Representations and Warranties: Customary and appropriate, including without limitation due organization and authorization, financial condition, no material adverse changes, title to properties, liens, 9 19 litigation, payment of taxes, no material adverse agreements, compliance with laws, environmental liabilities and full disclosure. Covenants: Customary and appropriate affirmative and negative covenants, including but not limited to financial covenants related to minimum fixed charge coverage, minimum EBITDA, maximum leverage (to be defined as the ratio of total debt to EBITDA) and minimum net worth. Other covenants will include limitations on other indebtedness, liens, investments, guarantees, restricted junior payments (dividends, redemptions and payments on subordinated debt), prepayment or repurchase of other indebtedness (other than from the proceeds of Equity Repayment Amounts and Cash Flow Repayment Amounts or from the proceeds of certain refinancing indebtedness as mutually agreed upon), mergers and acquisitions, sales of assets, cash capital expenditures, leases, transactions with affiliates and other provisions customary and appropriate for financings of this type, including exceptions and baskets to be mutually agreed upon. Events of Default: Customary and appropriate, including without limitation failure to make payments when due, defaults under other agreements or instruments of indebtedness, noncompliance with covenants, breaches of representations and warranties, bankruptcy, judgments in excess of specified amounts, impairment of security interests in collateral, invalidity of guarantees, and "changes of control" (to be defined in a mutually agreed upon manner). II. CONDITIONS TO LOANS Certain Conditions Precedent to Initial Funding: Conditions precedent to the initial funding of the Bank Facilities will include, without limitation, the following: 1. Satisfactory Bank Documentation. The definitive documentation evidencing the Bank Facilities (the "Definitive Financing Documents") shall be prepared by counsel to Bankers Trust and shall be in form and substance satisfactory to Bankers Trust and Lenders. 2. Structure and Other Related Documentation. The tax, accounting and 10 20 legal aspects of the structure utilized to consummate the Acquisition, the Holdings Mergers, the Mergers and the financings and other transactions related thereto and the definitive documentation evidencing such transactions shall be in form and substance satisfactory to Bankers Trust and Lenders. 3. New Equity. Prior to or concurrently with the Closing Date, New Holdings shall have received cash contributions of not less than $10 million contributed by the RG management (in the form of a cancellation of their rights to receive certain cash payments), plus not less than $150 million in proceeds from the issuance of preferred stock to new equity investors, the aggregate proceeds of which shall be used to purchase RSI common stock in connection with the Acquisition, which common stock shall be contributed to the equity capital of F4L. The terms and conditions of the preferred stock issued by New Holdings, including the type and amount of dividend payments and any redemption provisions, shall be satisfactory to Bankers Trust;provided that such preferred stock shall not be subject to any mandatory redemption and no payments of cash dividends shall be required thereon. 4. Seller Debentures. Prior to or concurrently with the Closing Date, New Holdings shall have issued the Seller Debentures in the aggregate initial principal amount of $100 million. The Seller Debentures may not mature, and amortization payments may not be made on the Seller Debentures, prior to the twelfth anniversary of the Closing Date. Interest shall be payable through the issuance of additional Seller Debentures until the fifth anniversary of the Closing Date and thereafter may be paid in cash. The Seller Debentures shall be structurally subordinate to the Bank Facilities and may not be secured or guaranteed. The interest rate, covenants, defaults, subordination terms, remedies and all other terms of the Seller Debentures shall be satisfactory 11 21 to Bankers Trust and Lenders and shall be consistent with the terms of the F4L Senior Subordinated Notes. In addition, without limitation of the foregoing, Bankers Trust and the Lenders shall be satisfied with the appropriateness of the definition of a "Change of Control" contained in the Seller Debentures in light of all of the relevant circumstances on the Closing Date, including the equity ownership of Yucaipa and its affiliates and the other major shareholders and the terms of all shareholder agreements. Bankers Trust has reviewed a draft dated September 1, 1994 of the Indenture pursuant to which the Seller Debentures are to be issued and except for provisions of the Indenture which are not yet completed and subject to our satisfaction with such consistency and such matters related to a Change of Control, the terms of such Indenture are satisfactory to Bankers Trust. The RSI common stock purchased in consideration of the issuance of the Seller Debentures shall be contributed to the equity capital of F4L by New Holdings. 5. Issuance of F4L Senior Subordinated Notes. Not less than 80% of the 9% Subordinated Notes and of the 10-1/4% Subordinated Notes shall have been tendered for exchange as a result of the RG Solicitations and F4L shall have obtained all such consents and amendments as may be required to permit the Acquisition, the Holdings Mergers, the Mergers, the borrowings under the Bank Facilities and the related transactions to occur as described herein, the terms and conditions of such consents to be in form and substance satisfactory to Bankers Trust and Lenders. Prior to or concurrently with the Closing Date, F4L shall have issued not less than $360 million of F4L Senior Subordinated Notes in exchange for a like principal amount of Existing RG Debt Securities and an aggregate cash payment in an amount to be mutually agreed upon. The F4L Senior Subordinated Notes shall be unsecured and shall have no scheduled principal 12 22 payments payable prior to the tenth anniversary of the Closing Date. The interest rate, covenants, defaults, subordination provisions, remedies and all other terms of the F4L Senior Subordinated Notes shall be satisfactory to Bankers Trust and the Lenders. All such negative covenants and defaults shall be less restrictive than those contained in the Definitive Financing Documents. The principal amount of the F4L Senior Subordinated Notes, when aggregated with the principal amount of the Term Loans the proceeds of which are used to redeem the Existing RG Debt Securities for cash and the principal amount of the Existing RG Debt Securities, shall not exceed $450 million outstanding at any time. 6. Public Offering. Prior to or concurrently with the Closing Date, F4L shall have received cash proceeds of not less than $400 million from the Public Offering, the proceeds of which shall be applied to the purposes specified under "Use of Proceeds" above; provided that such $400 million may be reduced if the amount of Existing RG Debt Securities exchanged in the RG Solicitations exceeds $360 million. The terms and conditions of the New F4L Senior Notes issued in the Public Offering shall be as described under "F4L Solicitations" below. 7. Payment of Purchase Price. Concurrently with the Closing Date, New Holdings shall have acquired 100% of the capital stock of RSI at a purchase price not to exceed a payment of $525.9 million, comprised of a $425.9 million cash payment and the issuance of $100 million of Seller Debentures by New Holdings, not including any refinancing or assumption of existing indebtedness as described below. Upon consummation of the Acquisition, the Holdings Mergers and the Mergers, all shares of the capital stock of RSI shall be owned by New Holdings and Yucaipa shall, directly or indirectly, control New Holdings. 13 23 8. Discharge of Bank Indebtedness. Concurrently with the Acquisition, all existing bank indebtedness of RG in the approximate aggregate principal amount of $296 million and of F4L and its subsidiaries in the approximate aggregate principal amount of $170 million shall be repaid in full and all commitments thereunder shall have been terminated. 9. F4L Solicitations. Prior to or concurrently with the Closing Date, F4L shall have issued additional New F4L Senior Notes and the New F4L Senior Subordinated Notes in exchange for not less than 80% of the 10.45% Senior Notes and the 13.75% Subordinated Notes and an aggregate cash payment to be mutually agreed upon, and Holdings and F4L shall have obtained all such consents and amendments as may be required to permit the Acquisition, the Holdings Mergers, the Mergers, the borrowings under the Bank Facilities and the related transactions to occur as described herein, the terms and conditions of such consents to be in form and substance satisfactory to Bankers Trust and Lenders. The New F4L Senior Notes and the New F4L Senior Subordinated Notes shall be unsecured and shall have no scheduled principal payments prior to 2004 and 2005, respectively. The interest rate, covenants, defaults, remedies, subordination provisions (in the case of the New F4L Senior Subordinated Notes) and all other terms of the New F4L Senior Notes and New F4L Senior Subordinated Notes shall be satisfactory to Bankers Trust and the Lenders. All such negative covenants and defaults shall be less restrictive than those contained in the Definitive Financing Documents. The aggregate principal amount of the 10.45% Senior Notes and the New F4L Senior Notes shall not exceed $575 million at any time outstanding, and the aggregate principal amount of the 13.75% Subordinated Notes and the New F4L Senior Subordinated Notes shall not exceed $145 million at any time outstanding. Holdings and its subsidiaries shall otherwise be in 14 24 compliance with their respective obligations under the indentures or other agreements pursuant to which their respective debt securities have been issued. 10. Mortgage Debt and Other Obligations. Prior to or concurrently with the Closing Date, RG shall have repaid in full the Mortgage Debt. RSI and its subsidiaries may remain liable with respect to obligations relating to existing indebtedness in the approximate aggregate principal amount of $158 million, including approximately $137 million in existing capital lease obligations and approximately $21 million in mortgage debt and all other indebtedness, all such matters to be on terms and conditions and in form and substance satisfactory to Bankers Trust and Lenders. RSI and its subsidiaries shall have obtained all such consents, waivers, amendments, approvals and the like as may be required under the existing contracts and agreements of such persons to permit the borrowing under the Bank Facilities, the Acquisition, the Holdings Mergers, the Mergers and all related transactions and shall otherwise be in compliance in all material respects with their respective obligations under such agreements. 11. Security. The Administrative Agent, for the benefit of Lenders, shall have been granted a perfected security interest in all assets to the extent described above under the heading "Security". 12. Title Insurance. The Administrative Agent shall have received satisfactory assurances that an ALTA title insurance policy insuring the interest of the Lenders in certain of the real property securing the Bank Facilities will be available in form and substance satisfactory to Bankers Trust. 13. Appraisals. Upon request of Bankers Trust or the Lenders, the Administrative Agent shall have received appraisals in form, scope and substance reasonably satisfactory to Bankers Trust and 15 25 satisfying the requirements of any applicable laws and regulations concerning the real property security. 14. Environmental Matters. Bankers Trust and Lenders shall have received reports and other information in form, scope and substance satisfactory to Bankers Trust and Lenders concerning environmental liabilities of F4L, RG and their respective subsidiaries. 15. No Material Adverse Change. Other than with respect to such information as is disclosed in the filing on Form 10Q made on July 17, 1994 with respect to RSI and its subsidiaries, there shall have occurred no material adverse change in the condition (financial or otherwise), business, assets, liabilities, properties, results of operations or prospects of F4L, RG and their respective subsidiaries, individually and taken as a whole, since June 25, 1994, in the case of Holdings and its subsidiaries, and January 30, 1994, in the case of RSI and its subsidiaries. 16. No Disruption of Financial and Capital Markets. There shall have been no material adverse change after the date hereof to the syndication markets for credit facilities similar in nature to the Bank Facilities and there shall not have occurred and be continuing a material disruption of or material adverse change in financial, banking or capital markets that would have an adverse effect on such syndication market, in each case as determined by Bankers Trust in its sole discretion. 17. Financial Statements. Bankers Trust and the Lenders shall have received the unaudited financial statements for F4L, RG and their respective subsidiaries for most recently ended fiscal periods. If unaudited, Bankers Trust and the Lenders may review such unaudited financial statements with the independent certified public accountants for F4L and the cost of such review shall be for the account of F4L. 16 26 18. Due Diligence. The results of Bankers Trust's business and financial due diligence investigations, and any supplemental business or financial due diligence that Bankers Trust reasonably determines has become necessary, shall be satisfactory in all respects to Bankers Trust. Bankers Trust and Lenders shall also have received any information reasonably necessary to conduct such due diligence. Bankers Trust completed such due diligence by October 14, 1994. 19. Solvency. Bankers Trust and Lenders shall have received a solvency opinion from a nationally recognized valuation firm satisfactory to Bankers Trust and a certificate from the chief financial officer of F4L in form and substance satisfactory to Bankers Trust and Lenders, supporting the conclusions that, after giving effect to the Acquisition, the Mergers and related transactions, F4L will not be insolvent or will not be rendered insolvent by the indebtedness incurred in connection therewith, or be left with unreasonably small capital with which to engage in its businesses or have incurred debts beyond its ability to pay such debts as they mature. 