-----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, QTDMqA6rELeDitikwnDSV40TSZPfHIf+c4GyaJosyHDJRH7+H8hQZnuSY6fMTPoo 4LZ4lTmNcJD9A6mixaqtmQ== 0000950150-95-000294.txt : 19950517 0000950150-95-000294.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950150-95-000294 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19950512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS SUPERMARKETS INC CENTRAL INDEX KEY: 0000835676 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954222386 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56445 FILM NUMBER: 95537161 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: RETAIL-FOOD STORES [5400] IRS NUMBER: 480605992 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56445-01 FILM NUMBER: 95537162 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 2132671501 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALA FOODS INC CENTRAL INDEX KEY: 0000838196 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 941342664 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-02 FILM NUMBER: 95537163 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALPHA BETA COMPANY CENTRAL INDEX KEY: 0000880800 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 951456805 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-03 FILM NUMBER: 95537164 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL MARKETS INC CENTRAL INDEX KEY: 0000880801 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 941569281 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-04 FILM NUMBER: 95537165 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALA CO CENTRAL INDEX KEY: 0000880803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954200005 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-05 FILM NUMBER: 95537166 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA H\SRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS OF CALIFORNIA INC CENTRAL INDEX KEY: 0000880823 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330293011 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-06 FILM NUMBER: 95537167 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LAHABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS MERCHANDISING INC CENTRAL INDEX KEY: 0000880824 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330483193 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-07 FILM NUMBER: 95537168 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS OF SOUTHERN CALIFORNIA INC CENTRAL INDEX KEY: 0000880825 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330483203 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-08 FILM NUMBER: 95537169 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS GM INC CENTRAL INDEX KEY: 0000886141 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954390407 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-09 FILM NUMBER: 95537170 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAY AREA WAREHOUSE STORES INC CENTRAL INDEX KEY: 0000932721 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 931087199 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-56451-10 FILM NUMBER: 95537171 BUSINESS ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD CITY: LA HARSERA STATE: CA ZIP: 90631 BUSINESS PHONE: 7147382000 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 POS AM 1 POST-EFFECTIVE AMENDMENT NO. 2, TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1995 REGISTRATION NO. 33-56445 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ POST-EFFECTIVE 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/ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 Notes; Appendix A 5. Pro Forma Financial Information.......... Unaudited Pro Forma Combined Financial Statements 6. Material Contracts with the Company Being Acquired................................. * 7. Additional Information Required for Reoffering by Person and Parties Deemed to Be Underwriters....................... * 8. Interests of Named Experts and Counsel... Legal Matters; Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. * 10. Information with Respect to S-3 Registrants.............................. * 11. Incorporation of Certain Information by Reference................................ * 12. Information with Respect to S-2 or S-3 Registrants.............................. * 13. Incorporation of Certain Information by Reference................................ * 14. Information with Respect to Registrants Other than S-3 or S-2 Registrants........ Inside Front Cover Page; Summary; Pro Forma Capitalization; Selected Historical Financial Data of Food 4 Less; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Consolidated Financial Statements of Food 4 Less 15. Information with Respect to S-3 Companies................................ *
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ITEM NO. FORM S-4 CAPTION PROSPECTUS CAPTION - -------- ----------------------------------------- ----------------------------------------- 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 4 AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT FOOD 4 LESS SUPERMARKETS, INC. TO BE COMBINED THROUGH MERGER WITH RALPHS GROCERY COMPANY OFFERS TO EXCHANGE AND/OR PURCHASE AND SOLICITATION OF CONSENTS WITH RESPECT TO THE 9% SENIOR SUBORDINATED NOTES DUE APRIL 1, 2003 AND THE 10 1/4% SENIOR SUBORDINATED NOTES DUE JULY 15, 2002 OF RALPHS GROCERY COMPANY ------------------------ Food 4 Less Supermarkets, Inc. ("Food 4 Less") hereby amends and restates its Prospectus and Solicitation Statement dated January 25, 1995 (the "Old Prospectus") relating to its offers (as so amended and restated, the "Offers") to holders of the 9% Senior Subordinated Notes due April 1, 2003 of Ralphs Grocery Company ("RGC") (the "Old RGC 9% Notes") and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the "Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") (i) to exchange such Old RGC Notes for new Senior Subordinated Notes due 2005 (the "New Notes") plus a cash payment (the "Exchange Payment") and (ii) to purchase any or all of the Old RGC Notes for cash, in each case as more fully described below. The Offers are subject to the terms and conditions set forth in this Amended and Restated Prospectus and Solicitation Statement and in the accompanying Consent and Letter of Transmittal (the "Letter of Transmittal"). Holders of the Old RGC Notes may choose to tender Old RGC Notes in the applicable Offer for New Notes, for cash, or a combination of both, by completing the appropriate boxes on the Letter of Transmittal.
FOR EACH $1,000 PRINCIPAL AMOUNT THE TENDERING HOLDER OF: WILL RECEIVE: - ----------------- ------------------------------------------------------------------------------------ Old RGC 9% Either (i) $1,000 principal amount of New Notes and $20.00 in cash, or (ii) Notes $1,010.00 in cash (the "9% Notes Cash Consideration"), in each case plus accrued and unpaid interest to the date of exchange or purchase. Old RGC 10 1/4% Either (i) $1,000 principal amount of New Notes and $20.00 in cash, or (ii) Notes $1,010.00 in cash (the "10 1/4 Notes Cash Consideration" and, together with the 9% Notes Cash Consideration, the "Cash Consideration"), in each case plus accrued and unpaid interest to the date of exchange or purchase.
Concurrently with the Offers and the other financing transactions described herein, Food 4 Less is offering up to $200 million principal amount of New Notes (the "Subordinated Note Public Offering") and up to $295 million principal amount of New F4L Senior Notes (as defined) (the "Senior Note Public Offering," and together with the Subordinated Note Public Offering, the "Public Offerings") pursuant to registration under the Securities Act of 1933, as amended (the "Securities Act"). The Subordinated Note Public Offering is expected to price ten business days preceding the final Expiration Date (as defined) of the Offers. The New Notes offered pursuant to the Offers will be part of the same issue as the New Notes offered pursuant to the Subordinated Note Public Offering and will bear interest at a fixed rate per annum equal to the greater of (a) 11.00% and (b) the Applicable Treasury Rate (as defined) plus 400 basis points (4.00 percentage points); provided, however, that in no event will the New Notes offered for exchange hereby bear interest at a rate per annum that is less than the interest rate on the New Notes offered pursuant to the Subordinated Note Public Offering. THE OFFERS AND THE SOLICITATION (AS DEFINED) HAVE BEEN EXTENDED UNTIL AND WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 25, 1995, UNLESS FURTHER EXTENDED (THE "EXPIRATION DATE"). CONSENTS MAY BE REVOKED AND TENDERS MAY BE WITHDRAWN AT ANY TIME UNTIL SUCH TIME AS THE REQUISITE CONSENTS (AS DEFINED) WITH RESPECT TO THE APPLICABLE ISSUE OF OLD RGC NOTES HAVE BEEN RECEIVED AND THE SUPPLEMENTAL INDENTURE (AS DEFINED) FOR SUCH ISSUE HAS BEEN EXECUTED. FOOD 4 LESS DOES NOT EXPECT TO COMMENCE THE PUBLIC OFFERINGS UNTIL SUCH TIME AS THE MINIMUM EXCHANGE (AS DEFINED) HAS BEEN SATISFIED AND REQUISITE CONSENTS HAVE BEEN RECEIVED. FOLLOWING THE PRICING OF THE SUBORDINATED NOTE PUBLIC OFFERING, FOOD 4 LESS INTENDS TO FURTHER EXTEND THE EXPIRATION DATE TO A DATE THAT IS TEN BUSINESS DAYS FOLLOWING THE PRICING THEREOF. ------------------------ SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE OFFERS AND THE SOLICITATION. ------------------------ The Dealer Managers for the Offers and the Solicitation are: BT SECURITIES CORPORATION CS FIRST BOSTON DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ------------------------ The date of this Amended and Restated Prospectus and Solicitation Statement is May 12, 1995 5 (cover page continued) The Offers and the Solicitation are part of the financing required to consummate the proposed merger (the "RSI Merger") of Food 4 Less with and into Ralphs Supermarkets, Inc. ("RSI"). Immediately following the RSI Merger, RGC, a wholly-owned subsidiary of RSI, will merge with and into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger") and RSI will change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the "Company"). As a result of the Merger, the New Notes and any Old RGC Notes not exchanged or purchased in the Offers will be the obligations of the Company. Food 4 Less and its parent corporation Food 4 Less Holdings, Inc. ("Holdings") have revised certain terms and conditions of the Offers and certain other elements of the financing required for the Merger since the date of the Old Prospectus. As set forth in more detail in this Amended and Restated Prospectus and Solicitation Statement, Food 4 Less and Holdings have: (i) amended the terms of the offers to the holders of Old RGC Notes to (A) increase the exchange payment from $10.00 to $20.00 for each $1,000 principal amount of Old RGC Notes accepted in exchange for New Notes, (B) change the consideration offered by providing holders of Old RGC Notes the option to tender all or any part of such Old RGC Notes for $1,010.00 in cash for each $1,000 principal amount of Old RGC Notes accepted for purchase, (C) revise the formula for establishing the interest rate on the New Notes as set forth herein under "Description of the New Notes" and (D) amend certain conditions of the Offers to decrease the amount of Old RGC Notes required to be tendered for exchange from 80% to a majority in principal amount of the Old RGC Notes; (ii) terminated the consent solicitation with respect to the Discount Notes (as defined) and commenced (A) the Holdings' offer to purchase Discount Notes for $785.00 in cash, plus accrued cash interest thereon at a rate of 15.25% per annum from and after March 15, 1995 until the Closing Date (as defined) for each $1,000 principal amount (at maturity) of Discount Notes accepted for purchase and (B) the solicitation of consents to eliminate substantially all of the restrictive covenants in the Discount Note Indenture (as defined); (iii) amended the Merger Agreement (as defined) with respect to the RSI Merger to (A) decrease the cash consideration to be paid to the stockholders of RSI from $425 million to $375 million, (B) increase the amount of 13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 (the "Seller Debentures") to be issued as part of the consideration to be paid to the stockholders of RSI from $100 million principal amount to $131.5 million principal amount, (C) increase the interest rate on the Seller Debentures from 13% per annum to 13 5/8% per annum and (D) provide for the issuance of $18.5 million in initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures") of New Holdings (as defined) as Merger consideration to the stockholders of RSI; (iv) increased the size of Food 4 Less' public debt offering for cash proceeds from an offering of $400 million principal amount of New F4L Senior Notes (as defined) to a total offering of $495 million principal amount of debt securities consisting of $295 million principal amount of New F4L Senior Notes and $200 million principal amount of New Notes; (v) amended the terms of the New Equity Investment (as defined) to decrease the aggregate investment from $150 million to $140 million and to provide that the liquidation preference and conversion ratio of the convertible preferred stock issued pursuant to the New Equity Investment will accrete at the rate of 7% per annum, compounded quarterly (and subject to increase upon certain events), until the later of the fifth anniversary of the issue date or the date the Company satisfies certain performance criteria; and (vi) committed to effect a placement (the "New Discount Debenture Placement") of up to $100 million in initial accreted value of New Discount Debentures, which includes the $18.5 million of New Discount Debentures to be issued to the RSI stockholders, $22.5 million of New Discount Debentures to be issued in satisfaction of fees otherwise payable by the Company and New Holdings in connection with the Merger and the Financing and $59 million of New Discount Debentures to be issued for cash. ii 6 (cover page continued) In addition, since the date of the Old Prospectus Food 4 Less has filed with the Securities and Exchange Commission (the "Commission") its quarterly report on Form 10-Q for the 28 weeks ended January 7, 1995 and RGC has filed with the Commission its annual report on Form 10-K for the 52 weeks ended January 29, 1995. Consequently, Food 4 Less is amending and restating the Old Prospectus to revise the description of the terms and conditions of the Offers and the other financing transactions described above and to set forth updated quarterly financial information of Food 4 Less, updated year-end financial information of RGC and updated pro forma combined financial information. Concurrently with the Offers, Food 4 Less is soliciting (the "Solicitation") consents ("Consents") from holders of each of the Old RGC 9% Notes (the "Old RGC 9% Noteholders") and the Old RGC 10 1/4% Notes (the "Old RGC 10 1/4% Noteholders," and together with the Old RGC 9% Noteholders, the "Old RGC Noteholders") representing not less than a majority in aggregate principal amount of each of the outstanding Old RGC 9% Notes and the Old RGC 10 1/4% Notes held by persons other than RGC and its affiliates (the "Requisite Consents") to certain amendments described herein (the "Proposed Amendments") to the indentures under which the Old RGC Notes were issued (collectively, the "Old RGC Indentures"). As of May 1, 1995, there was issued and outstanding $150 million aggregate principal amount of the Old RGC 9% Notes and $300 million aggregate principal amount of the Old RGC 10 1/4% Notes. HOLDERS OF OLD RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. The Proposed Amendments will only become operative upon consummation of the Offers. The primary purpose of the Proposed Amendments is to permit the Merger and to eliminate substantially all of the restrictive covenants in the Old RGC Indentures. As of the close of business on May 10, 1995, tenders and Consents for $26,166,000 aggregate principal amount of Old RGC 9% Notes, representing over 17.4% of the aggregate outstanding principal amount of the Old RGC 9% Notes, and tenders and Consents for $74,128,000 aggregate principal amount of Old RGC 10 1/4% Notes, representing over 24.7% of the aggregate outstanding principal amount of Old RGC 10 1/4% Notes (collectively representing 22% of the aggregate outstanding principal amount of all Old RGC Notes), had been received. Interest on the New Notes will be payable semi-annually on each June 1 and December 1 commencing on December 1, 1995, at the rate set forth above. The New Notes will mature on June 1, 2005. The New Notes will be redeemable, in whole or in part, at the option of the Company, at any time after June 1, 2000, at the redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. In addition, on or prior to June 1, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to an aggregate of 35% of the principal amount of the New Notes originally issued, at a redemption price equal to 111.00% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1996 and 108.25% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1997, in each case plus accrued and unpaid interest to the redemption date. In the event that the interest rate on the New Notes is greater than 11.00%, the foregoing redemption prices will be correspondingly adjusted. Upon a Change in Control (as defined), each holder of New Notes will have the right to require the Company to repurchase such holder's New Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. In addition, subject to certain conditions, the Company will be obligated to make an offer to repurchase the New Notes at 100% of their principal amount, plus accrued and unpaid interest to the date of repurchase, with the net cash proceeds of certain sales or other dispositions of assets. See "Description of the New Notes." The New Notes will be senior subordinated unsecured obligations of the Company and will be subordinated in right of payment to all Senior Indebtedness (as defined) of the Company, including the Company's obligations under the New Credit Facility (as defined) and the F4L Senior Notes. The New Notes will be unconditionally guaranteed (the "Guarantees") on a senior subordinated basis by each of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors"). At the time the New Notes are issued, iii 7 (cover page continued) the Subsidiary Guarantors will be Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Food 4 Less GM, Inc., Food 4 Less Merchandising, Inc. and Food 4 Less of Southern California, Inc. The Guarantees will be released upon the occurrence of certain events. See "Description of the New Notes -- Guarantees." At January 7, 1995, on a pro forma basis after giving effect to the Merger and the Financing (and certain related assumptions), the aggregate outstanding amount of Senior Indebtedness (as defined) of the Company (excluding Company guarantees of certain Guarantor Senior Indebtedness (as defined)) would have been approximately $1,512.7 million and the aggregate outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would have been approximately $16.5 million and the Company would have had $169.4 million available to be borrowed under the New Revolving Facility (as defined). Tendering holders will receive accrued and unpaid interest on Old RGC Notes accepted for exchange or purchase up to, but not including, the date of such exchange or purchase. Interest on the New Notes will accrue from, and including, the date of such exchange, which will be the date of issuance of the New Notes. If Food 4 Less shall decide to decrease the amount of Old RGC Notes being sought in the Offers or to increase or decrease the consideration offered to the Old RGC Noteholders, and if, at the time that notice of such increase or decrease is first published, sent or given to Old RGC Noteholders in the manner specified in this Amended and Restated Prospectus and Solicitation Statement, such Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth Business Day from and including the date that such notice is first so published, sent or given, such Offer will be extended for such purposes until the expiration of such period of ten Business Days. As used in this Amended and Restated Prospectus and Solicitation Statement, "Business Day" has the meaning set forth in Rule 14d-1 (and applicable to Regulation 14E) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition to the Offers and the Solicitation, (i) Food 4 Less is (A) offering up to $200 million principal amount of New Notes pursuant to the Subordinated Note Public Offering (which will be part of the same issue as the New Notes offered for exchange pursuant to the Offers), (B) offering up to $295 million principal amount of new Senior Notes due 2004 (the "New F4L Senior Notes") pursuant to the Senior Note Public Offering, (C) offering to holders of its 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes") to exchange such Old F4L Senior Notes for additional New F4L Senior Notes (which will be part of the same issue as the New F4L Senior Notes offered pursuant to the Senior Note Public Offering) plus $5.00 in cash for each $1,000 principal amount of Old F4L Senior Notes exchanged and to holders of its 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes," and together with the Old F4L Senior Notes, the "Old F4L Notes") to exchange such Old F4L Senior Subordinated Notes for new 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes," and together with the New F4L Senior Notes, the "New F4L Notes") plus $20.00 in cash for each $1,000 principal amount of Old F4L Senior Subordinated Notes exchanged and (D) soliciting consents from holders of the Old F4L Notes to certain amendments to the indentures (collectively, the "Old F4L Indentures"), under which the Old F4L Notes were issued (such transactions being referred to herein collectively as the "F4L Exchange Offers") and (ii) Holdings, which currently owns 100% of the outstanding stock of Food 4 Less, is (A) offering to holders of its 15.25% Senior Discount Notes due 2004 (the "Discount Notes") to purchase such Discount Notes for $785.00 in cash, plus accrued cash interest thereon at a rate of 15.25% per annum from and after March 15, 1995 until the Closing Date for each $1,000 principal