20. Customary Closing Documents. All documents required to be delivered under the Definitive Financing Documents, including customary legal opinions, corporate records and documents from public officials and officers' certificates, shall have been delivered. Conditions to All Borrowings: The conditions to all borrowings will include requirements relating to prior written notice of borrowing, the accuracy of representations and warranties, and the absence of any default or potential event of default, and will otherwise be customary and appropriate for financings of this type. III. MISCELLANEOUS Syndication: A syndicate of financial institutions will be arranged by Bankers Trust. RG and F4L shall cooperate with Bankers Trust in the syndication of the Bank Facilities (including, 17 27 but not limited to, participation in meetings with Lenders and assisting in the preparation of a Confidential Information Memorandum and other materials to be used in connection with such syndication) and shall provide and cause its advisors to provide all information reasonably deemed necessary by Bankers Trust to complete a successful syndication. RG and F4L also agree to assist in coordinating Bankers Trust's primary syndication efforts with those of other financings contemplated by RG and F4L in this transaction. The Lenders may assign all or, in an amount of not less than $5 million, any part of their share of the Bank Facilities to affiliates or one or more banks or other entities that are eligible assignees (to be described in the loan documentation) which, in the case of assignments made by Lenders other than Bankers Trust, are acceptable to Administrative Agent and RSI, such consent not to be unreasonably withheld, and upon such assignment, such affiliate, bank or entity shall become a Lender for all purposes of the loan documentation; provided that assignments made to affiliates and other Lenders shall not be subject to the $5 million minimum assignment requirement. Lenders will have the right to sell participations, subject to customary limitations on voting rights, in their share of the Bank Facilities. Requisite Lenders: Requisite Lenders shall mean Lenders holding in the aggregate 51% of the commitments under the Bank Facilities. Taxes, Reserve Requirements & Indemnities: All payments are to be made free and clear of any taxes (other than franchise taxes and taxes on overall net income), imposts, assessments, withholdings, or other deductions whatsoever. Foreign lenders shall furnish to Administrative Agent (for delivery to RSI) appropriate certificates or other evidence of exemption from U.S. federal tax withholding. RSI is to indemnify the Lenders against all increased costs of capital resulting from reserve requirements or otherwise imposed, in each case subject to customary increased costs, capital adequacy and similar provisions to the extent not taken into account in the 18 28 calculation of the Base Rate or the Euro-Dollar Rate. Governing Law and Jurisdiction: RSI will submit to the non-exclusive jurisdiction and venue of the federal and state courts of the State of New York and will waive any right to trial by jury. New York law shall govern loan documentation. Bankers Trust's Counsel: O'Melveny & Myers. 19 EX-5.1 7 OPINION OF L&W REGARDING THE LEGALITY OF SR. NOTES 1 EXHIBIT 5.1 [LATHAM & WATKINS LETTERHEAD] January 24, 1995 Food 4 Less Supermarkets, Inc. Alpha Beta Company 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. 777 South Harbor Boulevard La Habra, California 90631 Re: FOOD 4 LESS SUPERMARKETS, INC. REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 33-56451) ----------------------------------------------------- Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (File No. 33-56451) (the "Registration Statement") of Food 4 Less Supermarkets, Inc. ("Food 4 Less"), which you have filed with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of (i) up to $175 million principal amount of Senior Notes due 2004 (the "New F4L Senior Notes") to be issued in exchange for Food 4 Less' issued and outstanding 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes"), (ii) up to $145 million principal amount of 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes" and collectively with the New F4L Senior Notes, the "New Notes") to be issued in exchange for Food 4 Less' issued and outstanding 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes"), (iii) guarantees of the New Notes (the "Guarantees") by Alpha Beta Company, a California corporation; Bay Area Warehouse Stores, Inc., a California corporation; Bell Markets, Inc., a California corporation; Cala Co., a Delaware corporation; Cala Foods, Inc., a California corporation; Food 4 Less of California, Inc., a California corporation; Food 4 Less GM, Inc. a California corporation; Food 4 Less Merchandising, Inc., a California corporation; and Food 4 Less of Southern California, Inc., a Delaware corporation (collectively, the "Guarantors"), and (iv) the Old F4L Senior Notes, as amended, that are not exchanged for New F4L Senior Notes (the "Amended Senior Notes") and the Old F4L Senior 2 Food 4 Less Supermarkets, Inc. January 24, 1995 Page 2 Subordinated Notes, as amended, that are not exchanged for New F4L Senior Subordinated Notes due 2005 (the "Amended Subordinated Notes," and together with the Amended Senior Notes, the "Amended Notes"). 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 New Notes, the Amended Notes, the Guarantees, the indentures pursuant to which the New Notes and the Guarantees are to be issued and the indentures governing the Amended Notes. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. Capitalized terms used herein without definition have the meaning given to them in the Registration Statement. We are opining herein as to the effect on the subject transaction only of the federal securities laws of the United States, the internal laws of the States of New York and California and the General Corporation Law of the State of Delaware, and we express no opinion with respect to the applicability thereto, or the effect thereon, of any other laws. Based upon the foregoing, we are of the opinion that, upon the execution of the New Indenture and the authentication and delivery of the New RGC Notes and the issuance thereof in the manner described in the Registration Statement, the New Notes and the Amended Notes will be legally valid and binding obligations of the Company and the Guarantees will be legally valid and binding obligations of the Guarantors, except in each case as may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; and the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy. We consent to your filing this opinion as an exhibit to the Registration Statement. Very truly yours, LATHAM & WATKINS EX-5.2 8 OPINION OF IRWIN, CLUTTER & SEVERSON 1 Exhibit 5.2 IRWIN, CLUTTER & SEVERSON LETTERHEAD 2201 S.W. 29TH STREET P.O. BOX 5514 TOPEKA, KANSAS 66605-0514 January 24, 1995 Falley's Inc. 3120 South Kansas Ave. Topeka, Kansas 66611 Re: FOOD 4 LESS SUPERMARKETS, INC. REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 33-56451) Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (File No. 33-56451) (the "Registration Statement") of Food 4 Less Supermarkets, Inc. ("Food 4 Less") 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 (i) the guarantee (the "New Senior Note Guarantee") by Falley's, and the other Subsidiary Guarantors, of up to $175 million principal amount of Senior Notes due 2004 to be issued in exchange for Food 4 Less' issued and outstanding 10.45% Senior Notes due 2000 and (ii) the guarantee (the "New Senior Subordinated Note Guarantee" and collectively, with the New Senior Note Guarantee, the "Guarantees") by Falley's, and the other Subsidiary Guarantors, of up to $145 million principal amount of 13.75% Senior Subordinated Notes due 2005 to be issued in exchange for Food 4 Less' issued and outstanding 13.75% Senior Subordinated Notes due 2001. 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 Guarantees and the indentures pursuant to which the 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. 2 Falley's, Inc. January 24, 1995 Page 2 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. Based upon the foregoing, we are of the opinion that, upon issuance thereof in the manner described in the Registration Statement, the Guarantees will be legally valid and binding obligations 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 EX-8.1 9 OPINION OF L&W RE; CERTAIN TAX MATTERS 1 EXHIBIT 8.1 [LATHAM & WATKINS LETTERHEAD] January 24, 1995 Food 4 Less Supermarkets, Inc. 777 South Harbor Boulevard La Habra, CA 90631 Re: Food 4 Less Supermarkets, Inc. Registration Statement on Form S-4 (File Number 33-56451) Ladies/Gentlemen: You have requested our opinion concerning the material federal income tax consequences of (i) the offers to exchange (a) 10.45% Senior Notes due 2000 of Food 4 Less Supermarkets, Inc. (the "Company") (the "Old F4L Senior Notes") for new Senior Notes due 2004 of the Company and cash, and (b) 13.75% Senior Subordinated Notes due 2001 of the Company (the "Old F4L Senior Subordinated Notes," and, together with the Old F4L Senior Notes, the "Old F4L Notes") for new 13.75% Senior Subordinated Notes due 2005 of the Company and cash, and (ii) the solicitation of consents to proposed amendments to the indentures under which the Old F4L Notes were issued, in connection with the Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the "Commission") on November 14, 1994 (File No. 33-56451), as amended by Amendment No. 1 filed with the Commission on January 6, 1995, and as further amended by Amendment No. 2 filed with the Commission on January 24, 1995 (collectively, the "Registration Statement"). The facts, as we understand them, and upon which with your permission we rely in rendering the opinion expressed herein, are set forth in the Registration Statement. Based on such facts, it is our opinion that the material federal income tax consequences are accurately set forth under the heading "Certain Federal Income Tax Considerations" in the Registration Statement. No opinion is expressed as to any matter not discussed therein. This opinion is based on various statutory provisions, regulations promulgated thereunder and interpretations thereof by the Internal Revenue Service and the courts having jurisdiction over such matters, all of which are subject to change either prospectively or retroactively. Also, any variation or difference in the facts from those set forth in the Registration Statement may affect the conclusion stated herein. This opinion is rendered to you solely for use in connection with the Registration Statement. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference of our firm under the heading "Certain Federal Income Tax Considerations." Very truly yours, /s/ LATHAM & WATKINS EX-23.1 10 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES Board of Directors and Stockholders Ralphs Supermarkets, Inc.: The audits referred to in our report dated April 8, 1994 (except as to note 16, which is as of September 14, 1994), included the related financial statement schedules as of January 30, 1994 and January 31, 1993, and for each of the fiscal years in the three-year period ended January 30, 1994, included in the registration statement. These financial statement schedules are the responsibility of Ralphs management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the headings "Summary Historical Financial Data of Ralphs," "Selected Historical Financial Data of Ralphs" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Los Angeles, California January 23, 1995 EX-23.2 11 CONSENT OF ARTHUR ANDERSON LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our firm included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Los Angeles, California January 23, 1995 EX-99.1 12 LETTER OF TRANSMITTAL AND CONSENT- EXCHANGE OFFER 1 CONSENT AND LETTER OF TRANSMITTAL TO TENDER AND TO CONSENT TO CERTAIN INDENTURE AMENDMENTS WITH RESPECT TO THE 10.45% SENIOR NOTES DUE 2000 AND THE 13.75% SENIOR SUBORDINATED NOTES DUE 2001 OF FOOD 4 LESS SUPERMARKETS, INC. PURSUANT TO THE PROSPECTUS AND SOLICITATION STATEMENT DATED JANUARY 25, 1995 THE EXCHANGE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 22, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY ONLY BE WITHDRAWN AND CONSENTS MAY ONLY BE REVOKED UNDER THE CIRCUMSTANCES DESCRIBED HEREIN AND IN THE PROSPECTUS AND SOLICITATION STATEMENT. TO THE EXCHANGE AGENT: BANKERS TRUST COMPANY By Hand Delivery or Overnight Courier: Facsimile Transmission: By Mail: Bankers Trust Company (212) 250-6275 Bankers Trust Company Corporate Trust & Agency Group (212) 250-3290 Corporate Trust & Agency Group Reorganization Department Confirm by Telephone: Reorganization Department Receipt & Delivery Window (212) 250-6270 P.O. Box 1458 123 Washington St., First Floor Church Street Station New York, NY 10006 New York, NY 10008-1458
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS CONSENT AND LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS CONSENT AND LETTER OF TRANSMITTAL IS COMPLETED. - - ------------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF OLD F4L NOTES - - ------------------------------------------------------------------------------------------------------------------------------ CERTIFICATE(S) TENDERED (ATTACH ADDITIONAL SCHEDULE IF NECESSARY) - - ------------------------------------------------------------------------------------------------------------------------------ (1) (2) (3) (4) INDICATE AGGREGATE NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CLASS BEING PRINCIPAL (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) TENDERED CERTIFICATE AMOUNT APPEAR(S) ON OLD F4L NOTES) 10.45% OR 13.75% NUMBER(S)(*) TENDERED(**) - - ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ TOTAL: - - ------------------------------------------------------------------------------------------------------------------------------ * Need not be completed by Book-Entry Holders (see below). ** If you wish to accept the applicable Exchange Offer with respect to any Old F4L Senior Notes or any Old F4L Senior Subordinated Notes you must tender all of such Old F4L Senior Notes or Old F4L Senior Subordinated Notes beneficially owned by you, as the case may be. You must consent to the Proposed Amendments with respect to the Old F4L Notes tendered hereby. The tender of Old F4L Notes hereby will constitute a Consent to the Proposed Amendments with respect to such Old F4L Notes. If you are not the registered holder of your Old F4L Notes, you must either have the Old F4L Notes registered in your name or have the registered holder sign the form of consent herein or obtain a valid proxy from the registered holder of such Old F4L Notes to tender them. - - -------------------------------------------------------------------------------------------------------------------------------
2 The undersigned acknowledges receipt of the Prospectus and Solicitation Statement dated January 25, 1995 (as the same may be amended or supplemented from time to time, the "Prospectus"), of Food 4 Less Supermarkets, Inc. ("Food 4 Less"), relating to (a) the offer by Food 4 Less, upon the terms and subject to the conditions set forth in the Prospectus and in this Consent and Letter of Transmittal and the instructions hereto (the "Letter of Transmittal"), to (i) holders of 10.45% Senior Notes due 2000 of Food 4 Less (the "Old F4L Senior Notes") to exchange for each $1,000 principal amount of Old F4L Senior Notes $1,000 principal amount of new Senior Notes due 2004 (the "New F4L Senior Notes") plus $5.00 in cash (the "Senior Note Exchange Payment"), plus accrued and unpaid interest to the date of the exchange (the "Senior Note Exchange Offer") and (ii) holders of the 13.75% Senior Subordinated Notes due 2001 of Food 4 Less (the "Old F4L Senior Subordinated Notes," and together with the Old F4L Senior Notes, the "Old F4L Notes") to exchange for each $1,000 principal amount of Old F4L Senior Subordinated Notes $1,000 principal amount of new 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes, and together with the New F4L Senior Notes, the "New F4L Notes") plus $20.00 in cash (the "Senior Subordinated Note Exchange Payment," and together with the Senior Note Exchange Payment, the "Exchange Payment"), plus accrued and unpaid interest to the date of the exchange (the "Senior Note Exchange Offer," and together with the Senior Subordinated Note Exchange Offer, the "Exchange Offers" each of which is sometimes referred to herein individually as the applicable "Exchange Offer") and (b) Food 4 Less' solicitation (the "Solicitation") of consents (the "Consents") from holders of the Old F4L Notes ("Noteholders") to the proposed amendments (the "Proposed Amendments") to the respective indentures under which the Old F4L Notes were issued (as described in the Prospectus under the captions "The Proposed Amendments," "Appendix A -- Comparison of Old F4L Senior Notes and New F4L Senior Notes" and "Appendix B -- Comparison of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes"). Holders of Old F4L Notes who desire to accept the applicable Exchange Offer will be required to consent to the Proposed Amendments with respect to such Old F4L Notes. The tender of Old F4L Notes under this Letter of Transmittal will constitute such consent. Noteholders who do not tender Old F4L Notes pursuant to the Exchange Offers will not be eligible to consent to the Proposed Amendments. Each Noteholder who desires to accept the applicable Exchange Offer with respect to any Old F4L Senior Notes or any Old F4L Senior Subordinated Notes must tender all of such Noteholders' Old F4L Senior Notes or Old F4L Senior Subordinated Notes, as the case may be. Capitalized terms used in this Letter of Transmittal but not defined herein have the respective meanings given them in the Prospectus. Unless otherwise indicated, references herein to the Exchange Offers shall be deemed to include the Solicitation. THE EXCHANGE OFFERS AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE SURRENDER OF OLD F4L NOTES FOR EXCHANGE BE ACCEPTED FROM OR ON BEHALF OF) NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF SUCH EXCHANGE OFFERS OR THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX BELOW This Letter of Transmittal is to be used (i) if Old F4L Notes are to be physically delivered herewith or (ii) if delivery of Old F4L Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at the Depository Trust Company ("DTC"), the Midwest Securities Trust Company ("MSTC") or the Philadelphia Securities Depository Trust Company ("PDTC") (collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offers and Solicitation -- Procedures for Tendering and Consenting." Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. If certificates for Old F4L Notes are not immediately available or cannot be delivered along with other required documents to the Exchange Agent or the procedure for book-entry transfer cannot be completed on or prior to the Expiration Date, the Noteholder may tender such Old F4L Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offers and Solicitation -- Guaranteed Delivery Procedure." See Instruction 2 herein. Noteholders who wish to tender their Old F4L Notes pursuant to the applicable Exchange Offer and consent to the Proposed Amendments must complete the table herein entitled "DESCRIPTION OF OLD F4L NOTES" and sign below. 2 3 METHOD OF DELIVERY - - -------------------------------------------------------------------------------- / / CHECK HERE IF CERTIFICATES FOR TENDERED OLD F4L NOTES ARE ENCLOSED HEREWITH. / / CHECK HERE IF TENDERED OLD F4L NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-ENTRY TRANSFER FACILITY SPECIFIED ABOVE AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ---------------------------------------- Name of Book-Entry Transfer Facility: / / DTC / / MSTC / / PDTC Account Number: ------------------------------------------------------ Transaction Code Number: --------------------------------------------- / / CHECK HERE IF TENDERED OLD F4L NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) of Old F4L Notes: ---------------------- Window Ticket Number (if any): -------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ----------------- Name of Eligible Institution which Guaranteed Delivery: ------------- If delivered by a Book-Entry Transfer Facility, check box of Book-Entry Transfer Facility: / / DTC / / MSTC / / PDTC Account Number: ---------------------------------------------------- Transaction Code Number: ------------------------------------------- - - -------------------------------------------------------------------------------- 3 4 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Consent and Tender of Old F4L Notes Upon the terms and subject to the conditions of the Prospectus and this Letter of Transmittal, the undersigned hereby Consents to the Proposed Amendments with respect to the Old F4L Notes indicated above and tenders to Food 4 Less the Old F4L Notes indicated above. Tendering Noteholders will be deemed to have Consented to the Proposed Amendments with respect to all Old F4L Notes tendered. Subject to and effective upon acceptance for exchange of the Old F4L Notes tendered herewith, the undersigned hereby sells, assigns and transfers to or upon the order of Food 4 Less all right, title and interest in and to, and any and all claims in respect of or arising or having arisen as a result of the undersigned's status as a holder of, all Old F4L Notes tendered hereby. The undersigned hereby appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned with respect to such Old F4L Notes with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver certificates for such Old F4L Notes, or transfer ownership of such Old F4L Notes on the account books maintained by DTC, MSTC or PDTC, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of Food 4 Less, (b) present such Old F4L Notes for transfer on the register, (c) deliver the Consent contained herein to Food 4 Less and the applicable Trustee under the Old Indentures and (d) receive all benefits and otherwise exercise all right of beneficial ownership of such Old F4L Notes all in accordance with the terms of the Exchange Offers. The undersigned hereby represents and warrants that the undersigned accepts the terms and conditions of the Prospectus and this Letter of Transmittal, owns the Old F4L Notes tendered hereby within the meaning of Rule 10b-4 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), has full power and authority to tender, sell, assign and transfer the Old F4L Notes tendered hereby and that Food 4 Less will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or Food 4 Less to be necessary or desirable to complete the sale, assignment and transfer of the Old F4L Notes tendered. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tenders of Old F4L Notes pursuant to the Exchange Offers may be withdrawn and Consents may be revoked, subject to the procedures described in the Prospectus under "The Exchange Offers and Solicitation -- Withdrawal of Tenders and Revocation of Consents," and under Instruction 3 herein, at any time until the "Consent Date," which shall be the later of (a) such time as the Requisite Consents (as defined under Instruction 3 herein) with respect to the applicable issue of Old F4L Notes have been received and the Supplemental Indenture (as defined) for such issue has been executed and (b) 12:00 Midnight, New York City time, on February 22, 1995. Thereafter, such tenders may be withdrawn and Consents may be revoked if the applicable Exchange Offer with respect to such Old F4L Notes is terminated without any Old F4L Notes being accepted for exchange thereunder. Food 4 Less shall be deemed to have accepted for exchange, and to have exchanged validly tendered and not properly withdrawn Old F4L Notes in the Exchange Offers when, as and if Food 4 Less has given oral or written notice thereof to the Exchange Agent. Upon receipt of the Requisite Consents from holders of Old F4L Senior Notes or holders of Old F4L Senior Subordinated Notes, Food 4 Less will certify in writing to the Old F4L Senior Note Trustee or the Old F4L Senior Subordinated Note Trustee (together, the "Old Trustees"), as the case may be, that the Requisite Consents to the adoption of the Proposed Amendments have been received with respect to such issue of Old F4L Notes. Except as set forth under Instruction 2 herein and in the Prospectus under "The Exchange Offers and Solicitation -- Guaranteed Delivery Procedure," Consents from tendering holders of Old F4L Notes will not be counted towards determining whether Food 4 Less has received the Requisite Consents unless Food 4 Less is prepared to accept the tender of Old F4L Notes to which such Consents relate. In addition, Consents with respect to any Old F4L Notes will not be counted if the tender of such holders' Old F4L Notes is defective, unless Food 4 Less waives such defect. After receipt by the Old F4L Senior Note Trustee or the Old F4L Senior Subordinated Note Trustee of, among other things, certification by Food 4 Less that the Requisite Consents with respect to the Old F4L Senior Notes or the Old F4L Senior Subordinated Notes, as the case may be, have been received, Food 4 Less and the applicable Old Trustee will execute a supplemental indenture to evidence the adoption of the Proposed Amendments relating to the applicable indenture under which such Old F4L Notes were issued (each a "Supplemental Indenture"). Upon the acceptance by Food 4 Less of the Requisite Consents from holders of Old F4L Senior Notes or Old F4L Senior Subordinated Notes and the execution of the applicable Supplemental Indenture, such Supplemental Indenture will immediately become effective. Although the Proposed 4 5 Amendments relating to an issue of Old F4L Notes will become effective upon certification that the Requisite Consents from holders of the applicable Old F4L Notes have been received, such Proposed Amendments will not be operative until Food 4 Less has accepted for exchange all Old F4L Notes validly tendered and not withdrawn. Food 4 Less will not be obligated to issue the New F4L Notes and pay the Exchange Payment pursuant to the Exchange Offers unless, among other things, the Requisite Consents to the adoption of the Proposed Amendments have been received from both the Old F4L Senior Noteholders and the Old F4L Senior Subordinated Noteholders. The withdrawal of Old F4L Notes in accordance with the procedures set forth in the Prospectus under "The Exchange Offers and Solicitation -- Withdrawals of Tenders and Revocation of Consents," and under Instruction 3 herein, will effect a revocation of the related Consents. Any valid revocation of Consents will automatically render the prior tender of the Old F4L Notes to which such Consents relate defective and Food 4 Less will have the right, which it may waive, to reject such tender as invalid and ineffective. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, Food 4 Less may not be required to accept any of the Old F4L Notes tendered (as described in the Prospectus under the caption "The Exchange Offers and Solicitation -- Conditions"). Old F4L Notes not accepted for tender or that are withdrawn will be returned to the undersigned at the address set forth above unless otherwise indicated under "SPECIAL DELIVERY INSTRUCTIONS" below. Unless otherwise indicated under "SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS" or "SPECIAL DELIVERY INSTRUCTIONS" below, the Exchange Agent will deliver the New F4L Notes and the Exchange Payment (and, if applicable, return Old F4L Notes for any principal amount of Old F4L Notes not accepted for exchange) to the undersigned at the address set forth above. The undersigned understands that holders who tender Old F4L Notes by book-entry transfer ("Book-Entry Holders") may request that any Old F4L Notes not accepted for exchange be returned by crediting the account maintained by DTC, MSTC or PDTC as such Book-Entry Holders may designate by ranking an appropriate entry under the box entitled "SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS" below. The undersigned recognizes that Food 4 Less has no obligation pursuant to "SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS" to transfer any Old F4L Notes from the name of the registered holder thereof if Food 4 Less does not accept for exchange any of such Old F4L Notes. See Instruction 5. The undersigned understands that tenders of Old F4L Notes pursuant to any one of the procedures described under "The Exchange Offers and Solicitation -- Procedures for Tendering and Consenting" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and Food 4 Less in accordance with the terms and subject to the conditions of the Prospectus and this Letter of Transmittal. 