amount (at maturity) of Discount Notes accepted for purchase and (B) soliciting consents from the holders of Discount Notes to certain amendments to the indenture (the "Discount Note Indenture") under which the Discount Notes were issued (such transactions being referred to herein collectively as the "Holdings Offer to Purchase"). Prior to the Merger, Holdings' parent corporation, Food 4 Less, Inc. ("FFL"), will merge with and into Holdings, which will be the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging into a newly-formed, wholly-owned subsidiary incorporated in Delaware ("New Holdings"). See "The Merger and the Financing," "Description of Holding Company Indebtedness" and "The F4L Exchange Offers and the Public Offerings." The F4L Exchange Offers, the Public Offerings, the Holdings Offer to Purchase and the New Discount Debenture Placement are sometimes iv 8 (cover page continued) hereinafter referred to as the "Other Debt Financing Transactions." The New F4L Senior Notes and any Old F4L Senior Notes not exchanged in the F4L Exchange Offers are collectively referred to herein as the "F4L Senior Notes." The New F4L Senior Subordinated Notes and any Old F4L Senior Subordinated Notes not exchanged in the F4L Exchange Offers are collectively referred to herein as the "F4L Senior Subordinated Notes." Concurrently with the consummation of the Offers and the Other Debt Financing Transactions, Food 4 Less and RGC intend to obtain new senior financing (the "Bank Financing") pursuant to a senior bank facility of up to $1,075 million (the "New Credit Facility") and to obtain $140 million in cash equity financing (the "New Equity Investment"). In addition, New Holdings will issue as part of the consideration for the RSI Merger $131.5 million aggregate principal amount of Seller Debentures and will issue $100 million in initial accreted value of the New Discount Debentures in the New Discount Debenture Placement. See "The Merger and the Financing." Notwithstanding any other provision of the Offers or the Solicitation, the obligation of Food 4 Less to accept for exchange or purchase any validly tendered Old RGC Note is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) at least a majority of the aggregate principal amount of the outstanding Old RGC Notes being validly tendered for exchange for New Notes and not withdrawn pursuant to the Offers prior to the Expiration Date (the "Minimum Exchange"), (ii) the receipt of the Requisite Consents with respect to each of the Old RGC 9% Notes and the Old RGC 10 1/4% Notes on or prior to the Expiration Date, (iii) the satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the RSI Merger, (iv) the prior or contemporaneous successful completion of the Other Debt Financing Transactions and (v) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment. There can be no assurance that such conditions will be satisfied or waived. For additional information regarding other conditions to the consummation of the Offers, see "The Offers and Solicitation -- Conditions." Standard & Poor's Ratings Group ("Standard & Poor's") has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline (as defined) under the Old RGC Indentures. The consummation of the Merger (which is conditioned on, among other things, successful consummation of the Offers, the Other Debt Financing Transactions, the New Equity Investment and the Bank Financing) and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline would constitute a Change of Control Triggering Event (as defined) under the Old RGC Indentures. Although Food 4 Less does not anticipate that there will be a significant amount of Old RGC Notes outstanding following consummation of the Offers, upon such a Change of Control Triggering Event the Company would be obligated to make a change of control purchase offer following the consummation of the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase (the "Change of Control Offer"). The Merger will not constitute a change of control under the Old F4L Indentures or the Discount Note Indenture and no change of control purchase offer will be made with respect to the Old F4L Notes or the Discount Notes. Although it has no obligation to do so, the Company reserves the right in the future to seek to acquire Old RGC Notes not tendered in the Offers or the Change of Control Offer by means of open market purchases, privately negotiated acquisitions, subsequent exchange or tender offers, redemptions or otherwise, at prices or on terms which may be higher or lower or more or less favorable than those in the Offers or the Change of Control Offer. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. v 9 (cover page continued) THE OFFERS ARE NOT BEING MADE TO, AND NO CONSENTS ARE BEING SOLICITED FROM, HOLDERS OF OLD RGC NOTES IN ANY JURISDICTION IN WHICH SUCH EXCHANGE OFFERS OR THE ISSUANCE OF ANY SECURITY UPON ACCEPTANCE OF TENDERS WOULD NOT BE IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. Investors in the New Notes in California will be able to transfer their New Notes in California only to institutional investors (as defined under applicable California securities laws, and subject to any conditions set forth therein) or pursuant to another exemption under California securities laws. Such Investors will be able to transfer their New Notes to persons outside California, provided the transaction is effected through a broker-dealer registered in California and complies with the securities laws of the state in which the New Notes will be offered and sold. The New Notes have not been registered under the securities laws of all states. In certain jurisdictions in which the New Notes have been registered, permits and orders issued in connection with such registrations typically expire after a period of time and the securities may not be offered and sold by certain holders without registration under the securities laws of such jurisdictions unless an exemption is available under such securities laws. Another form of the Letter of Transmittal is being circulated to holders of Old RGC Notes with this Amended and Restated Prospectus and Solicitation Statement. Holders may use such form or the form previously circulated to effect valid tenders of Old RGC Notes for exchange for New Notes and valid deliveries of Consents. However, to tender Old RGC Notes for cash, holders must use the form of Letter of Transmittal circulated herewith. Any holder who previously has validly tendered any Old RGC Notes or has delivered a valid Consent need not take any further action to receive, subject to the terms and conditions of the Offers, the New Notes and the Exchange Payment. Any Old RGC Noteholder desiring to accept the applicable Offer should either (i) complete and sign the Letter of Transmittal or facsimile thereof, have his signature thereon guaranteed and forward the Letter of Transmittal with the certificate(s) evidencing his Old RGC Notes and any other required documents to the Exchange Agent (as defined), (ii) comply with the guaranteed delivery procedures, (iii) tender such Old RGC Notes pursuant to the procedure for book-entry transfer or (iv) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him, in each case on or prior to the Expiration Date. Old RGC Noteholders having Old RGC Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if they desire to tender such Old RGC Notes. HOLDERS OF OLD RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF OLD RGC NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE OFFER WITH RESPECT TO ANY OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES, AS THE CASE MAY BE. See "The Offers and Solicitation -- Procedures for Tendering and Consenting." Questions and requests for assistance or for additional copies of this Amended and Restated Prospectus and Solicitation Statement or the accompanying Letter of Transmittal or any other required documents may be directed to the Dealer Managers or the Information Agent at the addresses and telephone numbers set forth on the back cover hereof. This Amended and Restated Prospectus and Solicitation Statement, together with the accompanying Letter of Transmittal, is being sent to holders of the Old RGC Notes who are registered holders as of May 10, 1995. vi 10 AVAILABLE INFORMATION Food 4 Less has filed a Registration Statement on Form S-4 (the "Registration Statement") with the Commission under the Securities Act with respect to the New Notes. Each of Food 4 Less and RGC is subject to the reporting and other informational requirements of the Exchange Act, and the rules and regulations promulgated thereunder, and in accordance therewith files reports and other information with the Commission. Such reports and other information filed by Food 4 Less or RGC with the Commission can be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional offices of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60601. Copies of such materials can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, whether or not it is required to do so by the rules and regulations of the Commission, the Company will be obligated under the indenture governing the New Notes (the "New Note Indenture") to file with the Commission (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's independent certified public accountants and (ii) all reports that would be required to be filed with the Commission on Form 8-K. The Company intends to furnish to each holder of New Notes, upon their request, annual reports containing audited financial statements and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. Any such request should be directed to Jan Charles Gray, Senior Vice President, General Counsel and Secretary of Ralphs Grocery Company at 1100 West Artesia Boulevard, Compton, California 90220, telephone number (310) 884-4000. This Amended and Restated Prospectus and Solicitation Statement summarizes the contents and terms of documents not included herewith. These documents are available upon request from, as applicable, Food 4 Less at 777 South Harbor Blvd., La Habra, California 90631, telephone number (714) 738-2000, Attn: Linda McLoughlin Figel, Investor Relations; RGC at 1100 West Artesia Blvd., Compton, California 90220, telephone number (310) 884-4000, Attn: Jan Charles Gray, Esq., Senior Vice President, General Counsel and Secretary; or D.F. King & Co., Inc. at the address and telephone number set forth on the back cover hereof. In order to ensure timely delivery of the documents, any request for such documents should be made at least five business days prior to the Expiration Date. vii 11 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION................................................................. vii SUMMARY............................................................................... 1 COMPARISON OF OLD RGC NOTES AND NEW NOTES............................................. 10 RISK FACTORS.......................................................................... 21 THE MERGER AND THE FINANCING.......................................................... 27 PRO FORMA CAPITALIZATION.............................................................. 31 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 32 SELECTED HISTORICAL FINANCIAL DATA OF RALPHS.......................................... 42 SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS..................................... 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................... 46 BUSINESS.............................................................................. 60 MANAGEMENT............................................................................ 74 EXECUTIVE COMPENSATION................................................................ 76 PRINCIPAL STOCKHOLDERS................................................................ 82 DESCRIPTION OF CAPITAL STOCK.......................................................... 83 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 86 THE OFFERS AND SOLICITATION........................................................... 90 DESCRIPTION OF THE NEW NOTES.......................................................... 105 MARKET PRICES OF THE OLD RGC NOTES.................................................... 133 THE PROPOSED AMENDMENTS............................................................... 133 THE F4L EXCHANGE OFFERS AND THE PUBLIC OFFERINGS...................................... 135 DESCRIPTION OF THE NEW CREDIT FACILITY................................................ 140 DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS........................................... 142 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 146 LEGAL MATTERS......................................................................... 151 EXPERTS............................................................................... 151 INDEX TO FINANCIAL STATEMENTS......................................................... F-1 COMPARISON OF OLD RGC NOTES AND NEW NOTES............................................. A-1
viii 12 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the Financial Statements and notes thereto, appearing elsewhere in this Amended and Restated Prospectus and Solicitation Statement. Unless the context otherwise requires, the terms "Food 4 Less" and "Ralphs," as used herein, refer to Food 4 Less and RSI and their consolidated subsidiaries, respectively, prior to the consummation of the Merger. The "Company" refers to Ralphs Grocery Company as the surviving and renamed corporation following the consummation of the Merger and includes, unless the context otherwise requires, all of its consolidated subsidiaries. As used herein, "Southern California" means Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego counties. Except as otherwise stated, references in this Amended and Restated Prospectus and Solicitation Statement to numbers of stores prior to the consummation of the Merger are as of October 1, 1994. References to the "pro forma" number of stores to be operated by the Company following the consummation of the Merger are based on October 1, 1994 totals, but give effect to certain anticipated store conversions, divestitures and closings. THE COMPANY The combination of Ralphs Grocery Company and Food 4 Less Supermarkets, Inc. will create the largest food retailer in Southern California. Pro forma for the Merger, the Company will operate approximately 332 Southern California stores with an estimated 26% market share among the area's supermarkets. The Company will operate the second largest conventional supermarket chain in the region under the "Ralphs" name and the largest warehouse supermarket chain under the "Food 4 Less" name. In addition, the Company will operate approximately 24 conventional format stores and 39 warehouse format stores in Northern California and the Midwest. Management believes that by the end of the fourth full year of combined operations, approximately $90 million in net annual cost savings will be achieved as a result of the Merger. Pro forma for the Merger, the Company would have had sales of approximately $5.1 billion and $2.8 billion, operating income of approximately $183 million and $90 million and EBITDA (as defined) of approximately $343 million and $189 million for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995, respectively. Management believes the Merger will enhance the growth and profitability of Ralphs and Food 4 Less by providing the Company with the following benefits: - - TWO LEADING COMPLEMENTARY FORMATS. The Company will operate its conventional supermarkets in Southern California under the "Ralphs" name and all of its price impact warehouse format stores in Southern California under the "Food 4 Less" name. Pro forma for the Merger and certain planned store conversions, the Company will operate 264 Ralphs conventional format stores and 68 Food 4 Less warehouse format stores in the region. The Ralphs stores will continue to emphasize a broad selection of merchandise, high quality fresh produce, meat and seafood and service departments, including bakery and delicatessen departments in most stores. The Company's conventional stores will also benefit from Ralphs' strong private label program and its strengths in merchandising, store operations and systems. Passing on format-related efficiencies, the price impact warehouse format stores will continue to offer consumers the lowest overall prices while providing product selections comparable to conventional supermarkets. Management believes the Food 4 Less warehouse format has demonstrated its appeal to a wide range of demographic groups in Southern California and offers a significant opportunity for future growth. The Company plans to open nine new Food 4 Less warehouse stores and 21 new Ralphs stores over the next two years. - - SUBSTANTIAL COST SAVINGS OPPORTUNITIES. Management believes that approximately $90 million of net annual cost savings (as compared to such costs for the pro forma combined fiscal year ended June 25, 1994) will be achieved by the end of the fourth full year of combined operations. It is also anticipated that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over the same period. Although a portion of the anticipated cost savings is premised upon the completion of such capital expenditures, management believes that over 70% of the cost savings could be achieved without making any Merger-related capital expenditures. 1 13 The following anticipated savings are based on estimates and assumptions made by the Company that are inherently uncertain, though considered reasonable by the Company, and are subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of management. There can be no assurance that such savings will be achieved. The sum of the components of the estimated annual cost savings exceeds $90 million; however, management's estimate of $90 million in net annual cost savings gives effect to an offsetting adjustment to reflect its expectation that a portion of the savings will be reinvested in the Company's operations. See "Risk Factors -- Ability to Achieve Anticipated Cost Savings." -- REDUCED ADVERTISING EXPENSES. Consolidating the conventional format stores in Southern California under the "Ralphs" name will eliminate most of the separate advertising associated with Food 4 Less' existing Alpha Beta, Boys and Viva formats. Since Ralphs' current advertising program covers the Southern California region, the Company will be able to advertise for all of its Southern California stores under the existing Ralphs program. Management estimates that there will be annual advertising cost savings of approximately $28 million as compared to such costs for the pro forma combined fiscal year ended June 25, 1994. Because of reductions in certain advertising expenses that Food 4 Less has already begun to implement and certain refinements in the post-Merger advertising plan, actual cost savings related to advertising expenses are presently expected to be $19 million in the first full year of combined operations following the Merger as compared to the current annualized costs. -- REDUCED STORE OPERATIONS EXPENSE. Management expects to reduce store operations costs as a result of both reduced labor and benefit costs and reduced non-labor expenses. Store-level labor savings will be achieved when Ralphs' labor scheduling, computerized record keeping and other advanced store systems are applied to the Food 4 Less store base. In addition, management believes that the adoption of Ralphs' store systems in non-labor areas, such as energy management, safety programs and pooled supply purchasing, will produce further annual cost savings. Management estimates that annual store operations cost savings of approximately $21 million will be achieved by the fourth full year of combined operations after certain required capital expenditures are made. -- INCREASED VOLUME PURCHASING EFFICIENCIES. The combined volume requirements and leading market position of the Company should generally allow the Company to obtain improved terms from vendors, including suppliers of products carried on an exclusive or promoted basis, and to convert some less-than-truckload shipping quantities to full truckload quantities. Management estimates that annual purchasing cost savings of approximately $19 million will be achieved by the second full year of combined operations. -- WAREHOUSING AND DISTRIBUTION EFFICIENCIES. Consolidating the Company's warehousing and distribution operations into Ralphs' two primary facilities located in Compton, California and in the Atwater district of Los Angeles and Food 4 Less' primary facility located in La Habra, California will result in lower outside storage, transportation and labor costs. In addition, occupancy costs will be reduced as a result of the closure of certain existing facilities. Management estimates that annual warehousing and distribution cost savings of approximately $16 million will be achieved by the third full year of combined operations after certain capital expenditures on existing facilities are completed. -- CONSOLIDATED MANUFACTURING. Ralphs and Food 4 Less operate manufacturing facilities that produce similar products or have excess capacity. Management believes that consolidating meat, bakery, dairy, and other manufacturing and processing operations, and discontinuing external purchases of certain goods that can be manufactured internally, will achieve annual cost savings of approximately $10 million by the second full year of combined operations. -- CONSOLIDATED ADMINISTRATIVE FUNCTIONS. The Company expects to achieve savings from the elimination of redundant administrative staff, the consolidation of management information systems and a decreased reliance on certain outside services and consultants. Management estimates that annual savings of approximately $15 million associated with consolidating administrative functions will be achieved by the second full year of combined operations. - - TECHNOLOGICALLY ADVANCED WAREHOUSING AND DISTRIBUTION. The Company will utilize Ralphs' technologically advanced warehousing and distribution systems, which include a 17 million cubic foot high-rise automated storage and retrieval system warehouse (the "ASRS") for non-perishable items and a 2 14 5.4 million cubic foot perishable service center (the "PSC") designed for processing, storing and distributing all perishable items. These facilities will provide the Company with substantial operating benefits, including: (i) enhanced turnover to further improve the freshness and quality of in-store products, (ii) added opportunities in forward buying programs and (iii) an increased percentage of inventory supplied by the Company's own warehousing and distribution system. Management believes the utilization of these facilities and Food 4 Less' La Habra warehouse will enable the Company to meet the combined inventory requirements of all stores with fewer employees and lower operating and occupancy-related expenses. - - STORE LOCATIONS. As a result of Ralphs' 122-year history and Alpha Beta Company's ("Alpha Beta") 91-year history in Southern California, the Company will have valuable and well established store locations, many of which are in densely populated metropolitan areas. - - RECENTLY REMODELED AND NEW STORE BASE. The Company will have a modern, technologically advanced store base. During the five years ended June 25, 1994, on a combined basis, Ralphs and Food 4 Less opened 74 new stores and remodeled 211 stores. Approximately 84% of the Company's stores have been opened or remodeled during the last five years. - - EXPERIENCED MANAGEMENT TEAM. The executive officers of the Company have extensive experience in the supermarket industry. The strength of Ralphs management expertise is evidenced by Ralphs' reputation for quality and service, technologically advanced systems, strong store operations and high historical EBITDA margins. The Food 4 Less management team will provide valuable experience in operating warehouse supermarkets and in effectively integrating companies into a combined operation. Following the acquisition of Alpha Beta in 1991, Food 4 Less management successfully integrated Alpha Beta with its existing Southern California operations and (within three years) achieved annual cost savings in excess of $40 million (compared to a pre-acquisition estimate of approximately $33 million). THE YUCAIPA COMPANIES Food 4 Less was organized in 1989 by its sponsor, The Yucaipa Companies ("Yucaipa"), a private investment group which specializes in the supermarket industry. Yucaipa has a successful track record in acquiring, integrating and improving the cash flow of supermarket companies. Since 1986, Yucaipa and its affiliated companies have completed eleven acquisition transactions, including five acquisitions by Food 4 Less and its subsidiaries. Following completion of the Merger, Yucaipa and its affiliates will control the Board of Directors of New Holdings and the Company. THE MERGER AND THE FINANCING On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food 4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4 Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and its stockholders. Pursuant to the terms of the Merger Agreement, Food 4 Less will be merged with and into RSI (the "RSI Merger"). Immediately following the RSI Merger, RGC, which is currently a wholly-owned subsidiary of RSI, will merge with and into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI will change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the "Company"). Prior to the Merger, FFL will merge with and into Holdings, which will be the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging into a newly-formed, wholly-owned subsidiary ("New Holdings"), incorporated in Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL Merger and the Reincorporation Merger, the Company will become a wholly-owned subsidiary of New Holdings. See "-- Corporate Structure." As a result of the RSI Merger and the RGC Merger, the New Notes and any outstanding Old RGC Notes not tendered in the Offers will be the obligations of the Company. Conditions to the consummation of the RSI Merger include the receipt of regulatory approvals and other necessary consents and the completion of financing. The purchase price for RSI is approximately $1.5 billion, including the assumption of debt. The consideration payable to the stockholders of RSI consists of $375 million in cash, $131.5 million principal amount of the Seller Debentures and $18.5 million initial accreted value of the New 3 15 Discount Debentures to be issued by New Holdings. New Holdings will use $100 million of the cash received from the New Equity Investment, together with the Seller Debentures and such New Discount Debentures, to acquire approximately 48% of the capital stock of RSI immediately prior to consummation of the RSI Merger. New Holdings will then contribute the $250 million of purchased shares of RSI stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of RSI stock will be acquired for $275 million in cash. As currently contemplated, the Merger will be financed through the following transactions (collectively, the "Financing"): - Borrowings of up to $750 million aggregate principal amount pursuant to the New Term Loans (as defined) under the New Credit Facility to be provided by a syndicate of banks led by Bankers Trust Company ("Bankers Trust"). The New Credit Facility will also provide for a $325 million revolving credit facility (the "New Revolving Facility"), $16.4 million of which is anticipated to be drawn at closing. - The issuance of up to $295 million of New F4L Senior Notes pursuant to the Senior Note Public Offering. - The issuance of up to $200 million of New Notes pursuant to the Subordinated Note Public Offering. - The issuance of preferred stock in a private placement by New Holdings to a group of investors (the "New Equity Investors") led by Apollo Advisors, L.P. (on behalf of one or more managed entities) or its affiliates and designees ("Apollo") and including affiliates of BT Securities Corporation ("BT Securities"), CS First Boston Corporation ("CS First Boston") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and other institutional investors, yielding cash proceeds of $140 million pursuant to the New Equity Investment. Concurrently with the New Equity Investment, the New Equity Investors will purchase outstanding shares of New Holdings capital stock from a stockholder of New Holdings for a purchase price of $57.8 million. See "Description of Capital Stock -- New Equity Investment." - The exchange by Food 4 Less pursuant to the F4L Exchange Offers of (a) up to $175 million aggregate principal amount of the Old F4L Senior Notes for up to $175 million aggregate principal amount of New F4L Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged and (b) up to $145 million aggregate principal amount of the Old F4L Senior Subordinated Notes for up to $145 million aggregate principal amount of the New F4L Senior Subordinated Notes plus $20.00 in cash per $1,000 principal amount exchanged, together with the solicitation of consents from the holders of the Old F4L Notes to certain amendments to the Old F4L Indentures. It is a condition to the F4L Exchange Offers that at least 80% of the outstanding principal amount of the Old F4L Notes are exchanged pursuant to the F4L Exchange Offers. - The Offers made hereunder to holders of Old RGC Notes to tender for exchange or purchase such Old RGC Notes, together with the solicitation of consents from such holders to the Proposed Amendments to the Old RGC Indentures. - The purchase by New Holdings of approximately 48% of the outstanding common stock of RSI for an aggregate consideration of $250 million, consisting of $100 million of the cash proceeds from the New Equity Investment, $131.5 million principal amount of the Seller Debentures and $18.5 million initial accreted value of the New Discount Debentures, followed by the contribution of such common stock of RSI to Food 4 Less. Pursuant to the RSI Merger, the remaining shares of RSI stock will be acquired for $275 million in cash. - The placement by New Holdings pursuant to the New Discount Debenture Placement of $100 million initial accreted value of New Discount Debentures to a partnership including Yucaipa, the selling stockholders of Ralphs, an affiliate of George Soros, Apollo and an affiliate of each of BT Securities, CS First Boston and DLJ. The $100 million initial accreted value of New Discount Debentures includes (a) $18.5 million that will be issued to the RSI stockholders, (b) $15 million, $5 million and $2.5 million that will be issued to Yucaipa, BT Securities and Apollo, respectively, in satisfaction of fees otherwise payable by the Company and New Holdings in connection with the Merger and the Financing and (c) $59 million that will be issued for cash to the partnership described 4 16 above. The $41 million initial accreted value of New Discount Debentures to be issued to the RSI stockholders, Apollo, BT Securities and Yucaipa will be contributed to such partnership by the recipients thereof. - The assumption by the Company, pursuant to the Merger, of approximately $166.8 million of other indebtedness of RGC and Food 4 Less. - The purchase by Holdings pursuant to the Holdings Offer to Purchase of Discount Notes for $785.00 in cash, plus accrued cash interest thereon at a rate of 15.25% per annum from and after March 15, 1995 until the Closing Date for each $1,000 principal amount (at maturity) of Discount Notes (which, as of May 1, 1995 had an accreted value of $680.26 per $1,000) accepted for purchase, together with the solicitation of consents from the holders of the Discount Notes to certain amendments to the Discount Note Indenture. 5 17 The following table illustrates the sources and uses of funds to consummate the Merger, assuming the transaction occurs as of May 30, 1995. This presentation assumes that $225.5 million principal amount of Old RGC Notes is tendered into the Offers in exchange for New Notes (representing 50.1% of the outstanding aggregate principal amount of Old RGC Notes), $224.5 million principal amount of Old RGC Notes is tendered into the Offers for cash (representing 49.9% of the outstanding aggregate principal amount of Old RGC Notes), $256 million principal amount of Old F4L Notes is tendered into the F4L Exchange Offers (representing 80% of the outstanding aggregate principal amount of Old F4L Notes) and $103.6 million principal amount (at maturity) of Discount Notes is tendered into the Holdings Offer to Purchase (representing 100% of the outstanding aggregate principal amount (at maturity) of Discount Notes). This presentation assumes the use of the maximum amount of cash proceeds that could be necessary to consummate the Merger (if holders representing more than 49.9% of the outstanding principal amount of Old RGC Notes tender into the Offers in exchange for New RGC Notes, rather than for cash (i.e. the Minimum Exchange is exceeded), the non-cash sources and cash uses would be correspondingly adjusted). Although management believes such assumptions are reasonable under the circumstances, actual sources and uses may differ from those set forth below depending upon the outcome of the Offers, the F4L Exchange Offers and the Holdings Offer to Purchase. For additional information regarding the Financing, see "The Merger and the Financing." SOURCES AND USES (in millions)
CASH SOURCES CASH USES - --------------------------------------------- --------------------------------------------- New Term Loans(a)............... $ 750.0 Purchase RSI Common Stock(j)...... $ 375.9 New Revolving Facility(b)....... 16.4 Purchase Old RGC Notes(k)......... 226.8 New F4L Senior Notes(c)......... 295.0 Purchase Discount Notes........... 83.9 Repay Ralphs 1992 Credit New Notes(d).................... 200.0 Agreement......................... 255.1 New Equity Investment(e)........ 140.0 Repay F4L Credit Agreement........ 161.5 New Discount Debentures(f)...... 59.0 Pay Accrued Interest(l)........... 29.3 EAR Related Payments(m)........... 22.8 Repay Mortgage Indebtedness(n).... 191.5 Purchase New Holdings Common Stock(o)........................ 3.7 Fees and Expenses(p).............. 109.9 --------- --------- Total Cash Sources........... $ 1,460.4 Total Cash Uses................... $ 1,460.4 ======== ========
NON-CASH SOURCES NON-CASH USES - --------------------------------------------- --------------------------------------------- New F4L Senior Notes(g)........... $ 140.0 Old F4L Senior Notes Exchanged...... $ 140.0 Assumed Old F4L Senior Notes...... 35.0... Assumed Old F4L Senior Notes........ 35.0 New F4L Senior Subordinated Old F4L Senior Subordinated Notes Notes.......................... 116.0 Exchanged........................... 116.0 Assumed Old F4L Senior Assumed Old F4L Senior Subordinated Subordinated Notes............. 29.0 Notes............................... 29.0 New Notes(h)...................... 225.5 Old RGC Notes Exchanged............. 225.5 New Discount Debentures(f)........ 41.0 Fees and Expenses(p)................ 22.5 Assumed Capital Leases and Other Assumed Capital Leases and Other Debt........................... 166.8 Debt................................ 166.8 Seller Debentures(i).............. 131.5 Purchase RSI Common Stock(i)........ 150.0 ------- ------- Total Non-Cash Sources......... $ 884.8 Total Non-Cash Uses................. $ 884.8 ======= =======
- --------------- (a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to which Bankers Trust has agreed, subject to certain conditions, to provide the Company up to a maximum aggregate amount of $1,075 million of financing under the New Credit Facility. It is anticipated that the New Credit Facility will be syndicated to a number of financial institutions for whom Bankers Trust will act as agent. The New Credit Facility will provide for (i) term loans in the aggregate amount of up to $750 million, comprised of a $375 million tranche with a six year term (the "Tranche A Loan"), a $125 million tranche with a seven year term (the "Tranche B Loan"), a $125 million tranche with an eight year term (the "Tranche C Loan"), and a $125 million tranche with a nine year term (the "Tranche D Loan," and, together with the Tranche A Loan, Tranche B Loan and Tranche C Loan, the "New Term Loans"); and (ii) a $325 million revolving credit facility (the "New Revolving Facility"). The New Term Loans and the New Revolving Facility are referred to collectively as the "New Credit Facility." The Tranche A Loan may not be fully funded at the Closing Date. The New Credit Facility will provide that the portion of the Tranche A Loan not funded at the Closing Date will be available for a period of 91 days following the Closing Date to fund the Change of Control Offer. See "Description of the New Credit Facility." 6 18 (b) The New Revolving Facility will provide for a $325 million line of credit which will be available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support standby letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the New Revolving Facility. The Company anticipates that letters of credit for approximately $92.6 million will be issued under the New Revolving Facility at closing, in replacement of existing letters of credit, primarily to satisfy the State of California's requirements relating to workers compensation self-insurance. (c) Represents New F4L Senior Notes issued pursuant to the Senior Note Public Offering. If Food 4 Less receives tenders in excess of the Minimum Exchange in the Offers, Food 4 Less may elect to decrease the amount of New F4L Senior Notes being offered pursuant to the Senior Note Public Offering. (d) Represents New Notes issued pursuant to the Subordinated Note Public Offering. If Food 4 Less receives tenders in excess of the Minimum Exchange in the Offers, Food 4 Less may elect to decrease the amount of New Notes offered pursuant to the Subordinated Note Public Offering. It is not anticipated that the amount of New Notes offered pursuant to the Subordinated Note Public Offering will be reduced below $100 million principal amount. (e) Does not include the $10 million equity contribution by Ralphs management. See note (m) below. Concurrently with the New Equity Investment, certain existing stockholders of New Holdings (formerly stockholders of FFL), including affiliates of George Soros, will sell outstanding shares of New Holdings stock to CLH Supermarket Corp. ("CLH"), a corporation owned by certain Yucaipa partners, which in turn will sell such shares to the New Equity Investors for an aggregate purchase price of $57.8 million (which represents the same price per share as will be paid in the New Equity Investment). In connection with the New Equity Investment, the New Equity Investors will contribute the common stock so acquired to New Holdings in consideration for newly-issued preferred shares. See "Description of Capital Stock -- New Equity Investment." (f) Represents $100 million initial accreted value of New Discount Debentures, $59 million of which will be issued for cash, $18.5 million of which will be issued to the RSI stockholders as Merger consideration and $15 million, $5 million and $2.5 million of which will be issued to Yucaipa, BT Securities and Apollo, respectively, in satisfaction of fees otherwise payable by the Company and New Holdings in connection with the Merger and the Financing. (g) Represents New F4L Senior Notes issued pursuant to the F4L Exchange Offers, which will be part of the same issue as the New F4L Senior Notes issued pursuant to the Senior Note Public Offering. (h) Represents New Notes issued pursuant to the Offers, which will be part of the same issue as the New Notes issued pursuant to the Subordinated Note Public Offering. (i) In connection with the RSI Merger, New Holdings will issue $131.5 million principal amount of the Seller Debentures as part of the purchase price for the RSI common stock, up to $10 million of which may be put to Yucaipa on the closing date of the Merger at a purchase price equal to their principal amount pursuant to the Put Agreement (as defined). In addition, Yucaipa will be reimbursed by the Company for (i) any losses incurred upon the resale of the $10 million principal amount of Seller Debentures which may be put to it pursuant to the Put Agreement and (ii) its expenses in connection with the Merger and the related transactions. See "The Merger and the Financing" and "Description of Holding Company Indebtedness -- The Seller Debentures." (j) Includes $375 million to be paid in cash to stockholders of RSI and $0.9 million to be paid in cash to holders of RSI management stock options. See "Executive Compensation -- New Management Stock Option Plan and Management Investment." (k) Represents the purchase of Old RGC Notes tendered for cash pursuant to the Offers. In addition, to the extent any Old RGC Notes remain outstanding following consummation of the Offers, a portion of the Tranche A Loan not fully funded at the Closing Date will be available to fund the purchase of Old RGC Notes pursuant to the Change of Control Offer. (l) Represents accrued interest payable on all debt securities assumed to be tendered pursuant to the Offers and the F4L Exchange Offers. (m) Represents payments to or for the benefit of Ralphs management with respect to outstanding equity appreciation rights (the "EARs" or "Equity Appreciation Rights") in connection with the Merger. Ralphs management will receive New Holdings stock options in exchange for the cancellation of the remaining EAR liability of $10 million. See "Executive Compensation -- Equity Appreciation Rights Plan" and "Certain Relationships and Related Transactions -- Food 4 Less." (n) Represents the repayment of outstanding mortgage indebtedness of Ralphs in the principal amount of $174.1 million, plus the estimated amount of the prepayment fees payable with respect thereto. (o) Represents the purchase of shares of New Holdings common stock from stockholders who have exercised statutory dissenters' rights in connection with the FFL Merger. There are no other shares subject to statutory dissenters' rights. (p) Includes advisory fees of $19 million to be paid to Yucaipa, other fees of $5 million to be paid to BT Securities and commitment fees of $5 million to be paid to Apollo, upon closing of the Merger. Of such amounts, $15 million of Yucaipa's advisory fee, $2.5 million of Apollo's commitment fee and BT Securities' $5 million fee will be paid through the issuance of New Discount Debentures in lieu of cash. Such New Discount Debentures will be contributed by them to the partnership that will acquire all of the New Discount Debentures. Yucaipa anticipates that it in turn will pay a cash fee of approximately $3.5 million to Soros Fund Management in consideration for advisory services which Soros Fund Management has rendered since 1991. See "Certain Relationships and Related Transactions -- Food 4 Less." 7 19 CORPORATE STRUCTURE The following tables illustrate (i) the corporate structures of Food 4 Less and Ralphs immediately prior to the RSI Merger, the RGC Merger, the Reincorporation Merger and the FFL Merger and (ii) the corporate structure of the Company and its parent, New Holdings, and the anticipated outstanding indebtedness of the Company and New Holdings immediately after such mergers. Pursuant to the terms of the Merger Agreement, Food 4 Less will merge with and into RSI and RSI will be the surviving corporation in the RSI Merger. Immediately following the RSI Merger, RGC will merge with and into RSI and RSI will be the surviving corporation in the RGC Merger and will change its name to Ralphs Grocery Company. Prior to these transactions, FFL will merge with and into Holdings, and Holdings (which will be the surviving corporation) will reincorporate in Delaware as New Holdings. BEFORE MERGER [SEE EDGAR APPENDIX] 8 20 AFTER MERGER, FFL MERGER AND REINCORPORATION MERGER [SEE EDGAR APPENDIX] 9 21 COMPARISON OF OLD RGC NOTES AND NEW NOTES The following is a brief comparison of the principal features of the Old RGC Notes and the New Notes. The terms of the New Notes differ from the current (unamended) terms of the Old RGC Notes in certain significant respects including those described below. The summary comparisons set forth below do not purport to be complete and are qualified in their entirety by reference to "Description of the New Notes" and the "Comparison of Old RGC Notes and New Notes" which is set forth in Appendix A hereto, and the related definitions contained therein.