5 6 THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD F4L NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED SUCH OLD F4L NOTES, CONSENTED TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH OLD F4L NOTES AND MADE CERTAIN REPRESENTATIONS AS DESCRIBED HEREIN AND IN THE PROSPECTUS. ONLY REGISTERED HOLDERS OF OLD F4L NOTES ARE ENTITLED TO CONSENT TO THE PROPOSED AMENDMENTS. IF THE UNDERSIGNED IS NOT THE REGISTERED HOLDER OF THE OLD F4L NOTES TENDERED PURSUANT HERETO, THE UNDERSIGNED MUST EITHER HAVE THE OLD F4L NOTES REGISTERED IN THE UNDERSIGNED'S NAME OR HAVE THE REGISTERED HOLDER SIGN THE FORM OF CONSENT APPEARING BELOW OR A VALID PROXY. PLEASE SIGN HERE (See Instructions 1 and 4 and the following paragraph) X ------------------------------------------------------------------------- X ------------------------------------------------------------------------- Signature(s) of Owner(s) Date Area Code and Telephone Number: ------------------------------------------------ This Letter of Transmittal must be signed by the Registered Holder(s) of Old F4L Notes as their name(s) appear(s) on certificates for Old F4L Notes or, if tendered by a participant in one of the Book-Entry Transfer Facilities, exactly as such participant's name appears on a security position listing as the owner of Old F4L Notes, or by person(s) authorized to become Registered Holder(s) by endorsement and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 4. Name (s): --------------------------------------------------------------- --------------------------------------------------------------- Please Type or Print Capacity: --------------------------------------------------------------- Address: --------------------------------------------------------------- (Including Zip Code) SIGNATURE GUARANTEE (If required by Instruction 4) Signature(s) Guaranteed by an Eligible Institution: --------------------------------------------- (Authorized Signature) --------------------------------------------- (Title) --------------------------------------------- (Name of Firm) Dated: ------------------------------------------------------------------ - - ----------------------------------------------------------------------------- Please indicate (by marking the appropriate box provided below) whether the beneficial holder(s) of the Old F4L Notes tendered herewith is a(n): / / Bank / / Pension or Profit-Sharing Trust / / Savings Institution / / Dealer / / Trust Company / / Foundation / / Insurance Company / / Corporation / / Investment Company / / Other Financial or Institutional Investor / / Individual - - ----------------------------------------------------------------------------- 6 7 IF THIS LETTER OF TRANSMITTAL IS SIGNED BY A HOLDER OF OLD F4L NOTES WHO IS NOT THE REGISTERED HOLDER THEREOF, THEN THE REGISTERED HOLDER MUST SIGN THE FOLLOWING CONSENT OR A VALID PROXY: Pursuant to the Exchange Offers and the Solicitation of Consents to the Proposed Amendments, the undersigned hereby consents to the Proposed Amendments with respect to the Old F4L Notes tendered hereby and with respect to the related indentures. This consent shall not be deemed to be effective if the above-described Old F4L Notes are not accepted for tender pursuant to the Exchange Offers. X ------------------------------------------------------------------------- Signature of Registered Holder X ------------------------------------------------------------------------- Signature of Registered Holder (if more than one) Dated: --------------------------------------------------------------------- (Must be signed by the Registered Holder(s) as name(s) appear(s) on the certificates for Old F4L Notes. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 4.) Name(s): ------------------------------------------------------------------- ------------------------------------------------------------------- Please Type or Print Capacity: ------------------------------------------------------------------- Address: ------------------------------------------------------------------- (Including Zip Code) SIGNATURE GUARANTEE (If required by Instruction 4) Signature(s) Guaranteed by an Eligible Institution: ------------------------------------------------ (Authorized Signature) ----------------------------------------------- (Title) ------------------------------------------------ (Name of Firm) Dated: --------------------------------------------------------------------- 7 8 SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if certificates for New F4L Notes and the Exchange Payment are to be issued in the name of, or paid to, someone other than the person who submits this Letter of Transmittal or issued to an address different from that shown in the box entitled "DESCRIPTION OF OLD F4L NOTES" above in this Letter of Transmittal or if Old F4L Notes are to be returned by credit to an account maintained by DTC, MSTC or PDTC. ISSUE TO: Name --------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ (Include Zip Code) - - ------------------------------------------------------------------------------- (Social Security Number or Employer Identification Number) A correct taxpayer identification number must also be provided on the Substitute Form W-9 included herein. CREDIT UNACCEPTED OLD F4L NOTES TENDERED BY BOOK-ENTRY TRANSFER TO THE: / / DTC / / MSTC or / / PDTC (check one) account set forth below: - - ------------------------------------------------------------------------------- (DTC, MSTC or PDTC Account Number) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if the Exchange Payment, certificates evidencing New F4L Notes and/or certificates evidencing Old F4L Notes for amounts not accepted for exchange are to be sent to someone other than the person who submits this Letter of Transmittal or to an address other than that shown in the box entitled "DESCRIPTION OF OLD F4L NOTES" above in this Letter of Transmittal. MAIL TO: Name --------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ (Include Zip Code) 8 9 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFERS AND THE SOLICITATION 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates for Old F4L Notes, or any book-entry transfer into the Exchange Agent's account at DTC, MSTC or PDTC of Old F4L Notes tendered electronically, as well as a properly completed Letter of Transmittal, including a valid and unrevoked Consent or facsimile(s) thereof, duly executed by the registered holder thereof with any required signature guarantee(s), and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth herein on or prior to 12:00 Midnight, New York City time, on the Expiration Date of the Exchange Offers and the Solicitation, except as otherwise provided in Instruction 2, "Guaranteed Delivery Procedures." Tenders of Old F4L Notes into the Exchange Offers will be accepted only in principal amounts equal to $1,000 or integral multiples thereof. The method of delivery of this Letter of Transmittal, certificates for Old F4L Notes and any other required documents is at the election and risk of the tendering Noteholder, and except as otherwise provided below, the delivery will be deemed made when actually received by the Exchange Agent. Instead of effecting delivery by mail, it is recommended that tendering Noteholders use an overnight or hand delivery service. If Old F4L Notes are sent by mail, registered mail, with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to assure timely delivery. No documents should be sent to Food 4 Less, the Information Agent, the Dealer Managers, or the Old Trustees. If the person signing this Letter of Transmittal is not the registered holder of the securities tendered hereby, then such person must either have the securities hereby registered in such person's name or obtain from the registered holder and submit to the Exchange Agent the form of consent of the registered holder to the Proposed Amendments appearing above or a valid proxy. All questions as to the validity, form, eligibility (including time of receipt), acceptance, withdrawal and revocation of tendered Old F4L Notes and delivered Consents to the Proposed Amendments will be resolved by Food 4 Less, whose determination will be final and binding. Food 4 Less reserves the absolute right to reject any or all tenders and withdrawals of Old F4L Notes and deliveries and revocations of Consents to the Proposed Amendments that are not in proper form or the acceptance of which would, in the opinion of Food 4 Less or counsel for Food 4 Less, be unlawful. Food 4 Less also reserves the right to waive any irregularities or conditions of tender, consent or proxy as to particular Old F4L Notes. Food 4 Less' interpretation of the terms and conditions of the Exchange Offers (including the instructions in this Letter of Transmittal) will be final and binding. Unless waived, any irregularities in connection with tenders and withdrawals of Old F4L Notes and revocations of Consents to the Proposed Amendments must be cured within such time as Food 4 Less shall determine. Neither Food 4 Less nor the Exchange Agent shall be under any duty to give notification of defects in such tenders, withdrawals, deliveries or revocations or shall incur any liability for failure to give such notification. Tenders and withdrawals of Old F4L Notes and deliveries and revocations of Consents to the Proposed Amendments will not be deemed to have been made until such irregularities have been cured or waived. Any Old F4L Notes received by the Exchange Agent that are not properly tendered or delivered and to which the irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Noteholders unless otherwise provided in this Letter of Transmittal as soon as practicable following the Expiration Date. None of Food 4 Less, the Exchange Agent, the Information Agent, the Dealer Managers or any other person shall be obligated to give notification of defects or irregularities in any tender, or shall incur any liability for failure to give any such notification. 2. GUARANTEED DELIVERY PROCEDURES. If a registered holder of Old F4L Notes desires to tender such Old F4L Notes and consent to the Proposed Amendments, and such holder's Old F4L Notes are not immediately available, or if time will not permit such holder's Old F4L Notes or any other required documents to be delivered to the Exchange Agent prior to 12:00 Midnight, New York City time, on the Expiration Date, then such Old F4L Notes may nevertheless be tendered for exchange and Consents may be effected if all of the following guaranteed delivery procedure conditions are met: (i) the tender for exchange and Consent is made by or through an Eligible Institution; (ii) prior to 12:00 Midnight, New York City time, on the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or hand delivery) substantially in the form provided by Food 4 Less herewith, that contains a signature guaranteed by an Eligible Institution in the form set forth in such Notice of Guaranteed 9 10 Delivery, unless such tender is for the account of an Eligible Institution (in which case no signature guarantee shall be required), and sets forth the name and address of the holder of Old F4L Notes and the principal amount of Old F4L Notes tendered for exchange, states that the tender is being made thereby and guarantees that, within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, together with the Old F4L Notes and any required signature guarantees and any other documents required by this Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (iii) all tendered Old F4L Notes, or a confirmation of a book-entry transfer of such Old F4L Notes into the Exchange Agent's applicable account at a Book-Entry Transfer Facility, as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and all other documents required by this Letter of Transmittal, shall be received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. The PINK Notice of Guaranteed Delivery provided herewith shall be used in connection with tenders of all Old F4L Notes. Notwithstanding any other provision hereof, the exchange for Old F4L Notes pursuant to the Exchange Offers will in all cases be made only after timely receipt by the Exchange Agent of certificates for such Old F4L Notes and this Letter of Transmittal (or facsimile thereof) in respect thereof, properly completed and duly executed, together with any required signature guarantees and any other documents required by the Prospectus and this Letter of Transmittal. 3. CONSENT TO PROPOSED AMENDMENTS; WITHDRAWAL OF TENDERS; REVOCATION OF CONSENTS. A valid Consent to the adoption of the Proposed Amendments may be given only by the registered holder of Old F4L Notes or his or her attorney-in-fact. Noteholders will not be able to validly tender unless they Consent to the Proposed Amendments. Noteholders not tendering Old F4L Notes pursuant to the Exchange Offers will not be eligible to Consent to the Proposed Amendments. Tendering holders who sign this Letter of Transmittal and tender any Old F4L Notes shall be deemed to have Consented to the Proposed Amendments with respect to such Old F4L Notes tendered. Tenders of Old F4L Notes pursuant to an Exchange Offer may be withdrawn and Consents may be revoked at any time until the "Consent Date," which shall be the later of (a) such time as the Requisite Consents (Consents of holders representing at least a majority in aggregate principal amount of the outstanding Old F4L Senior Notes or Old F4L Senior Subordinated Notes, as the case may be, held by persons other than Food 4 Less and its affiliates) have been delivered by Food 4 Less to the applicable Old Trustee and the Supplemental Indenture for such issue has been executed and (b) 12:00 Midnight, New York City time, on February 22, 1995. Thereafter, such tenders may be withdrawn and Consents may be revoked if the Exchange Offer with respect to such Old F4L Notes is terminated without any Old F4L Notes being accepted for exchange thereunder. A different Consent Date may be established with respect to the Old F4L Senior Notes and the Old F4L Senior Subordinated Notes. The withdrawal of Old F4L Notes prior to the applicable Consent Date in accordance with the procedures set forth hereunder will effect a revocation of the related Consent. Any valid revocation of Consents will automatically render the prior tender of the Old F4L Notes to which such Consents relate defective and Food 4 Less will have the right, which it may waive, to reject such tender as invalid and ineffective. Any holder of Old F4L Notes who has tendered Old F4L Notes or who succeeds to the record ownership of Old F4L Notes in respect of which such tenders or Consents previously have been given may withdraw such Old F4L Notes or revoke such Consents prior to the applicable Consent Date by delivery of a written notice of withdrawal or revocation, subject to the limitations described herein. To be effective, a written telegraphic, telex or facsimile transmission (or delivered by hand or by mail) notice of withdrawal of a tender or revocation of a Consent must (i) be timely received by the Exchange Agent at one of its addresses set forth on the front cover hereof or prior to the applicable time provided herein with respect to the applicable issue of Old F4L Notes, (ii) specify the name of the person having tendered the Old F4L Notes to be withdrawn or as to which Consents are revoked, the principal amount of such Old F4L Notes to be withdrawn and, if certificates for Old F4L Notes have been tendered, the name of the registered holder(s) of such Old F4L Notes as set forth in such certificates, if different