OLD RGC NOTES NEW NOTES --------------------------------------------------- --------------------------------------------------- Issuer RGC. The Company, as successor by merger to RGC. Principal Amount Outstanding Old RGC 9% Notes: The up to $450 million principal amount of New As of May 1, 1995, $150 million. Notes offered hereby will be part of an issue of up Old RGC 10 1/4% Notes: to $650 million aggregate principal amount of New As of May 1, 1995, $300 million. Notes, up to $200 million principal amount of which will be issued pursuant to the Subordinated Note Public Offering. Interest Rate Old RGC 9% Notes: Concurrently with the Offers and the other bear interest at the rate of 9% per annum. financing transactions described herein, Food 4 Less is offering up to $200 million principal Old RGC 10 1/4% Notes: amount of New Notes pursuant to the Subordinated bear interest at the rate of 10 1/4% per annum. Note Public Offering. The Subordinated Note Public Offering is expected to price ten business days preceding the final Expiration Date of the Offers. The New Notes offered pursuant to the Offers will bear interest at a fixed rate per annum equal to the greater of (a) 11.00% and (b) the Applicable Treasury Rate plus 400 basis points (4.00 percentage points); provided, however, that in no event will the New Notes offered for exchange hereby bear interest at a rate per annum that is less than the interest rate on the New Notes offered pursuant to the Subordinated Note Public Offering. Interest Payment Dates Old RGC 9% Notes: June 1 and December 1, commencing on December 1, April 1 and October 1. 1995. Old RGC 10 1/4% Notes: January 15 and July 15. Final Maturity Date Old RGC 9% Notes: June 1, 2005. April 1, 2003. Old RGC 10 1/4% Notes: July 15, 2002. Optional Redemption Old RGC 9% Notes: The New Notes will be redeemable at the option of The Old RGC 9% Notes are subject to redemption in the Company, in whole or in part, at any time on or whole or in part, at the option of RGC, at any after June 1, 2000, at the following redemption time on or after April 1, 2000, at 100% of the prices if redeemed during the twelve-month period principal amount thereof plus accrued and unpaid beginning June 1 of the years indicated below: interest to the redemption date. 2000 ...................................104.125% Old RGC 10 1/4% Notes: 2001 ...................................102.750% The Old RGC 10 1/4% Notes are subject to redemption 2002 ...................................101.375% in whole or in part, at the option of RGC, at any 2003 and thereafter........................100.000% time on or after July 15, 1997, at the following redemption prices if redeemed during the in each case plus accrued and unpaid interest to twelve-month period beginning July 15, 1997 of the the redemption date. In the event that the interest years indicated below: rate on the New Notes is greater than 11.00%, the above redemption prices will be correspondingly 1997 ...................................105.0% adjusted. 1998 ...................................102.5% 1999 and thereafter.........................100.0% In addition, on or prior to June 1, 1998, the Company may, at its option, use the net cash from in each case plus accrued and unpaid interest to one or more Public Equity Offerings to redeem up to the redemption date. an aggregate of 35% of the principal amount of the New Notes originally issued, at a redemption price equal to 111.00% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1996 and 108.25% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1997, in each case plus accrued and unpaid interest, to the redemption date. In the event that the interest rate on the New Notes is greater than 11.00%, the above redemption prices will be correspondingly adjusted.
10 22
OLD RGC NOTES NEW NOTES --------------------------------------------------- --------------------------------------------------- Guarantees None. The New Notes will be guaranteed on a senior subordinated basis by the Subsidiary Guarantors. The Guarantees will be general unsecured obligations of the Subsidiary Guarantors, and will be released upon the occurrence of certain events. See "Description of the New Notes -- Guarantees." Ranking Subordinated to all Senior Indebtedness (as defined The New Notes will be senior subordinated unsecured in the Old RGC Indentures) of RGC which, as of obligations of the Company and will be subordinated January 29, 1995, was approximately $570 million. in right of payment to all Senior Indebtedness of the Company, including the Company's obligations under the New Credit Facility and the indebtedness under the F4L Senior Notes. At January 7, 1995, on a pro forma basis after giving effect to the Merger and the Financing (and certain related assumptions), the aggregate outstanding amount of Senior Indebtedness of the Company (excluding Company guarantees of certain Guarantor Senior Indebtedness) would have been approximately $1,512.7 million and the aggregate outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would have been approximately $16.5 million and the Company would have had $169.4 million available to be borrowed under the New Revolving Facility. Change of Control If a Change of Control Triggering Event (the The New Note Indenture will provide that if a occurrence of both a Change of Control and a Rating Change of Control (as defined) occurs, each holder Decline (both as defined)) occurs, each holder of will have the right to require the Company to Old RGC Notes will have the right to require RGC to repurchase such holder's New Notes pursuant to a repurchase such holder's Old RGC Notes at 101% of Change of Control Offer (as defined) at 101% of the the principal amount thereof, plus accrued and principal amount thereof plus accrued and unpaid unpaid interest to the date of repurchase. See interest to the date of repurchase. "Appendix A -- Comparison of Old RGC Notes and New Notes -- Change of Control." Standard & Poor's has The New Note Indenture will further provide that, publicly announced that, upon consummation of the prior to making the Change of Control Offer, the Merger, it intends to assign a new rating to the Company shall purchase all F4L Senior Notes (or Old RGC Notes. Such new rating assignment, if permitted refinancings thereof) required to be implemented, would constitute a Rating Decline purchased by reason of such Change of Control and under the Old RGC Indentures. The consummation of either repay in full and terminate all commitments the Merger (which is conditioned upon, among other under, or obtain requisite consents under, the New things, successful consummation of the Offers, the Credit Facility (or any refinancings thereof). Other Debt Financing Transactions, the New Equity Investment and the Bank Financing, and the resulting change in composition of the Board of Directors of RGC, together with the anticipated and the resulting Rating Decline would constitute a Change of Control Triggering Event under the Old RGC Indentures. Although Food 4 Less does not anticipate that there will be a significant amount of Old RGC Notes outstanding following consummation of the Offers, upon such a Change of Control Triggering Event the Company would be obligated to make the Change of Control Offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Certain Covenants The Old RGC Indentures contain certain covenants, The New Note Indenture will contain certain including, but not limited to, covenants with covenants, including, but not limited to, covenants respect to the following matters: (i) limitation on with respect to the following matters: (i) incurrence of additional indebtedness; (ii) limitation on incurrence of additional limitation on dividends and other restricted indebtedness; (ii) limitation on dividend and other payments; (iii) limitation on transactions with restricted payments; (iii) limitation on affiliates; (iv) limitation on liens securing transactions with affiliates; (iv) limitation on subordinated indebtedness; (v) limitation on other liens; (v) limitation on other senior subordinated senior subordinated indebtedness; (vi) limitation indebtedness; (vi) limitation on preferred stock of on preferred stock of subsidiaries; (vii) subsidiaries; (vii) limitation on dividend and limitation on dividend and other payment other payment restrictions affecting subsidiaries; restrictions affecting subsidiaries; and (viii) (viii) limitation on mergers and certain other limitation on mergers and sales of assets. transactions; (ix) limitation on asset sales; and (x) limitation on guarantees of certain indebtedness.
11 23 PURPOSE OF THE OFFERS AND CONSENT SOLICITATION The Offers and the Solicitation, together with the other financing and solicitation transactions described under "The Merger and the Financing," are part of the transactions required to consummate the merger of Food 4 Less with and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned subsidiary of RSI, will merge with and into RSI and RSI will change its name to Ralphs Grocery Company. As a result of the Merger, the New Notes and any Old RGC Notes not tendered pursuant to the Offers, the F4L Senior Notes, the F4L Senior Subordinated Notes and the indebtedness incurred pursuant to the New Credit Facility will become the obligations of the Company. In connection with the consummation of the Merger, Food 4 Less is making the Offers and the F4L Exchange Offers to (i) extend the maturities of the existing debt securities of Food 4 Less and RGC by exchanging such securities for new longer-term securities and (ii) establish uniform covenants in the New F4L Notes and the New Notes in order to simplify the capital structure of the Company. The Offers afford Old RGC Noteholders an opportunity to elect to participate in the long-term capitalization of the Company or receive a cash premium with respect to their Old RGC Notes. Food 4 Less is also seeking Consents to the Proposed Amendments in the Solicitation. The primary purpose of the Proposed Amendments is to permit the consummation of the Merger and to eliminate substantially all of the restrictive covenants in the Old RGC Indentures. See "The Proposed Amendments." If adopted by holders of not less than a majority in aggregate principal amount of each of the outstanding Old RGC 9% Notes and the outstanding Old RGC 10 1/4% Notes held by persons other than RGC and its affiliates, the Proposed Amendments will become effective immediately prior to the consummation of the Merger, upon Food 4 Less' acceptance of properly tendered Old RGC Notes for exchange or purchase pursuant to the Offers. THE OFFERS AND SOLICITATION The Offers................. Food 4 Less is offering (A) to holders of the Old RGC 9% Notes (i) to exchange for each $1,000 principal amount of Old RGC 9% Notes exchanged, $1,000 principal amount of New Notes plus $20.00 in cash and (ii) to purchase for $1,010.00 per $1,000 principal amount of Old RGC 9% Notes, any or all of the Old RGC 9% Notes and (B) to holders of the Old RGC 10 1/4% Notes (i) to exchange for each $1,000 principal amount of Old RGC 10 1/4% Notes exchanged, $1,000 principal amount of New Notes plus $20.00 in cash and (ii) to purchase for $1,010.00 per $1,000 principal amount of Old RGC 10 1/4% Notes, any or all of the Old RGC 10 1/4% Notes, in each case plus accrued and unpaid interest to the date of exchange or purchase. Each Offer constitutes a separate offer by Food 4 Less. See "The Offers and Solicitation -- Terms of the Offers." Holders of the Old RGC Notes may choose to tender Old RGC Notes in the applicable Offer for New Notes, cash, or both, by completing the appropriate boxes on the Letter of Transmittal. See "The Offers and Solicitation -- Procedures for Tendering and Consenting." Accrued Interest on the Old RGC Notes................ Tendering holders will receive accrued interest on Old RGC Notes accepted for exchange or purchase up to, but not including, the date of such exchange or purchase. Interest on the New Notes will accrue from, and including, the date of such exchange, which shall be the date of issuance of the New Notes. Accrued interest on tendered Old RGC Notes will be paid in cash to such tendering holders promptly after consummation of the Offers. See "The Offers and Solicitation -- Acceptance of Old RGC Notes for Exchange or Purchase; Delivery of New Notes and Payment of the Exchange Payment or Cash Consideration." 12 24 Selection of Offer......... Holders of Old RGC Notes may choose to tender Old RGC Notes in the applicable Offer in exchange for New Notes, for purchase for cash or a combination of both. Tendering holders must complete the Letter of Transmittal and designate the aggregate principal amount of Old RGC Notes to be tendered pursuant to the applicable Offer in exchange for New Notes or for purchase for cash in the table entitled "Description of Old RGC Notes." See "The Offers and Solicitation -- Procedures for Tendering and Consenting." The Solicitation........... Concurrently with the Offers, Food 4 Less is soliciting Consents from each of the Old RGC 9% Noteholders and the Old RGC 10 1/4% Noteholders representing not less than a majority in aggregate principal amount of each of the outstanding Old RGC 9% Notes and Old RGC 10 1/4% Notes held by persons other than Food 4 Less and its affiliates to the Proposed Amendments to the Old RGC Indentures. See "The Proposed Amendments." HOLDERS OF OLD RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. HOLDERS DO NOT HAVE THE OPTION TO CONSENT TO THE PROPOSED AMENDMENTS WITHOUT TENDERING INTO THE APPLICABLE OFFER. See "The Offers and Solicitation -- Procedures for Tendering and Consenting." The Company and each of the Old Trustees (as defined) will execute the Supplemental Indentures implementing the Proposed Amendments to the Old RGC Indentures after certification to each of the Old Trustees that Food 4 Less has received the Requisite Consents. The Proposed Amendments will only become operative upon the execution of the Supplemental Indenture and consummation of the Offers. If the Proposed Amendments become operative, the non-tendering holders of Old RGC Notes will be bound thereby. All references herein to the Offers shall be deemed to include the Solicitation. As of May 1, 1995, there was issued and outstanding $150 million aggregate principal amount of Old RGC 9% Notes and $300 million aggregate principal amount of Old RGC 10 1/4% Notes. See "The Offers and Solicitation -- The Consent Solicitation." Expiration Date............ The Offers and the Solicitation have been extended until and will expire at 12:00 Midnight, New York City time, on May 25, 1995, unless further extended by Food 4 Less. Food 4 Less reserves the right to further extend the Offers or the Solicitation at its discretion, in which event the term "Expiration Date" shall mean the latest time and date at which such Offer or the Solicitation, as the case may be, as so further extended by Food 4 Less, shall expire. Food 4 Less does not expect to commence the Public Offerings until such time as the Minimum Exchange has been satisfied and Requisite Consents have been received. Following the pricing of the Subordinated Note Public Offering, Food 4 Less intends to further extend the Expiration Date to a date that is ten Business Days following the pricing of the Public Offerings. See "The Offers and Solicitation -- Expiration Date; Extensions; Termination; Amendments." Withdrawal Rights and Revocation of Consents... Tenders of Old RGC Notes pursuant to the Offers may be withdrawn and Consents may be revoked at any time until such time as the Requisite Consents with respect to the applicable issue of Old RGC 13 25 Notes have been received and the Supplemental Indenture for such issue has been executed. Thereafter, such tenders may be withdrawn and Consents may be revoked if the Offer with respect to such Old RGC Notes is terminated without any Old RGC Notes being accepted for exchange or purchase thereunder. Any valid revocation of Consents will automatically constitute a withdrawal of the Old RGC Notes to which such Consents relate. See "The Offers and Solicitation -- Withdrawal of Tenders and Revocation of Consents." Conditions................. Notwithstanding any other provision of the Offers or the Solicitation, the obligation of Food 4 Less to accept for exchange or purchase any validly tendered Old RGC Note is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) satisfaction of the Minimum Exchange (i.e., at least a majority of the aggregate principal amount of the outstanding Old RGC Notes being validly tendered for exchange for New Notes and not withdrawn pursuant to the Offers prior to the Expiration Date), (ii) the receipt of the Requisite Consents (i.e., Consents from Old RGC Noteholders representing at least a majority in aggregate principal amount of each of the outstanding Old RGC 9% Notes and Old RGC 10 1/4% Notes held by persons other than RGC and its affiliates) on or prior to the Expiration Date, (iii) satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the RSI Merger, (iv) the prior or contemporaneous successful completion of the Other Debt Financing Transactions and (v) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment. In addition, consummation of each Offer is subject to the consummation of each other Offer. There can be no assurance that such conditions will be satisfied or waived. Food 4 Less reserves the right to waive certain of the conditions to either Offer and, subject to certain limitations, to extend, terminate, cancel or otherwise modify or amend either Offer in any respect. See "The Offers and Solicitation -- Conditions." Procedures for Tendering and Consenting............. Another form of the Letter of Transmittal is being circulated to holders of Old RGC Notes with this Amended and Restated Prospectus and Solicitation Statement. Holders may use such form or the form previously circulated to effect valid tenders of Old RGC Notes for exchange for New Notes and valid deliveries of Consents. However, to tender Old RGC Notes for cash, holders must use the form of Letter of Transmittal circulated herewith. Any holder who previously has validly tendered any Old RGC Notes for exchange or has delivered a valid Consent need not take any further action to receive, subject to the terms and conditions of the Offers, the New Notes and the Exchange Payment. Any Old RGC Noteholder desiring to accept the applicable Offer should either (i) complete and sign the Letter of Transmittal or facsimile thereof, have his signature thereon guaranteed and forward the Letter of Transmittal, together with the certificate(s) evidencing his Old RGC Notes and any other required documents, to the Exchange Agent, (ii) comply with the guaranteed delivery procedures described under the heading "The Offers and Solicitation -- Guaranteed Delivery Procedure," (iii) tender such Old RGC Notes pursuant to the procedure for book-entry transfer or (iv) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him, in each case 14 26 prior to the Expiration Date. Old RGC Noteholders having Old RGC Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if such holder desires to tender such Old RGC Notes. HOLDERS OF OLD RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF OLD RGC NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE OFFER WITH RESPECT TO ANY OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES, AS THE CASE MAY BE. See "The Offers and Solicitation -- Procedures for Tendering and Consenting." Delivery of New Notes and Payment of the Exchange Payment and Cash Consideration............ Upon satisfaction or waiver of the conditions to each of the Offers, Food 4 Less will accept all Old RGC Notes which are properly tendered and not withdrawn, and promptly following such acceptance, the Company will issue, or cause to be issued, the New Notes and will pay, or cause to be paid, the Exchange Payment and/or the Cash Consideration, as appropriate, in accordance with the instructions of the tendering Old RGC Noteholder. See "The Offers and Solicitation -- Acceptance of Old RGC Notes for Exchange; Delivery of New Notes and Payment of the Exchange Payment or Cash Consideration." Certain Consequences to Non-Tendering Old RGC Noteholders.............. Consummation of the Offers and the effectiveness of the Proposed Amendments may have adverse consequences to non-tendering Old RGC Noteholders, including that non-tendering holders of Old RGC Notes will no longer be entitled to the benefit of certain of the restrictive covenants currently contained in the Old RGC Indentures and that the reduced amount of outstanding Old RGC Notes as a result of the Offers may adversely affect the trading market, liquidity and market price of the Old RGC Notes. If the Requisite Consents are received and accepted, the Proposed Amendments will be binding on all non-tendering Old RGC Noteholders. See "Risk Factors -- Potential Adverse Effects of the Offers and the Solicitation on Holders of Untendered Old RGC Notes" and "-- Effect of the Proposed Amendments on Holders That Do Not Exchange." No Appraisal Rights........ No appraisal rights are available to holders of Old RGC Notes in connection with the Offers. Certain Federal Income Tax Considerations........... Holders of Old RGC Notes who exchange Old RGC Notes for New Notes and the Exchange Payment (and, if applicable, Cash Consideration) should recognize gain, but not loss, for federal income tax purposes equal to the lesser of (i) the amount of cash received (other than that portion, if any, attributable to accrued but unpaid interest on the Old RGC Notes) or (ii) the amount of any gain realized on the exchange of Old RGC Notes for New Notes and the Exchange Payment (and, if applicable, Cash Consideration). Holders whose Old RGC Notes are purchased for Cash Consideration pursuant to the Offers (and who do 15 27 not receive any New Notes) will recognize gain or loss equal to the difference between (i) the amount of Cash Consideration received and (ii) the holders' adjusted tax basis in the Old RGC Notes purchased. See "Certain Federal Income Tax Considerations." Risk Factors............... See "Risk Factors" for a discussion of certain factors that should be considered in evaluating the Offers and the Solicitation. Dealer Managers............ BT Securities Corporation ("BT Securities"), CS First Boston Corporation ("CS First Boston") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") are serving as Dealer Managers in connection with the Offers and the Solicitation. Their telephone numbers are (212) 775-2166, (212) 909-2873 and (212) 504-4753, respectively. Exchange Agent............. Bankers Trust, an affiliate of BT Securities, is serving as Exchange Agent in connection with the Offers and the Solicitation. Its telephone number is (212) 250-6270. Information Agent.......... D.F. King & Co., Inc. is serving as Information Agent in connection with the Offers and the Solicitation. Requests for additional copies of this Amended and Restated Prospectus and Solicitation Statement, the Letter of Transmittal and any other required documents should be directed to the Information Agent or any Dealer Manager at one of its addresses set forth on the back cover of this Amended and Restated Prospectus and Solicitation Statement. The telephone number of the Information Agent is (800) 669-5550. 16 28 SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The following table sets forth summary unaudited pro forma combined financial data for the 52 weeks ended June 25, 1994 and for the 28 weeks ended January 7, 1995, after giving effect to the Merger, the FFL Merger, the Reincorporation Merger and the Financing (and certain related assumptions), as if such transactions had occurred on June 27, 1993 with respect to the pro forma operating and other data, and as of January 7, 1995, with respect to the pro forma balance sheet data. Such pro forma information combines the results of operations of Food 4 Less for the 52 weeks ended June 25, 1994 and the results of operations and balance sheet data as of and for the 28 weeks ended January 7, 1995, with the results of operations of Ralphs for the 52 weeks ended July 17, 1994 and the results of operations and balance sheet data as of and for the 28 weeks ended January 29, 1995, respectively. See "The Merger and the Financing." The pro forma financial data set forth below is not necessarily indicative of the results that actually would have been achieved had such transactions been consummated as of the dates indicated, or that may be achieved in the future. The following pro forma financial data should be read in conjunction with the "Unaudited Pro Forma Combined Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of Food 4 Less and Ralphs and related notes thereto, included elsewhere in this Amended and Restated Prospectus and Solicitation Statement.
52 WEEKS ENDED 28 WEEKS ENDED JUNE 25, 1994 JANUARY 7, 1995 ---------------------- ------------------ (DOLLARS IN MILLIONS) OPERATING DATA: Sales.................................................... $5,053.5 $2,767.6 Gross profit............................................. 1,048.2 553.0 Selling, general and administrative expenses............. 833.1 442.1 Interest expense: Cash.................................................. 224.3 122.5 Non-cash.............................................. 15.2 7.9 Amortization of debt issuance costs................... 13.4 6.9 ---------- ---------- Total interest expense................................... 252.9 137.3 Net loss(a).............................................. (86.9) (47.7) Ratio of earnings to fixed charges(b).................... -- -- BALANCE SHEET DATA (END OF PERIOD): Working capital.................................................................. $ 18.4 Total assets..................................................................... 3,096.2 Total debt....................................................................... 1,997.3 Stockholder's equity............................................................. 284.0 OTHER DATA: Depreciation and amortization............................ $ 150.8 $ 76.4 Capital expenditures(c).................................. 123.2 78.1 Stores open at end of period(d).......................... -- 395 EBITDA (as defined)(a)(e)(f)............................. $ 342.5 $ 189.3 EBITDA margin(g)......................................... 6.8% 6.8%
- --------------- (a) The summary unaudited pro forma combined financial data and the results of operations and EBITDA (as defined) for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995 do not include certain one-time non-recurring costs related to (i) severance payments under certain employment contracts with Food 4 Less management totaling $1.4 million that are subject to change of control provisions and the achievement of earnings and sales targets, (ii) costs related to the integration of the Company's operations, which are estimated to be $50.0 million over a three-year period, (iii) $1.8 million in costs related to the cancellation of an employment agreement, and (iv) other costs related to warehouse closures, which costs are not presently determinable. (b) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary items and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). The Company's pro forma earnings were insufficient to cover pro forma fixed charges by approximately $86.9 million and $47.7 million for the 52 weeks ended 17 29 June 25, 1994 and the 28 weeks ended January 7, 1995, respectively. However, such pro forma earnings included non-cash charges of $189.0 million and $99.9 million, respectively, primarily consisting of depreciation and amortization. (c) Does not include Merger-related capital expenditures of $55.0 million and $37.5 million for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995, respectively. It is estimated that the gross capital expenditures to be made by the Company in the first fiscal year following the closing will be approximately $153 million (or $106 million net of expected capital leases), of which approximately $98 million relate to ongoing expenditures for new stores, equipment and maintenance and approximately $55 million relate to store conversions and other Merger-related and non-recurring items. (d) The pro forma number of stores is based on October 1, 1994 totals, but gives effect to the closing or divestiture of 32 stores (29 Food 4 Less conventional supermarkets or warehouse stores and 3 Ralphs stores) in connection with the Merger and the closure of 2 additional Food 4 Less conventional stores open at October 1, 1994 which were subsequently closed. The pro forma financial information presented herein has been based upon the actual number of stores open as of the beginning of each period presented, adjusted for the closing or divestiture of the 32 stores which have yet to be consummated and does not include any pro forma adjustment attributable to the 2 stores closed subsequent to October 1, 1994. (e) "EBITDA", as defined and presented historically by RGC, represents net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provision for Equity Appreciation Rights, provision for tax indemnification payments to Federated Department Stores, Inc. ("Federated"), provision for postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses, a one-time charge for Teamsters Union sick pay benefits, transition expense and gains and losses on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (f) Pro forma EBITDA does not give any effect to $90 million of anticipated net annual cost savings (as compared to such costs for the pro forma combined fiscal year ended June 25, 1994) which management believes are achievable by the end of the fourth full year of combined operations. It is anticipated that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over the same period. Although a portion of the anticipated cost savings is premised upon the completion of such capital expenditures, management believes that over 70% of the cost savings could be achieved without making any Merger-related capital expenditures. As shown below, the sum of the components of the estimated annual cost savings exceeds $90 million; however, management's estimate of $90 million net annual cost savings gives effect to an offsetting adjustment to reflect its expectation that a portion of the savings will be reinvested in the Company's operations. These anticipated savings are based on estimates and assumptions made by the Company that are inherently uncertain, though considered reasonable by the Company, and are subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of management. As a result, there can be no assurance that such savings will be achieved. See "Business -- The Merger" and "Risk Factors -- Ability to Achieve Anticipated Cost Savings." The components of the estimated cost savings are as follows:
(IN MILLIONS) Pro forma EBITDA for the 52 weeks ended June 25, 1994........................ $ 342.5 Estimated net annual cost savings: Reduced advertising expenses............................................... 28.0 Reduced store operations expense........................................... 21.0 Increased volume purchasing efficiencies................................... 19.0 Warehousing and distribution efficiencies.................................. 16.0 Consolidated manufacturing................................................. 10.0 Consolidated administrative functions...................................... 15.0 Less: Annual reinvestment of cost savings.................................. (19.0) ------ Total estimated net annual cost savings...................................... $ 90.0 ------ Sum of EBITDA (as defined) and full amount of estimated annual cost savings to be realized over four years............................................. $ 432.5 ===========
Because of reductions in certain advertising expenses that Food 4 Less has already begun to implement and certain refinements in the post-Merger advertising plan, actual cost savings related to advertising expenses are expected to be approximately $19 million in the first full year following the Merger as compared to the current annualized costs. (g) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 18 30 SUMMARY HISTORICAL FINANCIAL DATA OF RALPHS The following table sets forth summary historical financial data of RGC (as the predecessor of RSI) as of and for the 53 weeks ended February 3, 1991 and the 52 weeks ended February 2, 1992, and summary historical financial data of RSI as of and for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29, 1995, which have been derived from the financial statements of RSI and RGC audited by KPMG Peat Marwick LLP, independent certified public accountants. The following information should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of RSI and RGC and related notes thereto included elsewhere in this Amended and Restated Prospectus and Solicitation Statement.
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED ENDED FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29, 1991 1992 1993 1994 1995 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN MILLIONS) OPERATING DATA: Sales..................................................... $ 2,799.1 $ 2,889.2 $ 2,843.8 $ 2,730.2 $ 2,724.6 Gross profit.............................................. 573.7 614.0 626.6 636.5 623.6 Selling, general and administrative expenses(a)........... 438.0 459.2 470.0 471.0 467.0 Interest expense(b)....................................... 128.5 130.2 125.6 108.8 112.7 Net earnings (loss)(c).................................... (51.4) (41.2) (76.1) 138.4(i) 32.1 Ratio of earnings to fixed charges(d)..................... --(d) --(d) 1.02x 1.24x 1.24x BALANCE SHEET DATA (end of period): Working capital surplus (deficit)......................... $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5) Total assets.............................................. 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9 Total debt(e)............................................. 986.1 941.9 1,029.8 998.9 1,018.5 Redeemable stock.......................................... 3.0 3.0 -- -- -- Stockholders' equity (deficit)............................ (16.0) (57.2) (133.3) 5.1 27.2 OTHER DATA: Depreciation and amortization(f).......................... $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0 Capital expenditures...................................... 87.6 50.4 102.7 62.2 64.0 Stores open at end of period.............................. 150 158 159 165 173 EBITDA (as defined)(g).................................... $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2 EBITDA margin(h).......................................... 7.4% 7.8% 8.0% 8.4% 8.4%
- --------------- (a) Includes provision for post retirement benefits other than pensions of $2.2 million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and January 29, 1995, respectively. (b) Interest expense includes non-cash charges related to the amortization of deferred debt issuance costs of $4.1 million for the 53 weeks ended February 3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995, respectively. (c) Net earnings (loss) includes expenses relating to provisions for Equity Appreciation Rights and for tax indemnification payments to Federated, extraordinary item relating to debt refinancing, loss on disposal of assets, provisions for postretirement and pension benefits and provision for earthquake losses. Net earnings (loss) includes a pre-tax provision for self insurance, which is classified in cost of sales, selling, general and administrative expenses and interest expense, of $29.2 million, $31.2 million, $36.9 million, $36.3 million, and $20.0 million, for the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, the 52 weeks ended January 31, 1993, the 52 weeks ended January 30, 1994 and the 52 weeks ended January 29, 1995, respectively. Included in the 52 weeks ended January 30, 1994 and the 52 weeks ended January 29, 1995 are reduced employer contributions of $11.8 million and $12.7 million, respectively, related to union health and welfare benefit plans. (d) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary item and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 53 weeks ended February 3, 1991 and the 52 weeks ended February 2, 1992 by approximately $25.5 million and $27.7 million, respectively. (e) Total debt includes long-term debt, current maturities of long-term debt, short-term debt and capital lease obligations. (f) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation and amortization includes amortization of the excess of cost over net assets acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and $11.0 million, respectively. (g) "EBITDA," as defined and presented historically by RGC, represents earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provisions for Equity Appreciation Rights, provision for tax indemnification payments to Federated, provision for postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses, a one-time charge for Teamsters Union sick pay benefits, transition expense and gains and losses on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Ralphs' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (h) EBITDA margin represents EBITDA (as defined) as a percentage of sales. (i) Includes recognition of $109.1 million of deferred income tax benefit and $1.1 million current income tax expense for Fiscal 1993 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.). 19 31 SUMMARY HISTORICAL FINANCIAL DATA OF FOOD 4 LESS The following table sets forth summary historical financial data of Food 4 Less as of and for the 53 weeks ended June 30, 1990 and the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994 which have been derived from the financial statements of Food 4 Less audited by Arthur Andersen LLP, independent public accountants. The summary historical financial data of Food 4 Less presented below as of and for the 28 weeks ended January 8, 1994 and January 7, 1995 have been derived from unaudited interim financial statements of Food 4 Less which, in the opinion of management, reflect all material adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of Food 4 Less and related notes thereto included elsewhere in this Amended and Restated Prospectus and Solicitation Statement.
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 28 WEEKS ENDED ENDED ENDED ENDED ENDED 28 WEEKS ENDED JANUARY JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, ENDED JANUARY 7, 1990 1991(A) 1992 1993 1994(B) 8, 1994 1995 -------- -------- -------- -------- -------- ------------- ------------- (DOLLARS IN MILLIONS) (UNAUDITED) OPERATING DATA: Sales.................................... $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $ 1,416.2 $ 1,404.7 Gross profit............................. 204.8 265.7 520.8 484.2 469.3 262.2 237.5 Selling, general, administrative and other expenses......................... 157.8 213.1 469.7 434.9 388.8 221.5 199.2 Interest expense(c)...................... 50.8 50.1 70.2 69.8 68.3 36.8 37.7 Net loss(d).............................. (10.1) (9.6) (33.8) (27.4) (2.7) (1.0) (8.7) Ratio of earnings to fixed charges(e).... --(e) --(e) --(e) --(e) 1.0x --(e) --(e) BALANCE SHEET DATA (end of period)(f): Working capital surplus (deficit)........ $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (14.9) $ (44.8) Total assets............................. 574.7 980.0 998.5 957.8 980.1 969.6 984.6 Total debt(g)............................ 360.7 558.9 525.3 538.1 517.9 521.3 551.4 Redeemable stock......................... 5.1 -- -- -- -- -- -- Stockholder's equity..................... 20.6 84.6 50.8 72.9 69.0 71.2 60.4 OTHER DATA: Depreciation and amortization(h)......... $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 30.4 $ 30.8 Capital expenditures..................... 36.4 34.7 60.3 53.5 57.5 20.4 39.0 Stores open at end of period............. 115 259 249 248 258 249 266 EBITDA (as defined)(i)................... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 69.1 $ 69.4 EBITDA margin(j)......................... 5.3% 5.0% 3.5% 3.9% 5.0% 4.9% 4.9%
- --------------- (a) Operating data for the 52 weeks ended June 29, 1991 include the results of Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha Beta's sales for the two weeks ended June 29, 1991 were $59.2 million. (b) Operating data for the 52 weeks ended June 25, 1994 include the results of the Food Barn stores, which were not material, from March 29, 1994, the date of the Food Barn acquisition. (c) Interest expense includes non-cash charges related to the amortization of deferred financing costs of $4.1 million for the 53 weeks ended June 30, 1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June 26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $2.9 million for the 28 weeks ended January 8, 1994 and $3.1 million for the 28 weeks ended January 7, 1995. (d) Net loss includes a pre-tax provision for self insurance, which is classified in cost of sales, selling, general and administrative expenses, and interest expense of $11.2 million, $15.1 million, $51.1 million, $43.9 million, $25.7 million, $24.8 million, and $14.9 million for the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, the 52 weeks ended, June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25, 1994, the 28 weeks ended January 8, 1994 and the 28 weeks ended January 7, 1995, respectively. Included in the 52 weeks ended June 25, 1994, the 28 weeks ended January 8, 1994 and the 28 weeks ended January 7, 1995 are reduced employer contributions of $8.1 million, $2.8 million and $13.7 million, respectively, related to union health and welfare benefit plans. (e) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of loss before provision for income taxes and extraordinary charges plus fixed charges. "Fixed charges" consist of interest on all indebtedness, amortization of deferred debt financing costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993 and the 28 weeks ended January 8, 1994 and January 7, 1995, by approximately $9.1 million, $3.4 million, $25.6 million, $25.9 million, $0.3 million and $8.2 million respectively. However, such earnings included non-cash charges of $29.9 million for the 53 weeks ended June 30, 1990, $37.0 million for the 52 weeks ended June 29, 1991, $61.2 million for the 52 weeks ended June 27, 1992, $62.5 million for the 52 weeks ended June 26, 1993, $33.3 million for the 28 weeks ended January 8, 1994 and $39.0 million for the 28 weeks ended January 7, 1995, primarily consisting of depreciation and amortization. (f) Balance sheet data as of June 30, 1990 relate to Food 4 Less and include the effect of the acquisition of Breco Holding Company (the "BHC Acquisition"), as well as the acquisitions of Bell Markets, Inc. and certain assets of ABC Market Corp. Balance sheet data as of June 29, 1991, June 27, 1992, June 26, 1993 and January 8, 1994 relate to Food 4 Less and reflect the Alpha Beta acquisition and the financings and refinancings associated therewith. Balance sheet data as of June 25, 1994 and January 7, 1995 relate to Food 4 Less and reflect the acquisition of the Food Barn stores. (g) Total debt includes long-term debt, current maturities of long-term debt and capital lease obligations. (h) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994, and for the 28 weeks ended January 8, 1994 and January 7, 1995, depreciation and amortization includes amortization of excess of cost over net assets acquired of $5.3 million, $5.3 million, $7.8 million, $7.6 million, $7.7 million, $4.1 million and $4.2 million, respectively. (i) "EBITDA," as defined and presented historically by Food 4 Less, represents income before interest expense, depreciation and amortization expense, the LIFO provision, provision for income taxes, provision for earthquake losses and a one-time charge for Teamsters Union sick pay benefits. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Food 4 Less' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (j) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 20 32 RISK FACTORS Before deciding whether to participate in the applicable Offer and the Solicitation, each holder of Old RGC Notes should carefully consider the following factors, in addition to the other matters described in this Amended and Restated Prospectus and Solicitation Statement. LEVERAGE AND DEBT SERVICE Following the consummation of the Merger and the Financing, the Company will be highly leveraged. At January 7, 1995, pro forma for the Merger, the FFL Merger, the Reincorporation Merger and the Financing (and certain related assumptions), the Company's total indebtedness (including current maturities) and stockholder's equity would have been $1,997.3 million and $284.0 million, respectively, and the Company would have had an additional $169.4 million available to be borrowed under the New Revolving Facility. In addition, as of January 7, 1995, after giving effect to the Merger, the FFL Merger, the Reincorporation Merger and the Financing (and certain related assumptions), scheduled payments under operating leases of the Company and its subsidiaries for the twelve months following the Merger would have been $125.0 million. On the same pro forma basis, for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995, the Company's earnings before fixed charges would have been inadequate to cover fixed charges by $86.9 million and $47.7 million, respectively. However, such earnings include non-cash charges of $189.0 million and $99.9 million, respectively, primarily consisting of depreciation and amortization. New Holdings will be required to make semi-annual cash payments of interest on the New Discount Debentures and the Seller Debentures commencing five years from their date of issuance in the amount of $61.0 million per annum. In addition, New Holdings will be required to commence semi-annual cash payments of interest on any Discount Notes that remain outstanding following the Merger commencing June 15, 1998. The New Note Indenture permits the Company (in the absence of a default or event of default thereunder) to pay cash dividends to New Holdings in an amount sufficient to allow New Holdings to pay interest on such Indebtedness when due. The Company's ability to make scheduled payments of the principal of, or interest on, or to refinance its Indebtedness (including the New Notes) and to make scheduled payments under its operating leases depends on its future performance, which to a certain extent is subject to economic, financial, competitive and other factors beyond its control. The pro forma financial information presented in this Amended and Restated Prospectus and Solicitation Statement is based on, among other things, the assumption that the interest rate borne by the New F4L Senior Notes and the New Notes will be 11% and 11.50%, respectively. In the event that the interest rates on the New F4L Senior Notes and the New Notes are higher than the respective assumed interest rates, the Company's interest expense and deficiency of earnings to fixed charges would increase over the amounts reflected in such pro forma financial information. For a description of the effects on the pro forma financial information of varying acceptance levels in the Offers and the F4L Exchange Offers and of varying interest rates, see Note (l) to the Notes to Unaudited Pro Forma Combined Statement of Operations. Based upon the current level of operations and anticipated cost savings, the Company believes that its cash flow from operations, together with borrowings under the New Revolving Facility and its other sources of liquidity (including leases), will be adequate to meet its anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments over the next several years. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that anticipated cost savings can be fully achieved. If the Company is unable to generate sufficient cash flow from operations in the future to service its debt and make necessary capital expenditures, or if its future earnings growth is insufficient to amortize all required principal payments out of internally generated funds, the Company may be required to refinance all or a portion of its existing debt, sell assets or obtain additional financing. There can be no assurance that any such refinancing or asset sales would be possible or that any additional financing could be obtained, particularly in view of the Company's high level of debt following the Merger and the fact that substantially all of its assets will be pledged to secure the borrowings under the New Credit Facility and other secured obligations. 21 33 The Company's high level of debt will have several important effects on its future operations, including the following: (a) the Company will have significant cash requirements to service debt, reducing funds available for operations and future business opportunities and increasing the Company's vulnerability to adverse general economic and industry conditions; (b) the financial covenants and other restrictions contained in the New Credit Facility and other agreements relating to the Company's indebtedness and in the New Note Indenture will require the Company to meet certain financial tests and will restrict its ability to borrow additional funds, to dispose of assets or to pay cash dividends; and (c) because of the Company's debt service requirements, funds available for working capital, capital expenditures, acquisitions and general corporate purposes, may be limited. The Company's leveraged position may increase its vulnerability to competitive pressures. The Company's continued growth depends, in part, on its ability to continue its expansion and store conversion efforts, and, therefore, its inability to finance capital expenditures through borrowed funds could have a material adverse effect on the Company's future operations. Moreover, any default under the documents governing the indebtedness of the Company could have a significant adverse effect on the market value of the New Notes. ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS Management of the Company has estimated that approximately $90 million of annualized net cost savings (as compared to such costs for the pro forma combined fiscal year ended June 25, 1994) can be achieved over a four year period as a result of integrating the operations of Ralphs and Food 4 Less. See "Business -- The Merger." The cost savings estimates have been prepared solely by members of the management of each company. The estimates necessarily make numerous assumptions as to future sales levels and other operating results, the availability of funds for capital expenditures as well as general industry and business conditions and other matters, many of which are beyond the control of the Company. Several of the cost savings estimates are premised on the assumption that certain levels of efficiency presently maintained by either Food 4 Less or Ralphs can be achieved by the combined Company following the Merger. Other estimates are based on a management consensus as to what levels of purchasing and similar efficiencies should be achievable by an entity the size of the Company. Certain of the estimates relating to the consolidation of warehousing and distribution facilities assume the completion of certain capital expenditures to expand the capacity of the continuing facilities. It is anticipated that $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over the four year period following the Merger, without which the estimated cost savings may not be fully achievable. Management expects that the non-recurring integration costs will effectively offset any cost savings in the first year following the Merger. Because the assumptions underlying the cost savings estimates are numerous and detailed, management believes that it would be impractical to specify all such assumptions in this Amended and Restated Prospectus and Solicitation Statement. However, management also believes that all such assumptions are reasonable in light of existing business conditions and prospects. Investors are cautioned that the actual cost savings realized by the Company may vary considerably from the estimates contained herein and that undue reliance should not be placed upon such estimates. There also can be no assurance that unforeseen costs and expenses or other factors will not offset the projected cost savings in whole or in part. REGIONAL ECONOMIC CONDITIONS Following the consummation of the Merger, a substantial percentage of the Company's business (representing approximately 90% of pro forma sales) will be conducted in Southern California. Southern California began to experience a significant economic downturn in 1991 and has only recently begun a mild recovery. The economy in Southern California has been affected by substantial job losses in the defense and aerospace industries and other adverse economic trends. These adverse regional economic conditions have resulted in declining sales levels at Ralphs and Food 4 Less in recent periods. For the 52 weeks ended June 25, 1994, and the 52 weeks ended January 29, 1995, Food 4 Less and Ralphs experienced 6.9% and 3.7% declines, respectively, in comparable store sales as compared with the comparable period in the prior year, primarily reflecting the weak economy in Southern California, lower levels of price inflation in certain food product categories, and increased competitive store openings in Southern California. For the 28 weeks ended 22 34 January 7, 1995 and the 28 weeks ended January 29, 1995, Food 4 Less and Ralphs experienced 4.5% and 3.4% declines, respectively, in comparable store sales. However, both Food 4 Less' and Ralphs' comparable store sales declines have begun to moderate in recent months. Although data indicate a mild recovery in the Southern California economy and management believes that overall sales trends in Southern California should improve along with the economy, there can be no assurance that improvement will occur or that substantial future declines in same store sales will not occur. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION The supermarket industry is highly competitive and characterized by narrow profit margins. The Company's competitors in each of its operating divisions include national and regional supermarket chains, independent and specialty grocers, drug and convenience stores, and the newer "alternative format" food stores, including warehouse club stores, deep discount drug stores and "super centers." Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. The Company regularly monitors its competitors' prices and adjusts its prices and marketing strategy as management deems appropriate in light of existing conditions. Some of the Company's competitors have greater financial resources than the Company and could use these resources to take steps which could adversely affect the Company's competitive position. See "Business -- Competition." CORPORATE STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES Following the consummation of the Merger, a significant portion of the Company's operating income will be generated by its subsidiaries. As a result, the Company will rely on distributions or advances from its subsidiaries to provide a portion of the funds necessary to meet its debt service obligations, including the payment of principal and interest on the New Notes. Should the Company fail to satisfy any payment obligation under the New Notes, the holders would have a direct claim therefor against the Subsidiary Guarantors pursuant to their Guarantees. However, the capital stock of, and substantially all of the assets of, the Subsidiary Guarantors will be pledged to secure the obligations of the Company and such subsidiaries under the New Credit Facility and other secured obligations. The New Note Indenture will limit, but not prohibit, the ability of the Company and its subsidiaries to incur additional secured indebtedness. In the event of a default under the New Credit Facility (or any other secured indebtedness), the lenders thereunder would be entitled to a claim on the assets securing such indebtedness which is prior to any claim of the holders of the New Notes. Accordingly, there may be insufficient assets remaining after payment of prior secured claims (including claims of lenders under the New Credit Facility) to pay amounts due on the New Notes. In addition, if a court were to avoid the Guarantees under fraudulent conveyance laws or other legal principles or, by the terms of such Guarantees, the obligations thereunder were reduced as necessary to prevent such avoidance, or the Guarantees were released, the claims of other creditors of the Subsidiary Guarantors, including trade creditors, would to such extent have priority as to the assets of such Subsidiary Guarantors over the claims of the holders of the New Notes. The Guarantees of the New Notes by any Subsidiary Guarantor will be released upon the sale of such Subsidiary Guarantor or upon the release by the lenders under the New Credit Facility of such Subsidiary Guarantor's Guarantee of the Company's obligation under the New Credit Facility. The New Note Indenture limits the ability of the Company and its subsidiaries to incur additional indebtedness and to enter into agreements that would restrict the ability of any subsidiary to make distributions, loans or other payments to the Company. However, these limitations are subject to certain exceptions. See "-- Fraudulent Conveyance Risks" and "Description of the New Notes." CONTROL OF THE COMPANY Following completion of the Merger, the FFL Merger and the Reincorporation Merger, all of the Company's outstanding common stock will be held by New Holdings. Pro forma for such mergers and certain related events, affiliates of Yucaipa and Apollo will have beneficial ownership of approximately 41.8% and 33.9%, respectively, of the outstanding capital stock of New Holdings. Pursuant to a new stockholders' agreement (the "1995 Stockholders Agreement") which will be entered into by the New Equity Investors and 23 35 certain current FFL stockholders and Holdings warrantholders, upon completion of the Merger, New Holdings and the Company will have boards consisting of nine and ten members, respectively, and (i) Yucaipa will have the right to elect six directors to the board of New Holdings and seven directors to the board of the Company, (ii) Apollo will have the right to elect two directors to the board of each of New Holdings and the Company and (iii) the other New Equity Investors will have the right to elect one director to the board of each of New Holdings and the Company. Under the 1995 Stockholders Agreement, unless and until New Holdings has effected an initial public offering of its equity securities meeting certain criteria, New Holdings and its subsidiaries, including the Company, may not take certain actions without the approval of the New Holdings directors which the New Equity Investors are entitled to elect, including but not limited to certain mergers, sale transactions, transactions with affiliates, issuances of capital stock and payments of dividends on or repurchases of capital stock. As a result of the ownership structure of the Company and the contractual rights described above, the voting and management control of the Company is highly concentrated. Yucaipa, acting with the consent of the directors elected by the New Equity Investors, has the ability to direct the actions of the Company with respect to matters such as the payment of dividends, material acquisitions and dispositions and other extraordinary corporate transactions. Yucaipa will be a party to a consulting agreement with the Company, pursuant to which Yucaipa will render certain management and advisory services to the Company, and will receive fees for such services. Yucaipa will also receive certain fees in connection with the consummation of the Merger, including an advisory fee of $19 million, of which $15 million will be paid through the issuance of New Discount Debentures. In addition, as a result of the Merger, certain officers and former officers of Ralphs will redeem the EARs for $17.8 million in cash and a deferred payment of up to $5 million and will cancel certain options to purchase common stock of RSI for $880,000. An additional $10 million of the EARs, however, will be reinvested in New Holdings by such officers and former officers. Yucaipa also will be reimbursed for (i) any losses incurred upon the resale of the $10 million principal amount of Seller Debentures which may be put to it pursuant to the Put Agreement and (ii) its expenses in connection with the Merger and the related transactions. In addition, on the Closing Date the Company and EJDC will enter into a Consulting Agreement, pursuant to which EJDC will act as a consultant to the Company with respect to certain real estate and general commercial matters for a period of five years from the Closing Date in exchange for the payment of a one-time consulting fee of $9 million, of which $4 million will be used to purchase interests in the partnership that will purchase the New Discount Debentures. See "Certain Relationships and Related Transactions," "Principal Stockholders" and "Description of Capital Stock." SUBORDINATION OF THE NEW NOTES The payment of principal, premium, if any, and interest on, and any other amounts owing in respect of, the New Notes will be subordinated to the prior payment in full of all existing and future Senior Indebtedness, including indebtedness under the New Credit Facility and the F4L Senior Notes. Each Subsidiary Guarantor's Guarantee will also be subordinated in right of payment to Senior Indebtedness of the Subsidiary Guarantors ("Guarantor Senior Indebtedness"). Guarantor Senior Indebtedness will include all existing and future indebtedness not expressly subordinated to other indebtedness, including indebtedness represented by the guarantee of each Subsidiary Guarantor under the New Credit Facility and the F4L Senior Notes. As of January 7, 1995, on a pro forma basis, after giving effect to the Merger and the Financing (and certain related assumptions), the aggregate outstanding amount of Senior Indebtedness of the Company (excluding Company guarantees of certain Guarantor Senior Indebtedness) would have been approximately $1,512.7 million and the aggregate outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would have been approximately $16.5 million and the Company would have had $169.4 million available to be borrowed under the New Revolving Facility. The New Note Indenture will limit, but not prohibit, the issuance by the Subsidiary Guarantors of additional indebtedness which is Guarantor Senior Indebtedness. See "Description of the New Notes -- Guarantees." In the event of the bankruptcy, liquidation, dissolution, reorganization or other winding up of the Company, the assets of the Company will be available to pay obligations on the New Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the New Notes. In addition, under certain circumstances, the Company may not pay principal of, premium, if any, or interest on, or any other amounts owing in respect of, the New 24 36 Notes, or purchase, redeem or otherwise retire the New Notes, if a payment default or a non-payment default exists with respect to certain Senior Indebtedness and, in the case of a non-payment default, a payment blockage notice has been received by the New Note Trustee (as defined). See "Description of the New Notes -- Subordination." FRAUDULENT CONVEYANCE RISKS Various fraudulent conveyance laws have been enacted for the protection of creditors and may be utilized by a court to subordinate or avoid the New Notes or any Guarantee in favor of other existing or future creditors of the Company or a Subsidiary Guarantor. If a court in a lawsuit on behalf of any unpaid creditor of the Company or a representative of the Company's creditors were to find that, at the time the Company issued the New Notes, the Company (x) intended to hinder, delay or defraud any existing or future creditor or contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (y) did not receive fair consideration or reasonably equivalent value for issuing the New Notes and the Company (i) was insolvent, (ii) was rendered insolvent by reason of such distribution, (iii) was engaged or about to engage in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court could void the New Notes and void such transactions. Alternatively, in such event, claims of the holders of the New Notes could be subordinated to claims of the other creditors of the Company. The Company's obligations under the New Notes will be guaranteed by the Subsidiary Guarantors. To the extent that a court were to find that (x) a Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay or defraud any present or future creditor or the Subsidiary Guarantor contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (y) such Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for issuing its Guarantee and such Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the issuance of such Guarantee, (iii) was engaged or about to engage in a business or transaction for which the remaining assets of such Subsidiary Guarantor constituted unreasonably small capital to carry on its business, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, the court could void or subordinate such Guarantee in favor of the Subsidiary Guarantor's creditors. Among other things, a legal challenge of a Guarantee on fraudulent conveyance grounds may focus on the benefits, if any, realized by the Subsidiary Guarantor as a result of the issuance by the Company of the New Notes. To the extent any Guarantees were avoided as a fraudulent conveyance or held unenforceable for any other reason, holders of the New Notes would cease to have any claim in respect of such Subsidiary Guarantor and would be creditors solely of the Company and any Subsidiary Guarantor whose Guarantee was not avoided or held unenforceable. In such event, the claims of the holders of the New Notes against the issuer of an invalid Guarantee would be subject to the prior payment of all liabilities and preferred stock claims of such Subsidiary Guarantor. There can be no assurance that, after providing for all prior claims and preferred stock interests, if any, there would be sufficient assets to satisfy the claims of the holders of the New Notes relating to any voided portions of any of the Guarantees. Based upon financial and other information currently available to it, management of the Company believes that the New Notes and the Guarantees are being incurred for proper purposes and in good faith and that the Company and each Subsidiary Guarantor (i) is solvent and will continue to be solvent after issuing the New Notes or its Guarantees, as the case may be, (ii) will have sufficient capital for carrying on its business after such issuance, and (iii) will be able to pay its debts as they mature. See "Management's Discussions and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 25 37 ABSENCE OF ESTABLISHED MARKET FOR THE NEW NOTES There is no established market for the New Notes and there can be no assurance as to the liquidity of any markets that may develop for the New Notes, the ability of holders of the New Notes to sell their New Notes, or the price at which holders would be able to sell their New Notes. Future trading prices of the New Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. The Dealer Managers have advised the Company that they currently intend to make a market in the New Notes. However, the Dealer Managers are not obligated to do so and any market making may be discontinued at any time without notice. POTENTIAL ADVERSE EFFECTS OF THE OFFERS AND THE SOLICITATION DUE TO REDUCED TRADING MARKET FOR UNTENDERED OLD RGC NOTES There currently is a limited trading market for the Old RGC Notes, which from time to time trade in the over-the-counter market. See "Market Prices of the Old RGC Notes." To the extent that Old RGC Notes are tendered and accepted for exchange or purchase in the Offers the trading market for the remaining Old RGC Notes may become even more limited. A debt security with a smaller outstanding principal amount available for trading (a smaller "float") may command a lower price than would a comparable debt security with a greater float. Therefore, the market price for the Old RGC Notes not exchanged or purchased may be adversely affected to the extent that the principal amount of the Old RGC Notes tendered pursuant to the Offers reduces the float. The reduced float may also tend to make the trading price more volatile. Holders of Old RGC Notes not tendered in the Offers may attempt to obtain quotations for the Old RGC Notes from their brokers; however, there can be no assurance that any trading market will exist for the Old RGC Notes following consummation of the Offers. The extent of the public market for the Old RGC Notes following consummation of the Offers will depend upon, among other things, the remaining outstanding principal amount of the Old RGC Notes after the Offers, the number of holders remaining at such time and the interest in maintaining a market in the Old RGC Notes on the part of securities firms. EFFECT OF THE PROPOSED AMENDMENTS ON HOLDERS THAT DO NOT TENDER If the Offers are consummated and the Proposed Amendments become operative, holders of Old RGC Notes that are not exchanged or purchased pursuant to the Offers for any reason will no longer be entitled to the benefits of certain of the restrictive covenants contained in the Old RGC Indentures after they have been modified by the Proposed Amendments. The modification of the restrictive covenants would permit the Company to take actions that could increase the credit risks with respect to the Company faced by such holders or that could otherwise be adverse to the interest of such holders. See "The Proposed Amendments." 