from that of the person who tendered such Old F4L Notes, (iii) identify the Old F4L Notes to be withdrawn or to which the notice of revocation relates and (iv)(a) be signed by the holder in the same manner as the original signature on this Letter of Transmittal or Notice of Guaranteed Delivery (as the case may be) by which such Old F4L Notes were tendered (including any required signature guarantees) or (b) be accompanied by evidence satisfactory to Food 4 Less and the Exchange Agent that the holder withdrawing such tender or revoking such Consents has succeeded to beneficial ownership of such Old F4L Notes. If certificates representing Old F4L Notes to be withdrawn or Consents to be revoked have been delivered or otherwise identified to the Exchange Agent, then the name of the registered holder and the serial numbers of the particular certificate evidencing the Old F4L Notes to be withdrawn or Consents to be revoked and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, except in the case of Old F4L Notes tendered by an Eligible Institution (in which case no signature guarantee 10 11 shall be required), must also be so furnished to the Exchange Agent as aforesaid prior to the physical release of the certificates for the withdrawn Old F4L Notes. If Old F4L Notes have been tendered or if Consents have been delivered pursuant to the procedures for book-entry transfer as set forth herein, any notice of withdrawal or revocation of a Consent must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Old F4L Notes. Food 4 Less reserves the right to contest the validity of any revocation. A purported notice of revocation which is not received by the Exchange Agent in a timely fashion will not be effective to revoke a Consent previously given. Any permitted withdrawals of tenders of Old F4L Notes and revocation of Consents may not be rescinded, and any Old F4L Notes properly withdrawn will thereafter be deemed not validly tendered and any Consents revoked will be deemed not validly delivered for purposes of the Exchange Offers or the Solicitation; provided, however, that withdrawn Old F4L Notes may be retendered and revoked Consents may be redelivered by again following one of the appropriate procedures described herein at any time prior to 12:00 Midnight, New York City time, on the Expiration Date. If Food 4 Less shall decide to decrease the amount of Old F4L Notes being sought in either Exchange Offer or to increase or decrease the consideration offered to the Old F4L Noteholders, and if, at the time that notice of such increase or decrease is first published, sent or given to Old F4L Noteholders in the manner specified in the Prospectus, such Exchange Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth Business Day from and including the date that such notice is first so published, sent or given such Exchange Offer will be extended for such purposes until the expiration of such period of ten Business Days. As used in the Prospectus, "Business Day" has the meaning set forth in Rule 14d-1 (and applicable to Regulation 14E) under the Exchange Act). In addition, if any Exchange Offer or the Solicitation is amended in a manner determined by Food 4 Less to constitute a material adverse change to the Old F4L Noteholders, Food 4 Less promptly will disclose such amendment in a public announcement and will extend the relevant Exchange Offer or the Solicitation for a period deemed by it to be adequate to permit the Old F4L Noteholders to properly deliver or withdraw their Old F4L Notes and give or revoke Consents. If Food 4 Less extends an Exchange Offer, is delayed in its acceptance for exchange of Old F4L Notes or is unable to exchange Old F4L Notes pursuant to an Exchange Offer, for any reason, then, without prejudice to Food 4 Less' rights under such Exchange Offer, the Exchange Agent may, subject to applicable law, retain tendered Old F4L Notes on behalf of Food 4 Less, and such Old F4L Notes may not be withdrawn (subject to Rule 14e-1 under the Exchange Act, which requires that Food 4 Less deliver the consideration offered or return the Old F4L Notes deposited by or on behalf of the Noteholders promptly after the termination or withdrawal of an Exchange Offer), except to the extent that tendering holders are entitled to withdrawal rights as described herein. All questions as to the validity, form and eligibility (including the time of receipt) of notices of withdrawal or revocations of Consents will be determined by Food 4 Less, whose determination will be final and binding on all parties. None of Food 4 Less, the Exchange Agent, the Dealer Managers, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or revocation of Consent or incur any liability for failure to give any such notification. 4. SIGNATURES ON THIS LETTER OF TRANSMITTAL, AND ENDORSEMENTS; GUARANTEE OF SIGNATURE. If this Letter of Transmittal is signed by the registered holder(s) of the Old F4L Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificate(s) without alteration or any change whatsoever. If any of the Old F4L Notes tendered hereby are registered in the names of two or more joint owners, all owners must sign this Letter of Transmittal. If any tendered Old F4L Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal and any other required documents as there are different names in which the Old F4L Notes are registered. If tendered Old F4L Notes are registered in the name of a person other than the person signing this Letter of Transmittal, the tendered Old F4L Notes must be endorsed or accompanied by appropriate bond powers, signed by the registered holder or holders of the Old F4L Notes transmitted hereby or separate bond powers are required, with signatures guaranteed in either case. If this Letter of Transmittal or any certificate or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence satisfactory to Food 4 Less of their authority so to act must be submitted. Endorsements on certificates of Old F4L Notes or signatures on bond powers required by this Instruction 4 must be guaranteed by an Eligible Institution. 11 12 All signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Old F4L Notes tendered or withdrawn, as the case may be, pursuant thereto are tendered (i) by a registered holder(s) (which term, for purposes of this Letter of Transmittal, shall include any participant in DTC, MSTC or PDTC whose name appears on a security position listing as the owner of Old F4L Notes) of Old F4L Notes who has not completed the box entitled "SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS" or "SPECIAL DELIVERY INSTRUCTIONS" on this Letter of Transmittal or (ii) for the account of an Eligible Institution. If Old F4L Notes are registered in the name of a person other than the signer of this Letter of Transmittal or a notice of withdrawal, as the case may be, or if payment is to be made or certificates for unexchanged Old F4L Notes are to be issued or returned to a person other than the registered holder, then the Old F4L Notes must be endorsed by the registered Noteholder(s), or be accompanied by a written instrument or instruments of transfer or exchange in form satisfactory to Food 4 Less duly executed by the registered Noteholder(s), with such signatures guaranteed by an Eligible Institution. In the event that signatures on this Letter of Transmittal (or other document) are required to be guaranteed, such guarantee must be by a firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. (the "NASD") or by a commercial bank or trust company having an office in the United States (each of the foregoing being an "Eligible Institution"). 5. SPECIAL ISSUANCE, PAYMENT AND DELIVERY INSTRUCTIONS. Tendering Noteholders should indicate, in the applicable box, the name and address to which New F4L Notes, the Exchange Payment or Old F4L Notes for principal amounts not accepted for exchange (each, as appropriate) are to be issued, sent or paid, if different from the name and address of the person submitting this Letter of Transmittal. In the case of issuance or payment in a different name, the tax identification number of the person named must also be indicated and a Substitute Form W-9 for such recipient must be completed. See Instruction 6. If no such instructions are given, New F4L Notes, the Exchange Payment or Old F4L Notes not accepted for exchange (each, as appropriate) will be sent to the name and address of the person signing this Letter of Transmittal or, at Food 4 Less' option, by crediting the account at DTC, MSTC or PDTC designated above in the box entitled "SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS." 6. SUBSTITUTE FORM W-9. The tendering Noteholder is required to provide the Exchange Agent (as payor) with his or her correct taxpayer identification number ("TIN") on the Substitute Form W-9 included in this Letter of Transmittal. In the case of a tendering Noteholder who has completed the box entitled "SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS" above, however, the correct TIN on Form W-9 should be provided for the recipient of the securities delivered pursuant to such instructions. Failure to provide the information on the form will cause the Exchange Agent to withhold 31% of any payments made to the tendering Noteholder or such recipient, as the case may be, until such information is received. See "IMPORTANT TAX INFORMATION" below. 7. TRANSFER TAXES. Food 4 Less will pay all transfer taxes, if any, applicable to the exchange of Old F4L Notes pursuant to the Exchange Offers. If, however, New F4L Notes, the Exchange Payment or Old F4L Notes not accepted for exchange (each as appropriate), are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old F4L Notes, or if tendered Old F4L Notes are to be registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old F4L Notes pursuant to an Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such tax or exemption therefrom is not submitted, then the amount of such transfer tax will be deducted from the Exchange Payment otherwise payable to such tendering holder. Any remaining amount will be billed directly to such tendering holder. EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 8. WAIVER OF CONDITIONS. Food 4 Less reserves the absolute right to amend in any respect or waive any of the specified conditions in either of the Exchange Offers in the case of any Old F4L Notes tendered. 12 13 9. MUTILATED, LOST, STOLEN OR DESTROYED OLD F4L NOTES. If a Noteholder desires to tender Old F4L Notes pursuant to an Exchange Offer, but any such Old F4L Note has been mutilated, lost, stolen or destroyed, such holder should write to or telephone the Old Trustee under the Old Indenture under which such Old F4L Note was issued, at the address listed below, concerning the procedures for obtaining replacement certificates for such Old F4L Note, arranging for indemnification or any other matter that requires handling by such Old Trustee: Old F4L Senior Note Trustee: Norwest Bank Minnesota, N.A. Sixth & Marquette Minneapolis, Minnesota 55479-0013 Attn: Corporate Trust Department (612) 667-8058 Old F4L Senior Subordinated Note United States Trust Company of New York Trustee: 114 West 47th Street New York, New York 10036-1532 Attention: Corporate Trust Department (212) 852-1000
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Information Agent, D.F. King & Co., Inc., (800) 669-5550. 13 14 IMPORTANT TAX INFORMATION GENERAL Under federal income tax law, a holder whose tendered Old F4L Notes are accepted for exchange is required to provide the Exchange Agent with such holder's correct taxpayer identification number on the Substitute Form W-9 included in this Letter of Transmittal. If such holder is an individual, the taxpayer identification number is his or her social security number. If the Exchange Agent is not provided with the correct taxpayer identification number or adequate basis for exemption, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such holder in exchange for tendered Old F4L Notes or in respect of the New F4L Notes may be subject to backup withholding. Certain holders of Old F4L Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that holder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Exchange Agent is required to withhold 31% of any payments made to the holder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. WHAT NUMBER TO GIVE TO EXCHANGE AGENT The holder is required to give the Exchange Agent the social security number or employer identification number of the registered holder of the Old F4L Notes. If the certificates for Old F4L Notes are registered in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 14 15 TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD F4L NOTES (SEE INSTRUCTION 6) - - -------------------------------------------------------------------------------------------------- PAYOR'S NAME: BANKERS TRUST COMPANY - - -------------------------------------------------------------------------------------------------- SUBSTITUTE Social Security Number FORM W-9 -------------------------------------- DEPARTMENT OF THE PART I -- PLEASE PROVIDE YOUR OR TREASURY INTERNAL TAXPAYER IDENTIFICATION NUMBER REVENUE SERVICE IN THE BOX AT THE RIGHT AND CERTIFY BY SIGNING AND DATING Employer Identification BELOW. Number PAYOR'S REQUEST FOR -------------------------------------- TAXPAYER IDENTIFICATION NUMBER (TIN) ------------------------------------------------------------------------ PART II -- For Payees exempt from backup withholding, see the Important Tax Information above and Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 enclosed herewith and complete as instructed therein. - - -------------------------------------------------------------------------------------------------- CERTIFICATIONS -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or a Taxpayer Identification Number has not been issued to me and either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration office or (b) I intend to mail or deliver an application in the near future). (I understand that if I do not provide a Taxpayer Identification Number to the payer, 31% of all reportable payments made to me thereafter will be withheld until I provide a number to the payer and that, if I do not provide my Taxpayer Identification Number within sixty (60) days, such retained amounts shall be remitted to the Internal Revenue Service ("IRS") as backup withholding. (2) I am not subject to backup withholding either because I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTION -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). (Also see the IMPORTANT TAX INFORMATION above.) - - --------------------------------------------------------------------------------------------- Name --------------------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ (Including