26 38 THE MERGER AND THE FINANCING On September 14, 1994, Food 4 Less, Holdings and FFL entered into the Merger Agreement with RSI and the stockholders of RSI. Pursuant to the terms of the Merger Agreement, Food 4 Less will, subject to certain conditions being satisfied or waived, be merged with and into RSI pursuant to the RSI Merger. Immediately following the RSI Merger, RGC, which is currently a wholly-owned subsidiary of RSI, will merge with and into RSI pursuant to the RGC Merger, and RSI will change its name to Ralphs Grocery Company. Prior to the Merger, FFL will merge with and into Holdings, which will be the surviving corporation in the FFL Merger. Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging into a newly-formed, wholly-owned subsidiary, New Holdings, incorporated in Delaware, pursuant to the Reincorporation Merger. As a result of the Merger, the FFL Merger and the Reincorporation Merger, the Company will become a wholly-owned subsidiary of New Holdings. Upon consummation of the RSI Merger and the RGC Merger, the New Notes and any outstanding Old RGC Notes not tendered into the Offers will be the obligations of the Company. Conditions to the consummation of the RSI Merger include the receipt of regulatory approvals and other necessary consents and the completion of financing. The purchase price for RSI is approximately $1.5 billion, including the assumption of debt. The consideration payable to the stockholders of RSI consists of $375 million in cash, $131.5 million principal amount of the Seller Debentures and $18.5 million initial accreted value of the New Discount Debentures to be issued by New Holdings. New Holdings will use $100 million of the cash received from the New Equity Investment, together with the Seller Debentures and such New Discount Debentures, to acquire approximately 48% of the capital stock of RSI immediately prior to consummation of the RSI Merger. New Holdings will then contribute the $250 million of purchased shares of RSI stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of RSI stock will be acquired for $275 million in cash. Pursuant to an agreement (the "Put Agreement") entered into in connection with the execution of the Merger Agreement, the Edward J. DeBartolo Corporation, an Ohio corporation ("EJDC"), which currently owns approximately 60.3% of the outstanding common stock of RSI, will have the right to put to Yucaipa, which controls Food 4 Less, on the closing date of the Merger (the "Closing Date"), up to $10 million aggregate principal amount of Seller Debentures acquired by EJDC in connection with the Merger, at a purchase price equal to their principal amount. Yucaipa will be reimbursed for (i) any losses incurred upon the resale of the $10 million principal amount of Seller Debentures which may be put to it pursuant to the Put Agreement and (ii) its expenses in connection with the Merger and the related transactions. In addition, on the Closing Date the Company and EJDC will enter into a Consulting Agreement, pursuant to which EJDC will act as a consultant to the Company with respect to certain real estate and general commercial matters for a period of five years from the Closing Date in exchange for the payment of a consulting fee of $9 million, of which $4 million will be used to purchase interests in the partnership that will purchase New Discount Debentures. See "Certain Relationships and Related Transactions -- Food 4 Less." The Merger Agreement, as amended, provides that Food 4 Less will pay the stockholders of RSI interest on the aggregate purchase price of $525 million at a rate equal to the prime rate plus 1% from and after March 16, 1995 through the Closing Date. The Merger Agreement may be terminated by the parties if the Merger has not been consummated on or prior to June 6, 1995. As currently contemplated, the Merger will be financed through the following transactions: - Borrowings of up to $750 million aggregate principal amount pursuant to the New Term Loans under the New Credit Facility to be provided by a syndicate of banks led by Bankers Trust. The New Credit Facility will also provide for the $325 million New Revolving Facility, $16.4 million of which is anticipated to be drawn at closing. - The issuance of up to $295 million of New F4L Senior Notes pursuant to the Senior Note Public Offering. - The issuance of up to $200 million of New Notes pursuant to the Subordinated Note Public Offering. - The issuance of preferred stock in a private placement by New Holdings to a group of investors led by Apollo and including affiliates of BT Securities, CS First Boston and DLJ and other institutional investors, yielding cash proceeds of $140 million pursuant to the New Equity Investment. Concurrently with the New Equity Investment, the New Equity Investors will purchase outstanding shares of 27 39 New Holdings capital stock from a stockholder of New Holdings for a purchase price of $57.8 million. See "Description of Capital Stock -- New Equity Investment." - The exchange by Food 4 Less pursuant to the F4L Exchange Offers of (a) up to $175 million aggregate principal amount of the Old F4L Senior Notes for up to $175 million aggregate principal amount of the New F4L Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged and (b) up to $145 million aggregate principal amount of the Old F4L Senior Subordinated Notes for up to $145 million aggregate principal amount of the New F4L Senior Subordinated Notes plus $20.00 in cash per $1,000 principal amount exchanged, together with the solicitation of consents from the holders of the Old F4L Notes to certain amendments to the Old F4L Indentures. It is a condition to the F4L Exchange Offers that at least 80% of the outstanding principal amount of the Old F4L Notes are exchanged pursuant to the F4L Exchange Offers. - The Offers made hereunder to holders of Old RGC Notes to tender for exchange or purchase such Old RGC Notes, together with the solicitation of consents from such holders to the Proposed Amendments to the Old RGC Indentures. - The purchase by New Holdings of approximately 48% of the outstanding common stock of RSI for an aggregate consideration of $250 million, consisting of $100 million of the cash proceeds from the New Equity Investment, $131.5 million principal amount of the Seller Debentures and $18.5 million initial accreted value of the New Discount Debentures, followed by the contribution of such common stock of RSI to Food 4 Less. Pursuant to the RSI Merger the remaining shares of RSI stock will be acquired for $275 million in cash. - The placement by New Holdings pursuant to the New Discount Debenture Placement of $100 million initial accreted value of New Discount Debentures to a partnership including Yucaipa, the selling stockholders of Ralphs, an affiliate of George Soros, Apollo and an affiliate of each of BT Securities, CS First Boston and DLJ. The $100 million initial accreted value of New Discount Debentures includes (a) $18.5 million that will be issued to the RSI stockholders, (b) $15 million, $5 million and $2.5 million that will be issued to Yucaipa, BT Securities and Apollo, respectively, in satisfaction of fees otherwise payable by the Company and New Holdings in connection with the Merger and the Financing and (c) $59 million that will be issued for cash to the partnership described above. The $41 million initial accreted value of New Discount Debentures to be issued to the RSI stockholders, Apollo, BT Securities and Yucaipa will be contributed to such partnership by the recipients thereof. - The assumption by the Company, pursuant to the Merger, of approximately $166.8 million of other indebtedness of RGC and Food 4 Less. - The purchase by Holdings pursuant to the Holdings Offer to Purchase of Discount Notes for $785.00 in cash, plus accrued cash interest thereon at a rate of 15.25% per annum from and after March 15, 1995 until the Closing Date for every $1,000 principal amount (at maturity) of Discount Notes (which, as of May 1, 1995 had an accreted value of $680.26 per $1,000) accepted for purchase, together with the solicitation of consents from the holders of the Discount Notes to certain amendments to the Discount Note Indenture. 28 40 The following table illustrates the sources and uses of funds to consummate the Merger, assuming the transaction occurs as of May 30, 1995. This presentation assumes that $225.5 million principal amount of Old RGC Notes is tendered into the Offers in exchange for New Notes (representing 50.1% of the outstanding aggregate principal amount of Old RGC Notes), $224.5 million principal amount of Old RGC Notes is tendered into the Offers for cash (representing 49.9% of the outstanding aggregate principal amount of Old RGC Notes), $256 million principal amount of Old F4L Notes is tendered into the F4L Exchange Offers (representing 80% of the outstanding aggregate principal amount of Old F4L Notes) and $103.6 million principal amount (at maturity) of Discount Notes is tendered into the Holdings Offer to Purchase (representing 100% of the outstanding aggregate principal amount (at maturity) of Discount Notes). This presentation assumes the use of the maximum amount of cash proceeds that could be necessary to consummate the Merger (if holders representing more than 49.9% of the outstanding principal amount of Old RGC Notes tender into the Offers in exchange for New RGC Notes, rather than for cash (i.e. the Minimum Exchange is exceeded), the non-cash sources and cash uses would be correspondingly adjusted). Although management believes such assumptions are reasonable under the circumstances, actual sources and uses may differ from those set forth below depending upon the outcome of the Offers, the F4L Exchange Offers and the Holdings Offer to Purchase. SOURCES AND USES (in millions) CASH SOURCES CASH USES - --------------------------------------------- --------------------------------------------- New Term Loans(a).................. $ 750.0 Purchase RSI Common Stock(j)....... $ 375.9 New Revolving Facility(b).......... 16.4 Purchase Old RGC Notes(k).......... 226.8 New F4L Senior Notes(c)............ 295.0 Purchase Discount Notes............ 83.9 Repay Ralphs 1992 Credit New Notes(d)....................... 200.0 Agreement.......................... 255.1 New Equity Investment(e)........... 140.0 Repay F4L Credit Agreement......... 161.5 New Discount Debentures(f)......... 59.0 Pay Accrued Interest(l)............ 29.3 EAR Related Payments(m)............ 22.8 Repay Mortgage Indebtedness(n)..... 191.5 Purchase New Holdings Common Stock(o)......................... 3.7 Fees and Expenses(p)............... 109.9 -------- -------- Total Cash Sources............ $1,460.4 Total Cash Uses.................... $1,460.4 ======= ======= NON-CASH SOURCES NON-CASH USES - --------------------------------------------- --------------------------------------------- New F4L Senior Notes(g)............ $ 140.0 Old F4L Senior Notes Exchanged..... $ 140.0 Assumed Old F4L Senior Notes....... 35.0 Assumed Old F4L Senior Notes....... 35.0 New F4L Senior Subordinated Old F4L Senior Subordinated Notes Notes............................ 116.0 Exchanged.......................... 116.0 Assumed Old F4L Senior Subordinated Assumed Old F4L Senior Subordinated Notes............................ 29.0 Notes............................ 29.0 New Notes(h)....................... 225.5 Old RGC Notes Exchanged............ 225.5 New Discount Debentures(f)......... 41.0 Fees and Expenses(p)............... 22.5 Assumed Capital Leases and Other Assumed Capital Leases and Other Debt............................. 166.8 Debt............................... 166.8 Seller Debentures(i)............... 131.5 Purchase RSI Common Stock(i)....... 150.0 -------- -------- Total Non-Cash Sources........ $ 884.8 Total Non-Cash Uses................ $ 884.8 ======= =======
- --------------- (a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to which Bankers Trust has agreed, subject to certain conditions, to provide the Company up to a maximum aggregate amount of $1,075 million of financing under the New Credit Facility. It is anticipated that the New Credit Facility will be syndicated to a number of financial institutions for whom Bankers Trust will act as agent. The New Credit Facility will provide for (i) the New Term Loans in the aggregate amount of up to $750 million, comprised of the $375 million Tranche A Loan, the $125 million Tranche B Loan, the $125 million Tranche C Loan, and the $125 million Tranche D Loan and (ii) the $325 million New Revolving Facility. The Tranche A Loan may not be fully funded at the Closing Date. The New Credit Facility will provide that the portion of the Tranche A Loan not funded at the Closing Date will be available for a period of 91 days following the Closing Date to fund the Change of Control Offer. See "Description of the New Credit Facility." 29 41 (b) The New Revolving Facility will provide for a $325 million line of credit which will be available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support standby letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the New Revolving Facility. The Company anticipates that letters of credit for approximately $92.6 million will be issued under the New Revolving Facility at closing, in replacement of existing letters of credit, primarily to satisfy the State of California's requirements relating to workers compensation self-insurance. (c) Represents New F4L Senior Notes issued pursuant to the Senior Note Public Offering. If Food 4 Less receives tenders in excess of the Minimum Exchange in the Offers, Food 4 Less may elect to decrease the amount of New F4L Senior Notes being offered pursuant to the Senior Note Public Offering. (d) Represents New Notes issued pursuant to the Subordinated Note Public Offering. If Food 4 Less receives tenders in excess of the Minimum Exchange in the Offers, Food 4 Less may elect to decrease the amount of New Notes being offered pursuant to the Subordinated Note Public Offering. It is not anticipated that the amount of New Notes offered pursuant to the Subordinated Note Public Offering will be reduced below $100 million principal amount. (e) Does not include the $10 million equity contribution by Ralphs management. See note (m) below. Concurrently with the New Equity Investment, certain existing stockholders of New Holdings (formerly stockholders of FFL), including affiliates of George Soros, will sell outstanding shares of New Holdings stock to CLH, which in turn will sell such shares to the New Equity Investors for an aggregate purchase price of $57.8 million (which represents the same price per share as will be paid in the New Equity Investment). In connection with the New Equity Investment, the New Equity Investors will contribute the common stock so acquired to New Holdings in consideration for newly-issued preferred shares. See "Description of Capital Stock -- New Equity Investment." (f) Represents $100 million initial accreted value of New Discount Debentures, $59 million of which will be issued for cash, $18.5 million of which will be issued to the RSI stockholders as Merger consideration and $15 million, $5 million and $2.5 million of which will be issued to Yucaipa, BT Securities and Apollo, respectively, in satisfaction of fees otherwise payable by the Company and New Holdings in connection with the Merger and the Financing. (g) Represents New F4L Senior Notes issued pursuant to the F4L Exchange Offers, which will be part of the same issue as the New F4L Senior Notes issued pursuant to the Senior Note Public Offering. (h) Represents New Notes issued pursuant to the Offers, which will be part of the same issue as the New Notes issued pursuant to the Subordinated Note Public Offering. (i) In connection with the RSI Merger, New Holdings will issue $131.5 million principal amount of the Seller Debentures as part of the purchase price for the RSI common stock, up to $10 million of which may be put to Yucaipa on the Closing Date at a purchase price equal to their principal amount pursuant to the Put Agreement. In addition, Yucaipa will be reimbursed by the Company for (i) any losses incurred upon the resale of the $10 million principal amount of Seller Debentures which may be put to it pursuant to the Put Agreement and (ii) its expenses in connection with the Merger and the related transactions. See "Certain Relationships and Related Transactions -- Food 4 Less." (j) Includes $375 million to be paid in cash to stockholders of RSI and $0.9 million to be paid in cash to holders of RSI management stock options. See "Executive Compensation -- New Management Stock Option Plan and Management Investment." (k) Represents the purchase of Old RGC Notes tendered for cash pursuant to the Offers. In addition, to the extent any Old RGC Notes remain outstanding following consummation of the Offers, a portion of the Tranche A Loan not fully funded at the Closing Date will be available to fund the purchase of Old RGC Notes pursuant to the Change of Control Offer. (l) Represents accrued interest payable on all debt securities assumed to be tendered pursuant to the Offers and the F4L Exchange Offers. (m) Represents payments to or for the benefit of Ralphs management with respect to outstanding EARs in connection with the Merger. Ralphs management will receive new New Holdings stock options in exchange for the cancellation of the remaining EAR liability of $10 million. See "Executive Compensation -- Equity Appreciation Rights Plan" and "Certain Relationships and Related Transactions -- Food 4 Less." (n) Represents the repayment of outstanding mortgage indebtedness of Ralphs in the principal amount of $174.1 million, plus the estimated amount of the prepayment fees payable with respect thereto. (o) Represents the purchase of shares of New Holdings common stock from stockholders who have exercised statutory dissenters' rights in connection with the FFL Merger. There are no other shares subject to statutory dissenters' rights. (p) Includes advisory fees of $19 million to be paid to Yucaipa, other fees of $5 million to be paid to BT Securities and commitment fees of $5 million to be paid to Apollo, upon the closing of the Merger. Of such amounts, $15 million of Yucaipa's advisory fee, $2.5 million of Apollo's commitment fee and BT Securities' $5 million fee will be paid through the issuance of New Discount Debentures in lieu of cash. Such New Discount Debentures will be contributed by them to the partnership that will acquire all of the New Discount Debentures. Yucaipa anticipates that it in turn will pay a cash fee of approximately $3.5 million to Soros Fund Management in consideration for advisory services which Soros Fund Management has rendered since 1991. See "Certain Relationships and Related Transactions -- Food 4 Less." For additional information, see "Description of the New Credit Facility," "The F4L Exchange Offers and the Public Offerings" and "Description of Holding Company Indebtedness." 30 42 PRO FORMA CAPITALIZATION The following table sets forth the pro forma combined capitalization of the Company as of January 7, 1995, adjusted to give effect to the Merger, the FFL Merger, the Reincorporation Merger and the Financing (and certain related assumptions) and the application of the proceeds therefrom. This presentation assumes that $225.5 million principal amount of Old RGC Notes is tendered into the Offers in exchange for New Notes, $224.5 million principal amount of Old RGC Notes is tendered into the Offers for cash, $256 million principal amount of Old F4L Notes is tendered into the F4L Exchange Offers and $103.6 million principal amount (at maturity) of Discount Notes is tendered into the Holdings Offer to Purchase. This presentation also assumes that any Old RGC Notes not tendered into the Offers are repurchased after the Closing Date pursuant to the Change of Control Offer. The table should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and the historical consolidated financial statements of Ralphs and Food 4 Less and related notes thereto included elsewhere in this Amended and Restated Prospectus and Solicitation Statement.