Zip Code) Signature Date --------------------------------------------------- ------------------------- - - ------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. IMPORTANT: This Letter of Transmittal or a facsimile thereof (together with Old F4L Notes and all other required documents) must be received by the Exchange Agent on or prior to the Expiration Date. Your bank or broker can assist you in completing this form. The Instructions included in this Letter of Transmittal must be followed. Requests for assistance or additional copies of the Prospectus or this Letter of Transmittal may be obtained from the Information Agent at the address or telephone numbers set forth below. The Information Agent for the Exchange Offers and the Solicitation is: D.F. KING & CO., INC. Call Toll Free: (800) 669-5550 77 Water Street New York, NY 10005 (212) 269-5550 (collect) 15 EX-99.2 13 NOTICE OF GUARANTEED DELIVERY- EXCHANGE OFFER 1 NOTICE OF GUARANTEED DELIVERY TO TENDER AND TO CONSENT TO CERTAIN INDENTURE AMENDMENTS WITH RESPECT TO THE 10.45% SENIOR NOTES DUE 2000 AND THE 13.75% SENIOR SUBORDINATED NOTES DUE 2001 OF FOOD 4 LESS SUPERMARKETS, INC. PURSUANT TO THE PROSPECTUS AND SOLICITATION STATEMENT DATED JANUARY 25, 1995 As set forth in the Prospectus and Solicitation Statement dated January 25, 1995 (as the same may be amended or supplemented from time to time, the "Prospectus") of Food 4 Less Supermarkets, Inc. ("Food 4 Less"), under the caption "The Exchange Offers and Solicitation -- Guaranteed Delivery Procedure," and in the accompanying Consent and Letter of Transmittal and Instruction 2 thereto (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to (a) accept Food 4 Less' offer, upon the terms and subject to the conditions set forth in the Prospectus and Letter of Transmittal, to (i) holders of the 10.45% Senior Notes Due 2000 of Food 4 Less (the "Old F4L Senior Notes") to exchange for each $1,000 principal amount of Old F4L Senior Notes $1,000 principal amount of new Senior Notes due 2004 (the "New F4L Senior Notes") plus $5.00 in cash, plus accrued and unpaid interest to the date of the exchange (the "F4L Senior Exchange Offer") and (ii) holders of the 13.75% Senior Subordinated Notes Due 2001 of Food 4 Less (the "Old F4L Senior Subordinated Notes" and, together with the Old F4L Senior Notes, the "Old F4L Notes") to exchange for each $1,000 principal amount of Old F4L Senior Subordinated Notes $1,000 principal amount of new 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes") plus $20.00 in cash, plus accrued and unpaid interest to the date of the exchange (the "F4L Senior Subordinated Exchange Offer," and together with the F4L Senior Exchange Offer, the "Exchange Offers," each of which is sometimes referred to herein individually as the applicable "Exchange Offer") and (b) deliver consents pursuant to Food 4 Less' solicitation (the "Solicitation") of consents (the "Consents") from holders of the Old F4L Notes ("Noteholders") to the proposed amendments (the "Proposed Amendments") to the respective indentures under which the Old F4L Notes were issued (as described in the Prospectus under the captions "The Proposed Amendments," "Appendix A -- Comparison of Old F4L Senior Notes and New F4L Senior Notes" and "Appendix B -- Comparison of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes"), if (i) certificates representing the Old F4L Notes to be tendered pursuant thereto and with respect to Consents to be delivered are not lost but are not immediately available, (ii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date (as defined below), or (iii) time will not permit all required documents to reach the Exchange Agent prior to the Expiration Date. This form may be delivered by an Eligible Institution by mail or hand delivery or transmitted, via facsimile, to the Exchange Agent as set forth below. All capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Prospectus. Unless otherwise indicated, references herein to the Exchange Offers shall be deemed to include the Solicitation. THE EXCHANGE OFFERS AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE SURRENDER OF OLD F4L NOTES FOR EXCHANGE BE ACCEPTED FROM OR ON BEHALF OF) NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF SUCH EXCHANGE OFFERS OR THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. THE EXCHANGE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 22, 1995 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED OLD F4L NOTES MAY ONLY BE WITHDRAWN AND THE CORRESPONDING CONSENTS MAY ONLY BE REVOKED, UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. 2 The Exchange Agent for the Exchange Offers is: BANKERS TRUST COMPANY By Hand/Overnight Courier: Facsimile Transmission Number: By Mail: Bankers Trust Company (212) 250-6275 Bankers Trust Company Corporate Trust & Agency Group (212) 250-3290 Corporate Trust & Agency Department Reorganization Department Reorganization Department Receipt & Delivery Window Confirm by Telephone: P.O. Box 1458 123 Washington St., (212) 250-6270 Church Street Station First Floor New York, NY 10008-1558 New York, NY 10006 For Information Call: (800) 669-5550
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tender(s) to Food 4 Less and delivers to Food 4 Less Consents with respect to, upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Old F4L Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offers and Solicitation -- Guaranteed Delivery Procedure." Subject to and effective upon acceptance for exchange of the Old F4L Notes tendered herewith, the undersigned hereby sells, assigns and transfers to or upon the order of Food 4 Less all right, title and interest in and to, and any and all claims in respect of or arising or having arisen as a result of the undersigned's status as a holder of, all Old F4L Notes tendered hereby. The undersigned authorizes the Exchange Agent to deliver this Notice of Guaranteed Delivery to Food 4 Less and the applicable Old Trustee (as defined in the Prospectus) as evidence of the undersigned's Consent to the Proposed Amendments with respect to the Old F4L Notes tendered hereby and as certification that Requisite Consents (as defined in the Prospectus) to the Proposed Amendments with respect to such Old F4L Notes have been received. In the event of a termination of either Exchange Offer the Old F4L Notes tendered pursuant thereto will be returned to the tendering Noteholder promptly. The undersigned hereby represents and warrants that the undersigned accepts the terms and conditions of the Prospectus and the Letter of Transmittal, owns the Old F4L Notes tendered hereby within the meaning of Rule 10b-4 under the Securities Exchange Act of 1934, as amended, has full power and authority to tender, sell, assign and transfer the Old F4L Notes tendered hereby and that Food 4 Less will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or Food 4 Less to be necessary or desirable to complete the sale, assignment and transfer of the Old F4L Notes tendered. All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. 2 3 - - --------------------------------------------------------------------------------
CERTIFICATE NUMBERS PRINCIPAL AMOUNT CLASS BEING TENDERED (IF AVAILABLE) TO BE TENDERED* ------------------------------- ------------------------------ ------------------------------ Old F4L Senior Notes........... ------------------------------ ------------------------------ ------------------------------ ------------------------------ ------------------------------ ------------------------------ Old F4L Senior Subordinated Notes........................ ------------------------------ ------------------------------ ------------------------------ ------------------------------ ------------------------------ ------------------------------
- - --------------- * Must be in principal amounts equal to $1,000 or integral multiples thereof. - - -------------------------------------------------------------------------------- PLEASE SIGN AND COMPLETE Signatures of Registered Holder(s) or Authorized Signatory: - - ------------------------------------------------------------ - - ------------------------------------------------------------ Name(s) of Registered Holder(s): - - ------------------------------------------------------------ - - ------------------------------------------------------------ Date: ------------------------------------------------------ Address: --------------------------------------------------- - - ------------------------------------------------------------ Area Code and Telephone No.: -------------------------------- If Old F4L Notes will be delivered by book-entry transfer, check trust company below: / / The Depository Trust Company / / Midwest Securities Trust Company / / Philadelphia Depository Trust Company Transaction Code No.: -------------------------------------- Exchange Agent Account No.: --------------------------------- 3 4 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or a correspondent in the United States, hereby guarantees that, within five New York Stock Exchange trading days from the date of this Notice of Guaranteed Delivery, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with certificates representing the Old F4L Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Old F4L Notes into the Exchange Agent's account at a Book-Entry Transfer Facility, pursuant to the procedure for book-entry transfer set forth in the Prospectus under the caption "The Exchange Offers and Solicitation -- Procedures for Tendering and Consenting"), and any other required documents will be deposited by the undersigned with the Exchange Agent. Name of Firm: -------------------------------------- ---------------------------------------------- Authorized Signature Address: Name: ------------------------------------------- ----------------------------------------- Title: - - --------------------------------------------------- ---------------------------------------- Area Code and Telephone No. Date: ------------------------ ----------------------------------------
DO NOT SEND OLD F4L NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD F4L NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. This Notice of Guaranteed Delivery must be signed by the Noteholder(s) exactly as their name(s) appear on certificates for Old F4L Notes or on a security position listing as the owner of Old F4L Notes, or by person(s) authorized to become Noteholder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, such person must provide the following information: 4 EX-99.3 14 LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS 1 BT SECURITIES CORPORATION CS FIRST BOSTON DONALDSON, LUFKIN & JENRETTE ONE BANKERS TRUST PLAZA LEVERAGED FINANCE DEPARTMENT SECURITIES CORPORATION 130 LIBERTY STREET 55 E. 52ND STREET 140 BROADWAY NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10055 NEW YORK, NEW YORK 10005
TO TENDER AND TO CONSENT TO CERTAIN INDENTURE AMENDMENTS WITH RESPECT TO THE 10.45% SENIOR NOTES DUE 2000 AND THE 13.75% SENIOR SUBORDINATED NOTES DUE 2001 OF FOOD 4 LESS SUPERMARKETS, INC. PURSUANT TO THE PROSPECTUS AND SOLICITATION STATEMENT DATED JANUARY 25, 1995 THE EXCHANGE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 22, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF 10.45% SENIOR NOTES DUE 2000 AND 13.75% SENIOR SUBORDINATED NOTES DUE 2001 MAY ONLY BE WITHDRAWN AND THE CORRESPONDING CONSENTS MAY ONLY BE REVOKED, UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND SOLICITATION STATEMENT AND THE CONSENT AND LETTER OF TRANSMITTAL. January 25, 1995 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less Supermarkets, Inc. ( "Food 4 Less") and its subsidiaries to act as the Dealer Managers in connection with Food 4 Less' offer, upon the terms and subject to the conditions set forth in the Prospectus and Solicitation Statement dated January 25, 1995 (as the same may be amended or supplemented from time to time, the "Prospectus") and in the related Consent and Letter of Transmittal and instructions contained therein (the "Letter of Transmittal"), to (i) holders of 10.45% Senior Notes Due 2000 of Food 4 Less (the "Old F4L Senior Notes") to exchange for each $1,000 principal amount of Old F4L Senior Notes $1,000 principal amount of new Senior Notes due 2004 (the "New F4L Senior Notes") plus $5.00 in cash (the "F4L Senior Exchange Payment"), plus accrued and unpaid interest to the date of the exchange (the "F4L Senior Exchange Offer") and (ii) holders of the 13.75% Senior Subordinated Notes Due 2001 of Food 4 Less (the "Old F4L Senior Subordinated Notes" and, together with the Old F4L Senior Notes, the "Old F4L Notes") to exchange for each $1,000 principal amount of Old F4L Senior Subordinated Notes $1,000 principal amount of new 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes") plus $20.00 in cash (the "F4L Senior Subordinated Exchange Payment," and, together with the F4L Senior Exchange Payment, the "Exchange Payment"), plus accrued and unpaid interest to the date of the exchange (the "F4L Senior Subordinated Exchange Offer," and together with the F4L Senior Exchange Offer, the "Exchange Offers" and referred to herein individually as the applicable "Exchange Offer," as the case may be). Food 4 Less is also soliciting (the "Solicitation") consents (the "Consents") from holders of the Old F4L Notes ("Noteholders") to certain proposed amendments (the "Proposed Amendments") to the respective indentures under which the Old F4L Notes were issued (as described in the Prospectus under the captions "The Proposed Amendments," "Appendix A -- Comparison of Old F4L Senior Notes and New F4L Senior Notes" and "Appendix B -- Comparison of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes"). Upon consummation of the Exchange Offers and the Solicitation, Food 4 Less will deliver New F4L Notes and make payments in cash (including accrued interest in cash on the Old F4L Notes and the corresponding Exchange Payment) to the holders of Old F4L 2 Notes whose Old F4L Notes are accepted by Food 4 Less pursuant to the applicable Exchange Offer. Unless otherwise indicated, references herein to the Exchange Offers shall be deemed to include the Solicitation. THE EXCHANGE OFFERS AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE SURRENDER OF OLD F4L NOTES FOR EXCHANGE BE ACCEPTED FROM OR ON BEHALF OF) NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF SUCH EXCHANGE OFFERS OR THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. Enclosed herewith are copies of the following documents: 1. The Prospectus and Solicitation Statement; 2. The Consent and Letter of Transmittal for your use and for the information of your clients, together with guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; 3. Notice of Guaranteed Delivery to be used to accept the applicable Exchange Offer and the Solicitation if the Old F4L Notes and all other required documents cannot be delivered to the Exchange Agent on or prior to the Expiration Date; 4. A form of letter which may be sent to your clients for whose account you hold the Old F4L Notes in your name or in the name of a nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offers and the Solicitation; 5. A return envelope addressed to the Exchange Agent; and 6. A letter from the Chairman and Chief Executive Officer of Food 4 Less. PLEASE NOTE THAT THE EXCHANGE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 22, 1995 UNLESS EXTENDED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. Food 4 Less will not pay any fees or commissions to any broker or dealer or other person (other than the Dealer Managers) for soliciting tenders of the Old F4L Notes pursuant to the Exchange Offers and the Solicitation. You will be reimbursed for customary mailing and handling expenses incurred by you in forwarding the enclosed materials to your clients. Additional copies of the enclosed documents may be obtained from the Dealer Managers or the Information Agent, at their respective addresses and telephone numbers set forth on the back cover of the enclosed Prospectus. BT SECURITIES CORPORATION CS FIRST BOSTON CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF FOOD 4 LESS, THE EXCHANGE AGENT, THE INFORMATION AGENT OR THE DEALER MANAGERS OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFERS OR THE SOLICITATION NOT CONTAINED IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. EX-99.4 15 LETTER TO CLIENTS WITH RESPECT- EXCHANGE OFFERS 1 TO TENDER AND TO CONSENT TO CERTAIN INDENTURE AMENDMENTS WITH RESPECT TO THE 10.45% SENIOR NOTES DUE 2000 AND THE 13.75% SENIOR SUBORDINATED NOTES DUE 2001 OF FOOD 4 LESS SUPERMARKETS, INC. PURSUANT TO THE PROSPECTUS AND SOLICITATION STATEMENT DATED JANUARY 25, 1995 THE EXCHANGE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 22, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF 10.45% SENIOR NOTES DUE 2000 AND 13.75% SENIOR SUBORDINATED NOTES DUE 2001, MAY ONLY BE WITHDRAWN AND THE CORRESPONDING CONSENTS MAY ONLY BE REVOKED UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND SOLICITATION STATEMENT AND THE CONSENT AND LETTER OF TRANSMITTAL. TO OUR CLIENTS: Enclosed for your consideration is the Prospectus and Solicitation Statement dated January 25, 1995 (as the same may be amended or supplemented from time to time, the "Prospectus") and a related form of Consent and Letter of Transmittal and instructions thereto (the "Letter of Transmittal") relating to (a) the offer by Food 4 Less Supermarkets, Inc. ("Food 4 Less"), to (i) holders of 10.45% Senior Notes Due 2000 of Food 4 Less (the "Old F4L Senior Notes") to exchange for each $1,000 principal amount of Old F4L Senior Notes $1,000 principal amount of new Senior Notes due 2004 (the "New F4L Senior Notes") plus $5.00 in cash (the "F4L Senior Exchange Payment"), plus accrued and unpaid interest to the date of the exchange (the "F4L Senior Exchange Offer") and (ii) holders of the 13.75% Senior Subordinated Notes Due 2001 of Food 4 Less (the "Old F4L Senior Subordinated Notes" and, together with the Old F4L Senior Notes, the "Old F4L Notes") to exchange for each $1,000 principal amount of Old F4L Senior Subordinated Notes $1,000 principal amount of new 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes") plus $20.00 in cash (the "F4L Senior Subordinated Exchange Payment," and together with the F4L Senior Exchange Payment, the "Exchange Payment"), plus accrued and unpaid interest to the date of the exchange (the "F4L Senior Subordinated Exchange Offer," and together with the F4L Senior Exchange Offer, the "Exchange Offers" each of which is sometimes referred to herein individually as the applicable "Exchange Offer") and (b) Food 4 Less' solicitation (the "Solicitation") of consents (the "Consents") from holders of the Old F4L Notes ("Noteholders") to certain proposed amendments (the "Proposed Amendments") to the respective indentures under which the Old F4L Notes were issued (as described in the Prospectus under the captions "The Proposed Amendments," "Appendix A -- Comparison of Old F4L Senior Notes and New F4L Senior Notes" and "Appendix B -- Comparison of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes."). Consummation of the Exchange Offers and the Solicitation are subject to certain conditions described in the Prospectus under the caption "The Exchange Offers and Solicitation -- Conditions." WE ARE THE REGISTERED HOLDER OF THE OLD F4L NOTES HELD BY US FOR YOUR ACCOUNT. A TENDER OF ANY SUCH OLD F4L NOTES AND DELIVERY OF CONSENTS WITH RESPECT THERETO CAN BE MADE ONLY BY US AS THE REGISTERED HOLDER AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER OLD F4L NOTES, OR DELIVER A CONSENT WITH RESPECT TO SUCH OLD F4L NOTES, HELD BY US FOR YOUR ACCOUNT. Accordingly, we request instructions as to whether you wish us to tender such Old F4L Notes held by us for your account, and deliver Consents with respect to all of such Old F4L Notes so tendered, pursuant to the terms and conditions 2 set forth in the Prospectus and the Letter of Transmittal. We urge you to read the Prospectus and the Letter of Transmittal carefully before instructing us to tender your Old F4L Notes and to deliver Consents with respect to Old F4L Notes. Unless otherwise indicated, references herein to the Exchange Offers shall be deemed to include the Solicitation. Your instructions to us should be forwarded as promptly as possible in order to permit us to tender Old F4L Notes and deliver Consents with respect to Old F4L Notes on your behalf in accordance with the provisions of the Prospectus and the Letter of Transmittal. The Exchange Offers and the Solicitation will expire at 12:00 Midnight, New York City time, on February 22, 1995. Old F4L Notes tendered pursuant to the applicable Exchange Offer may only be withdrawn and the corresponding Consents delivered pursuant to the Solicitation may only be revoked, under the circumstances and subject to the procedures described in the Prospectus and the Letter of Transmittal. After receipt by the Old F4L Senior Note Trustee (as defined in the Prospectus) or the Old F4L Senior Subordinated Note Trustee (as defined in the Prospectus) of, among other things, certification by Food 4 Less that the Requisite Consents (as defined in the Prospectus) with respect to the Old F4L Senior Notes or the Old F4L Senior Subordinated Notes, as the case may be, have been received, Food 4 Less and the applicable Old Trustee will execute a supplemental indenture to evidence the adoption of the Proposed Amendments relating to the applicable issue of Old F4L Notes (each a "Supplemental Indenture"). Upon the acceptance by Food 4 Less of the Requisite Consents from holders of Old F4L Senior Notes or Old F4L Senior Subordinated Notes and the execution of the applicable Supplemental Indenture, such Supplemental Indenture will immediately become effective. Although the Proposed Amendments relating to an issue of Old F4L Notes will become effective upon certification that the Requisite Consents from holders of the applicable Old F4L Notes have been received, such Proposed Amendments will not be operative until Food 4 Less has accepted for exchange all Old F4L Notes validly tendered and not withdrawn. Your attention is directed to the following: 1. The Exchange Offers are for all of the aggregate principal amount of the outstanding Old F4L Notes. 2. The Exchange Offers and the Solicitation are not being made to (nor will the surrender of Old F4L Notes for exchange be accepted from or on behalf of) Noteholders in any jurisdiction in which the making or acceptance of such Exchange Offers or the Solicitation would not be in compliance with the laws of such jurisdiction. 3. A holder of Old F4L Notes who desires to tender into the applicable Exchange Offer with respect to any Old F4L Senior Notes or any Old F4L Senior Subordinated Notes must tender all such Old F4L Senior Notes or Old F4L Senior Subordinated Notes beneficially owned by such holder, as the case may be. The tender of Old F4L Notes pursuant to the applicable Exchange Offer will constitute the Consent of such tendering holder to the Proposed Amendments with respect to such Old F4L Notes. Noteholders who desire to accept the applicable Exchange Offer must consent to the Proposed Amendments. Noteholders do not have the option to consent to the Proposed Amendments without tendering into the applicable Exchange Offer. 4. The acceptance for exchange of Old F4L Notes validly tendered and not validly withdrawn and the delivery of New F4L Notes and the payment of the Exchange Payment will be made as promptly as practicable after the Expiration Date. Subject to rules promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Food 4 Less, however, expressly reserves the right to delay acceptance of any of the Old F4L Notes or to terminate either of the Exchange Offers or the Solicitation and not accept for exchange any Old F4L Notes not theretofore accepted if any of the conditions set forth in the Prospectus under the caption "The Exchange Offers and Solicitation -- Conditions" shall not have been satisfied or waived by Food 4 Less. Food 4 Less will deliver New F4L Notes and make payments in cash (including accrued interest in cash on the Old F4L Notes and the Exchange Payment) in exchange for Old F4L Notes pursuant to the Exchange Offers promptly following acceptance of the Old F4L Notes. 5. Consummation of the Exchange Offers and the Soliciation are subject to, among other things, satisfaction or waiver of certain conditions, including (i) satisfaction of the Minimum Tender (i.e., at least 80% of the aggregate principal amount of the outstanding Old F4L Notes being validly tendered and not withdrawn pursuant to the Exchange Offers) prior to the Expiration Date, (ii) the receipt of the Requisite Consents (i.e., Consents from Noteholders representing at least a majority in aggregate principal amount of each of the outstanding Old F4L Senior Notes and Old F4L Senior Subordinated Notes held by persons other than Food 4 Less and its affiliates) on or prior to the Expiration Date, (iii) satisfaction or waiver in Food 4 Less' sole discretion, of all conditions precedent to the RSI Merger (as defined in the Prospectus), (iv) the prior or contemporaneous successful completion of the Other Debt Financing Transactions (including the Public Offering) (each as defined in the Prospectus), (v) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment (each as defined in the Prospectus) and (vi) certain other conditions. See "The Exchange Offers and Solicitation -- Conditions" in the Prospectus. In addition, consummation of each Exchange Offer is subject to the consummation of the other Exchange Offer. There can be no assurance that such conditions will be satisfied or waived. Food 4 Less reserves the 2 3 right to waive certain limitations, to extend, terminate, cancel or otherwise modify or amend each Exchange Offer in any respect. 6. Food 4 Less expressly reserves the right, subject to applicable law and the terms of the Exchange Offers and to the extent not inconsistent with the terms of the Merger (as defined in the Prospectus), the Other Debt Financing Transactions, the Bank Financing or the New Equity Investment, (i) to delay acceptance for exchange of any Old F4L Notes or, regardless of whether such Old F4L Notes were theretofore accepted for exchange and payment, to delay exchange and payment for any Old F4L Notes pursuant to either Exchange Offer and to terminate such Exchange Offer and not accept for exchange any Old F4L Notes not theretofore accepted for exchange and paid for, upon the failure of any of the conditions to such Exchange Offer specified herein to be satisfied, by giving oral or written notice of such delay or termination to the Exchange Agent and (ii) at any time, or from time to time, to amend either of the Exchange Offers in any respect. Except as otherwise provided in the Prospectus, withdrawal rights with respect to Old F4L Notes tendered pursuant to an Exchange Offer will not be extended or reinstated as a result of an extension or amendment of such Exchange Offer. The reservation by Food 4 Less of the right to delay acceptance for exchange and payment of Old F4L Notes is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires that Food 4 Less (or the Company (as defined in the Prospectus) as successor by Merger) pay the consideration offered or return the Old F4L Notes deposited by or on behalf of holders thereof promptly after the termination or withdrawal of an Exchange Offer. 7. Consummation of the Exchange Offers and the effectiveness of the Proposed Amendments may have adverse consequences to non-tendering Noteholders, including that non-tendering Noteholders will no longer be entitled to the benefit of certain of the restrictive covenants currently contained in the Old F4L Indentures and that the reduced amount of outstanding Old F4L Notes as a result of the Exchange Offers may adversely affect the trading market, liquidity and market price of the Old F4L Notes. If the Requisite Consents are received and accepted, the Proposed Amendments will be binding on all non-tendering Noteholders. 8. Any transfer taxes incident to the transfer of Old F4L Notes from the tendering holder to Food 4 Less will be paid by Food 4 Less, except as provided in the Prospectus and the instructions to the Letter of Transmittal. If you wish to have us tender any Old F4L Notes held by us for your account, and deliver your Consent to the Proposed Amendments with respect to all of such Old F4L Notes, please so instruct us by completing, executing and returning to us the instruction form that follows. Any inquiries you may have with respect to the Exchange Offers and the Solicitation or requests for additional copies of the Prospectus or any other document should be addressed to D.F. King & Co., Inc., the Information Agent, at one of the addresses or telephone numbers set forth on the back cover of the enclosed Prospectus, or call toll free at 1-800-669-5550. 3 4 INSTRUCTIONS REGARDING THE EXCHANGE OFFERS AND THE SOLICITATION WITH RESPECT TO THE 10.45% SENIOR NOTES DUE 2000 AND THE 13.75% SENIOR SUBORDINATED NOTES DUE 2001 OF FOOD 4 LESS SUPERMARKETS, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offers and the Solicitation by Food 4 Less Supermarkets, Inc. This will instruct you whether to tender the principal amount of Old F4L Notes indicated below held by you for the account of the undersigned, and to deliver my Consent to the Proposed Amendments with respect to such Old F4L Notes, pursuant to the terms and conditions set forth in the Prospectus and the Letter of Transmittal.
PRINCIPAL AMOUNT CLASS BEING TENDERED TO BE TENDERED* - - ----------------------------------- ---------------------- Old F4L Senior Notes $ ---------------------- (please fill in blank) Old F4L Senior Subordinated Notes $ ---------------------- (please fill in blank)
* Must be in principal amounts equal to $1,000 or integral multiples thereof. Date: , 1995 ------------------------------------------------- ------------------------------------------------- Signature(s) ------------------------------------------------- ------------------------------------------------- Please print name(s) here ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Please type or print address ------------------------------------------------- Area Code and Telephone Number ------------------------------------------------- Taxpayer Identification or Social Security Number ------------------------------------------------- My Account Number with You 4 EX-99.5 16 GUIDELINES FOR CERTIFICATION OF TAXPAYER ID. # 1 EXHIBIT 99.5 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 INSTRUCTIONS (SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE) Purpose of Form. -- A person who is required to file an information return with the Internal Revenue Service (the IRS) must obtain your correct taxpayer identification number (TIN) to report income paid to you, real-estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an individual retirement arrangement (IRA). Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN), and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN A W-9 TO REQUEST YOUR TIN, YOU MUST USE THE REQUESTER'S FORM. How to Obtain a TIN. -- If you do not have a TIN, apply for one immediately. To apply, get FORM SS-5, Application for a Social Security Card (SSN) (for Individuals), from your local office of the Social Security Administration, or FORM SS-4, Application for Employer Identification Number (EIN) (for businesses and all other entities) from your local IRS office. Generally, you will then have 60 days to obtain a TIN and furnish it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. For reportable interest or dividend payments, the payer must exercise one of the following options concerning backup withholding during this 60-day period. Under option (1), a payer must backup withhold on any withdrawals you make from your account after 7 business days after the requester receives this form back from you. Under option (2), the payer must backup withhold on any reportable interest or dividend payments made to your account, regardless of whether you make any withdrawals. The backup withholding under option (2) must begin no later than 7 business days after the requester receives this form back. Under option (2), the payer is required to refund the amounts withheld if your certified TIN is received within the 60-day period and you were not subject to backup withholding during the period. Note: CHECKING THE BOX IN PART II ON THE SUBSTITUTE FORM W-9 MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date this form, and give it to the requester. What is Backup Withholding? -- Persons making certain payments to you are required to withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: (1) You do not furnish your TIN to the requester, or (2) The IRS notifies the requester that you furnished an incorrect TIN, or (3) You are notified by the IRS that you are subject to backup withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or (4) You fail to certify to the requester that you are not subject to backup withholding under (3) above (for reportable interest and dividend accounts opened after 1983 only), or (5) You fail to certify your TIN. This applies only to reportable interest, dividend, broker, or barter exchange accounts opened after 1983, or broker accounts considered inactive in 1983. Except as explained in (5) above, other reportable payments are subject to backup withholding only if (1) or (2) above applies. Certain payees and payments are exempt from backup withholding and information reporting. See PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING, BELOW, AND EXEMPT PAYEES AND PAYMENTS UNDER SPECIFIC INSTRUCTIONS, on page 2, if you are an exempt payee. Payees and Payments Exempt From Backup Withholding. -- The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except Item (9). For broker transactions, payees listed in (1) through (13) and a person registered under the Investment Advisors Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in Items (1) through (7), except that a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in Items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an Individual Retirement Plan (IRA), or a custodial account under section 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the U.S. or a possession of the U.S. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporation Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends generally not subject to backup withholding include the following: - Payments to nonresidential aliens subject to withholding under section 1441. - Payments to partnerships not engaged in trade or business in the U.S. and that have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. Payments of interest generally not subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR MORE AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT PROVIDED YOUR CORRECT TIN TO THE PAYER. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid by you. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, AND 6050N, and their regulations. 2 PENALTIES Failure To Furnish TIN. -- If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. Civil Penalty for False Information With Respect to Withholding. -- If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. Criminal Penalty for Falsifying Information. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. SPECIFIC INSTRUCTIONS Name. -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change please enter your first name, the last name shown on your social security card and your new last name. If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name on the business name line. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4. Signing the Certification. -- (1) Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and Broker Accounts Considered Active During 1983. -- You are required to furnish your correct TIN, but you are not required to sign the certification. (2) Interest, Dividend, Broker and Barter Exchange Accounts Opened After 1983 and Broker Accounts Considered Inactive During 1983. -- You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out part (2) in the certification before signing the form. (3) Real Estate Transactions. -- You must sign the certification. You may cross out part (2) of the certification. (4) Other Payments. -- You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified of an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services, payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. (5) Mortgage Interest Paid by You, Acquisition or Abandonment of Secured Property, or IRA Contributions. -- You are required to furnish your correct TIN, but you are not required to sign the certification. (6) Exempt Payees and Payments. -- If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part 1, write "EXEMPT" in the block in Part 2, sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a completed FORM W-8, Certificate of Foreign Status. (7) "Awaiting TIN". -- Follow the instructions under HOW TO OBTAIN A TIN, on page 1, check the box in Part 3 of the Substitute Form W-9 and sign and date the form. Signature. -- For a joint account, only the person whose TIN is shown in Part 1 should sign the form. Privacy Act Notice. -- Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt or contributions you made to an individual retirement arrangement (IRA). The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a TIN to a payer. Certain penalties may also apply. WHAT NAME AND NUMBER TO GIVE THE REQUESTER - - ------------------------------------------------------------------ GIVE THE NAME AND FOR THIS TYPE OF SOCIAL SECURITY ACCOUNT: NUMBER OF: - - ------------------------------------------------------------------ 1. Individual The individual 2. Two or more individuals The actual owner of the account (joint account) or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor-trustee(1) savings trust (grantor is also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - - ------------------------------------------------------------------
- - ------------------------------------------------------------------ GIVE THE NAME AND EMPLOYER FOR THIS TYPE OF IDENTIFICATION ACCOUNT: NUMBER OF: - - ------------------------------------------------------------------ 6. Sole proprietorship The owner(3) 7. A valid trust, estate or Legal entity(4) pension trust 8. Corporate The corporation 9. Association, club, religious, The organization charitable, educational, or other tax-exempt organization 10. Partnership The partnership 11. A broker or registered The broker or nominee nominee 12. Account with the Department The public entity of Agriculture, in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - - ------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the individual's name. See Item 5 or 6. You may also enter your business name. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title). Note: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME LISTED, THE NUMBER WILL BE CONSIDERED TO BE THAT OF THE FIRST NAME LISTED. ii EX-99.6 17 LETTER TO NOTEHOLDERS FROM OFFICER OF FOOD 4 LESS 1 EXHIBIT 99.6 Ralphs Grocery Company Food 4 Less Supermarkets, Inc. Food 4 Less Holdings, Inc. January 25, 1995 To: The holders of the 10 1/4% Senior Subordinated Notes due 2002 and 9% Senior Subordinated Notes due 2003 of Ralph Grocery Company; The holders of the 10.45% Senior Notes due 2000 and 13.75% Senior Subordinated Notes due 2001 of Food 4 Less Supermarkets, Inc.; and The holders of the 15.25% Senior Discount Notes due 2004 (the "Holdings Discount Notes") of Food 4 Less Holdings, Inc. Re: Merger of Food 4 Less and Ralphs -- Exchange Offers and Consent Solicitations Dear Bondholder: On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), its parent company Food 4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4 Less Inc., entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and its stockholders. Pursuant to the terms of the Merger Agreement, as amended, Food 4 Less will be merged with and into RSI (the "RSI Merger"). Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which is currently a wholly-owned subsidiary of RSI, will merge with and into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI will change its name to Ralphs Grocery Company. In connection with the Merger, Food 4 Less is offering to exchange (the "Exchange Offers") new debt securities for the existing public debt securities of Food 4 Less and RGC and is soliciting your consent (the "Solicitation") to proposed amendments to certain provisions of the old indentures pursuant to which the existing debt securities of Food 4 Less and RGC were issued. In addition, Holdings is soliciting your consent (the "Holdings Solicitation") to proposed amendments to certain provisions of the Indentures pursuant to which the Holdings Discount Notes were issued. The details of the terms and conditions of the Exchange Offers, the Solicitation and the Holdings Solicitation, and background information concerning the Merger and related transactions are contained in the enclosed Prospectus and Solicitation Statement. The primary reason for this request is to permit the Merger and the related financing transactions described in the Prospectus and Solicitation Statement. As a result of the Merger Ralphs and Food 4 Less will combine to create the largest food retailer in Southern California. The combined Company will operate the second largest conventional supermarket chain in the region under the "Ralphs" name and the largest warehouse supermarket chain under the "Food 4 Less" name. We believe that the Company will be well positioned for future growth and, as anticipated cost savings are achieved, should provide our bondholders with enhanced values. We need to start the task of building this new Company as soon as possible and hope that you will assist us by promptly completing the Exchange Offers and the Holdings Solicitation. Thank you in advance for your cooperation. BT Securities Corporation, CS First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation are serving as financial advisors to the Company in connection with the Exchange Offers and related transactions. If you have questions after reviewing the enclosed materials you can reach BT Securities at (212) 775-2995, CS First Boston at (212) 909-4300, or Donaldson, Lufkin & Jenrette at (212) 504-4753. In addition, D.F. King Co., Inc. is acting as Information Agent in connection with the Exchange Offers and Solicitation and can be reached at (800) 669-5550. Sincerely, Ronald W. Burkle Byron E. Allumbaugh Chairman and Chief Executive Officer Chairman and Chief Executive Officer Food 4 Less Supermakets, Inc. and Ralphs Grocery Company and Food 4 Less Holdings, Inc. Ralphs Supermarkets, Inc.
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