PRO FORMA CAPITALIZATION --------------- (IN MILLIONS) Cash..................................................................................... $ 50.9 ============= Short-term and current portion of long-term debt: New Term Loans......................................................................... $ 3.8 Other indebtedness..................................................................... 23.0 --------------- Total short-term and current portion of long-term debt.......................... $ 26.8 ============= Long-term debt: New Term Loans(a)...................................................................... $ 746.2 New Revolving Facility(b).............................................................. 54.5 Other indebtedness..................................................................... 129.3 New F4L Senior Notes(c)................................................................ 435.0 Old F4L Senior Notes................................................................... 35.0 New Notes(d)........................................................................... 425.5 New F4L Senior Subordinated Notes...................................................... 116.0 Old F4L Senior Subordinated Notes...................................................... 29.0 --------------- Total long-term debt............................................................ 1,970.5 --------------- Stockholder's equity: Common stock, $.01 par value........................................................... 0.0 Additional paid-in capital............................................................. 464.3 Notes receivable(e).................................................................... (0.7) Retained deficit....................................................................... (173.7) Treasury stock......................................................................... (5.9) --------------- Total stockholder's equity........................................................... 284.0 --------------- Total capitalization............................................................ $ 2,254.5 =============
- --------------- (a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to which Bankers Trust has agreed, subject to certain conditions, to provide the Company up to a maximum aggregate amount of $1,075 million of financing under the New Credit Facility. It is anticipated that the New Credit Facility will be syndicated to a number of financial institutions for whom Bankers Trust will act as agent. The New Credit Facility will provide for (i) the New Term Loans in the aggregate amount of up to $750 million, comprised of the $375 million Tranche A Loan, the $125 million Tranche B Loan, the $125 million Tranche C Loan and the $125 million Tranche D Loan and (ii) the $325 million New Revolving Facility. The Tranche A Loan may not be fully funded at the Closing Date. The New Credit Facility will provide that the portion of the Tranche A Loan not funded at the Closing Date will be available for a period of 91 days following the Closing Date to fund the Change of Control Offer. See "Description of the New Credit Facility." (b) The New Revolving Facility will provide for a $325 million line of credit which will be available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support standby letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the New Revolving Facility. The Company anticipates that letters of credit for approximately $92.6 million will be issued under the New Revolving Facility at closing, in replacement of existing letters of credit, primarily to satisfy the State of California's requirements relating to workers' compensation self-insurance. (c) Includes New F4L Senior Notes issued pursuant to both the Senior Note Public Offering and the F4L Exchange Offers. (d) Includes New Notes issued pursuant to both the Subordinated Note Public Offering and the Offers. In accordance with the terms of the Old RGC Indentures, holders of Old RGC Notes not exchanged for New Notes or purchased pursuant to the Offers will be entitled to have such Old RGC Notes repurchased by the Company pursuant to the Change of Control Offer which will occur up to 91 days following the closing of the Merger. A portion of the Tranche A Loan not fully funded at the Closing Date will be available to fund the purchase of Old RGC Notes pursuant to the Change of Control Offer. (e) Represents notes receivable from shareholders of Holdings with respect to the purchase of Holdings' common stock. See "Executive Compensation -- Food 4 Less Stock Plan." 31 43 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements of the Company for the 52 weeks ended June 25, 1994 and as of and for the 28 weeks ended January 7, 1995, give effect to the Merger, the FFL Merger, the Reincorporation Merger and the Financing (and certain related assumptions set forth below) and the application of the proceeds therefrom as if such transactions occurred on June 27, 1993, with respect to the pro forma operating and other data, and as of January 7, 1995, with respect to the pro forma balance sheet data. Such pro forma information combines the results of operations of Food 4 Less for the 52 weeks ended June 25, 1994 and the results of operations and balance sheet data as of and for the 28 weeks ended January 7, 1995, with the results of operations of Ralphs for the 52 weeks ended July 17, 1994 and the results of operations and balance sheet data as of and for the 28 weeks ended January 29, 1995, respectively. For information regarding the Merger and the Financing, see "The Merger and the Financing." The pro forma adjustments are based upon the following assumptions: (i) $225.5 million principal amount of Old RGC Notes are tendered into the Offers in exchange for New Notes, (ii) $224.5 million principal amount of Old RGC Notes are tendered into the Offers for cash, (iii) $256 million principal amount of Old F4L Notes are tendered into the F4L Exchange Offers and (iv) $103.6 million principal amount (at maturity) of Discount Notes are tendered into the Holdings Offer to Purchase. The presentation also assumes that $200 million principal amount of New Notes are issued pursuant to the Subordinated Note Public Offering and that $295 million principal amount of New F4L Senior Notes are issued pursuant to the Senior Note Public Offering. In addition, the unaudited pro forma combined financial statements have been prepared based upon the assumption that upon consummation of the Merger, the Company will divest or close 32 stores. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable. The Merger will be accounted for by the Company as a purchase of Ralphs by Food 4 Less and Ralphs' assets and liabilities will be recorded at their estimated fair market values at the date of the Merger. The adjustments included in the unaudited pro forma combined financial statements represent the Company's preliminary determination of these adjustments based upon available information. There can be no assurance that the actual adjustments will not differ significantly from the pro forma adjustments reflected in the pro forma financial information. The unaudited pro forma combined financial statements are not necessarily indicative of either future results of operations or results that might have been achieved if the foregoing transactions had been consummated as of the indicated dates. The unaudited pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements of Food 4 Less and Ralphs, together with the related notes thereto, included elsewhere in this Amended and Restated Prospectus and Solicitation Statement. 32 44 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (DOLLARS IN MILLIONS)
52 WEEKS ENDED -------------------------- RALPHS FOOD 4 LESS (HISTORICAL) (HISTORICAL) (UNAUDITED) (AUDITED) JULY 17, JUNE 25, PRO FORMA PRO FORMA 1994 1994 ADJUSTMENTS COMBINED ----------- ------------ ----------- --------- Sales........................................... $ 2,709.7 $2,585.2 $(241.4)(a) $5,053.5 Cost of sales................................... 2,076.3 2,115.9 (194.7)(a) 4,005.3 4.2(b) 2.8(c) 0.8(d) ----------- ------------ ----------- --------- Gross profit............................... 633.4 469.3 (54.5) 1,048.2 Selling, general and administrative expenses(n)................................... 469.1 388.8 (36.4)(a) 833.1 8.1(b) 1.4(d) 1.6(e) 0.5(f) Amortization of excess cost over net assets acquired...................................... 11.0 7.7 10.7(g) 29.4 Provision for restructuring..................... 2.4 0.0 -- 2.4 ----------- ------------ ----------- --------- Operating income........................... 150.9 72.8 (40.4) 183.3 Other expenses: Interest expense -- cash(l)................... 93.2 57.0 74.1(h) 224.3 Interest expense -- non-cash(l)............... 9.4 5.8 -- 15.2 Amortization of debt issuance costs(l)........ 6.4 5.5 1.5(h) 13.4 Loss on disposal of assets.................... 1.8 -- -- 1.8 Provision for earthquake loss................. 11.0 4.5 -- 15.5 ----------- ------------ ----------- --------- Earnings (loss) before income tax provision(o)............................. 29.1 (0.0) (116.0) (86.9 ) Income tax expense (benefit).................... (108.0) 2.7 105.3(i) -- ----------- ------------ ----------- --------- Net earnings (loss)(m)..................... $ 137.1 $ (2.7) $(221.3) $ (86.9 ) ========= ========= ========= ======== Preferred stock accretion....................... -- 8.8 (8.8)(j) -- Earnings (loss) applicable to common shares................................... $ 137.1 $ (11.5) $(212.5) $ (86.9 ) ========= ========= ========= ======== Ratio of earnings to fixed charges(k)(l)... 1.2x 1.0x -- ========= ========= ========
See Notes to Unaudited Pro Forma Combined Statement of Operations. 33 45 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- CONTINUED (DOLLARS IN MILLIONS)
28 WEEKS ENDED --------------------------- RALPHS FOOD 4 LESS (HISTORICAL) (HISTORICAL) (UNAUDITED) (UNAUDITED) JANUARY 29, JANUARY 7, PRO FORMA PRO FORMA 1995 1995 ADJUSTMENTS COMBINED ----------- ------------- ----------- --------- Sales.......................................... $ 1,483.6 $ 1,404.7 $(120.7)(a) $2,767.6 Cost of sales.................................. 1,144.5 1,167.2 (99.3)(a) 2,214.6 2.3(b) (0.8)(c) 0.7(d) ----------- ------------- ----------- --------- Gross profit.............................. 339.1 237.5 (23.6) 553.0 Selling, general and administrative expenses(n).................................. 254.7 199.2 (18.7)(a) 442.1 4.4(b) 1.3(d) 0.9(e) 0.3(f) Amortization of excess cost over net assets acquired..................................... 5.9 4.2 5.8(g) 15.9 Provision for restructuring.................... 0.0 5.1 -- 5.1 ----------- ------------- ----------- --------- Operating income.......................... 78.5 29.0 (17.6) 89.9 Other expenses: Interest expense -- cash(l).................. 53.2 31.6 37.7(h) 122.5 Interest expense -- non-cash(l).............. 4.9 3.0 -- 7.9 Amortization of debt issuance costs(l)....... 3.2 3.1 0.6(h) 6.9 Loss (gain) on disposal of assets............ 0.8 (0.5) -- 0.3 ----------- ------------- ----------- --------- Earnings (loss) before income tax provision(o)............................ 16.4 (8.2) (55.9) (47.7 ) Income tax expense (benefit)................... 0.0 0.5 (0.5)(i) 0.0 ----------- ------------- ----------- --------- Net earnings (loss)(m).................... $ 16.4 $ (8.7) $ (55.4) $ (47.7 ) ========= ========== ========= ======== Preferred stock accretion...................... -- 5.6 (5.6)(j) -- Earnings (loss) applicable to common shares.................................. $ 16.4 $ (14.3) $ (49.8) $ (47.7 ) ========= ========== ========= ======== Ratio of earnings to fixed charges(k)(l)........................... 1.2x -- -- ========= ========== ========
See Notes to Unaudited Pro Forma Combined Statement of Operations. 34 46 NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (a) Reflects the anticipated closing or divestiture of 32 stores. Does not give effect to the closure of 2 Food 4 Less stores open at October 1, 1994 which were subsequently closed. Food 4 Less has determined that there is no impairment of existing goodwill related to the store closures based on its projection of future undiscounted cash flows. (b) Represents the additional depreciation expense associated with the purchase price allocation to property, plant and equipment of $160.0 million based on the current estimate of fair market value. Property, plant and equipment is being depreciated over an average useful life of 13 years. Depreciation expense has been allocated among cost of sales and selling, general and administrative expenses. (c) Reflects the elimination of Ralphs historical LIFO provision. (d) Reflects depreciation expense associated with approximately $36.8 million of additional fixed assets required for the conversion of 23 Ralphs stores to the Food 4 Less warehouse format and 122 Alpha Beta, Boys and Viva stores to the Ralphs format. (e) Reflects additional Yucaipa management fees ($2.0 million for the 52 weeks ended June 25, 1994 and $1.1 million for the 28 weeks ended January 7, 1995) and the elimination of an annual guarantee fee ($0.4 million for the 52 weeks ended June 25, 1994 and $0.2 million for the 28 weeks ended January 7, 1995) paid by Ralphs to EJDC. (f) Reflects increased compensation resulting from new employment agreements with certain of the current executive officers of Ralphs. (g) Reflects the amortization of the excess of cost over net assets acquired in the Merger ($21.7 million for the 52 weeks ended June 25, 1994 and $11.7 million for the 28 weeks ended January 7, 1995) and elimination of Ralphs' historical amortization ($11.0 million for the 52 weeks ended June 25, 1994 and $5.9 million for the 28 weeks ended January 7, 1995). Amortization has been calculated on the straight line basis over a period of 40 years. (h) The following table presents a reconciliation of pro forma interest expense and amortization of deferred financing costs:
52 WEEKS 28 WEEKS ENDED ENDED JUNE 25, 1994 JANUARY 7, 1995 ------------- --------------- Historical interest expense -- cash...................................... $ 150.2 $ 84.8 ------ ------ Plus: Interest on borrowings under: New Credit Facility.................................................. 79.8 42.9 New F4L Senior Notes................................................. 33.2 17.9 New Notes............................................................ 48.9 26.4 Other bank fees...................................................... 3.5 1.9 Other debt........................................................... 2.0 1.8 Less: Interest on borrowings under: Old bank term loans: Ralphs............................................................. (21.3) (13.7) Food 4 Less........................................................ (11.5) (6.9) Old RGC Notes........................................................ (43.9) (23.6) Other debt........................................................... (16.6) (9.0) ------ ------ Pro forma adjustment................................................... 74.1 37.7 ------ ------ Pro forma interest expense -- cash....................................... $ 224.3 $ 122.5 ============ ============== Historical amortization of debt issuance costs........................... $ 11.9 $ 6.3 Plus: Financing and exchange/consent fees.................................. 9.0 4.8 Other fees and expenses.............................................. 3.9 2.1 Less: Historical financing costs: Ralphs............................................................... (6.1) (3.2) Food 4 Less.......................................................... (5.3) (3.1) ------ ------ Pro forma adjustment................................................... 1.5 0.6 ------ ------ Pro forma amortization of debt issuance costs............................ $ 13.4 $ 6.9 ============ ==============
(i) Represents the elimination of the historical income tax benefit of Ralphs ($108.0 million for the 52 weeks ended June 25, 1994) and Food 4 Less income tax expense ($2.7 million for the 52 weeks ended June 25, 1994 and $0.5 million for the 28 weeks ended January 7, 1995) given expected pro forma losses. The Company's ability to recognize income tax benefits may be limited in accordance with Financial Accounting Standard No. 109 "Accounting for Income Taxes." As such, no income tax benefit has been reflected in these pro forma financial statements. See "Certain Federal Income Tax Considerations." (j) Reflects cancellation of cumulative convertible preferred stock of Food 4 Less held by Holdings. (k) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary item and fixed charges before capitalized interest. "Fixed charges" consist of 35 47 interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). The Company's pro forma earnings were inadequate to cover pro forma fixed charges for the 52 weeks ended June 25, 1994 and for the 28 weeks ended January 7, 1995 by approximately $86.9 million and $47.7 million, respectively. However, such pro forma earnings included non-cash charges of $189.0 million for the 52 weeks ended June 25, 1994 and $99.9 million for the 28 weeks ended January 7, 1995, primarily consisting of depreciation and amortization. (l) Supplemental Pro Forma Adjustments: The table below shows the variations that would occur in the pro forma cash and non-cash interest expense, the amortization of debt issuance costs and the amount of the deficiency of earnings to fixed charges at different participation levels of Old RGC Notes tendered in exchange for New Notes in the Offers (50.1%, 55.1%, 60.1% and 65.1%) and Old F4L Notes tendered into the F4L Exchange Offers (80%, 85%, 90% and 95%). The table also indicates the changes in the foregoing items (at each participation level) that would result from each 25 basis point increase in the interest rate on the New F4L Senior Notes over the assumed rate of 11% and each 25 basis point increase in the interest rate on the New Notes over the assumed rate of 11.50%.
52 WEEK PERIOD 28 WEEK PERIOD --------------------------------- --------------------------------- PARTICIPATION LEVEL(1) PARTICIPATION LEVEL(1) --------------------------------- --------------------------------- 50.1/ 55.1/ 60.1/ 65.1/ 50.1/ 55.1/ 60.1/ 65.1/ 80% 85% 90% 95% 80% 85% 90% 95% ------ ------ ------ ------ ------ ------ ------ ------ Interest expense -- cash........................ $224.3 $224.9 $225.4 $226.0 $122.5 $122.8 $123.1 $123.4 Interest expense -- non-cash.................... 15.2 15.2 15.2 15.2 7.9 7.9 7.9 7.9 Amortization of debt issuance costs............. 13.4 13.5 13.6 13.7 6.9 7.0 7.0 7.1 Deficiency of earnings to fixed charges(2)...... 86.9 87.6 88.2 88.9 47.7 48.1 48.4 48.8 EFFECT OF EACH 25 BASIS POINT INCREASE IN THE INTEREST RATE ON THE NEW F4L SENIOR NOTES AND NEW NOTES Additional interest expense -- cash............. $ 2.2 $ 2.2 $ 2.3 $ 2.4 $ 1.2 $ 1.2 $ 1.2 $ 1.3 Additional interest expense -- non-cash......... -- -- -- -- -- -- -- -- Additional amortization of debt issuance costs......................................... -- -- -- -- -- -- -- -- Additional deficiency of earnings to fixed charges(2).................................... 2.2 2.2 2.3 2.4 1.2 1.2 1.2 1.3
- --------------- (1) If Food 4 Less receives tenders in excess of the Minimum Exchange in the Offers, Food 4 Less may elect to decrease the amount of New Notes being offered pursuant to the Subordinated Note Public Offering and/or decrease the amount of New F4L Senior Notes being offered pursuant to the Senior Note Public Offering. (2) "Earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary item and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). (m) The unaudited pro forma results of operations for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995 do not include certain one-time non-recurring costs related to (i) severance payments under certain employment contracts with Food 4 Less management totalling $1.4 million that are subject to change of control provisions and the achievement of earnings and sales targets, (ii) costs related to the integration of the Company's operations which are estimated to be $50.0 million over a three-year period, (iii) $1.8 million in costs related to the cancellation of an employment agreement, or (iv) other costs related to warehouse closures, which costs are not presently determinable. (n) Pro forma combined selling, general and administrative expenses for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995 include reduced employer contributions of $25.8 million and $20.5 million, respectively, related to union health and welfare benefit plans. (o) The pro forma combined loss before income tax provision for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995 includes reductions in self insurance reserves of $26.4 million and $21.5 million, respectively. (p) "EBITDA," as defined and presented historically by RGC, represents net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, post-retirement benefits, the LIFO charge, provision for restructuring, provision for earthquake losses, a one-time charge for Teamsters Union sick pay benefits, transition expense and gains and losses on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 36 48 The following table presents a reconciliation of pro forma EBITDA (as defined):
28 WEEKS ENDED 52 WEEKS ENDED JANUARY 7, JUNE 25, 1994 1995 -------------- -------------- Historical EBITDA: Ralphs EBITDA...................................................... $228.1 $126.0 EBITDA margin(1)................................................. 8.4% 8.5% Food 4 Less EBITDA................................................. $130.5 $ 69.4 EBITDA margin.................................................... 5.0% 4.9% Less: Pro Forma Adjustments(2)....................................... $(61.1) $ (6.1) ------ ------ Pro Forma EBITDA..................................................... $342.5 $189.3 =============== =============== Pro Forma EBITDA margin............................................ 6.8% 6.8% =============== ===============
- --------------- (1) EBITDA margin represents EBITDA (as defined) as a percentage of sales. (2) Reflects primarily EBITDA (as defined) associated with closed or divested stores and the adjustments referred to in notes (e) and (f) above. 37 49 UNAUDITED PRO FORMA COMBINED BALANCE SHEET (DOLLARS IN MILLIONS)
RALPHS FOOD 4 LESS (HISTORICAL) (HISTORICAL) (AUDITED) (UNAUDITED) JANUARY 29, JANUARY 7, PRO FORMA 1995 1995 ADJUSTMENTS PRO FORMA ----------- ----------- ----------- --------- ASSETS Current assets: Cash and cash equivalents..................... $ 35.1 $ 15.8 $ 0.0(a) $ 50.9 Accounts receivable........................... 43.6 26.8 -- 70.4 Inventories................................... 221.4 223.2 39.9(b) 484.5 Prepaid expense and other current assets...... 19.8 17.6 -- 37.4 ----------- ----------- ----------- --------- Total current assets.................. 319.9 283.4 39.9 643.2 Investments..................................... 0.0 12.4 -- 12.4 Property, plant and equipment................... 624.7 370.2 160.0(c) 1,130.1 (22.8)(d) (2.0)(e) Excess of cost over net assets acquired, net.... 365.4 263.7 501.4(f) 1,130.5 Beneficial lease rights......................... 49.2 0.0 -- 49.2 Deferred debt issuance costs, net............... 23.0 25.5 88.4(g) 94.1 (42.8)(h) Deferred income taxes........................... 112.5 0.0 (112.5)(i) 0.0 Other assets.................................... 15.2 29.4 (12.9)(d) 36.7 5.0(j) ----------- ----------- ----------- --------- Total assets.......................... $ 1,509.9 $ 984.6 $ 601.7 $3,096.2 ======== ========= ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current maturities of long-term debt.......... $ 84.0 $ 25.9 $ (83.1)(k) $ 26.8 Short-term debt............................... 51.5 0.0 (51.5)(l) 0.0 Accounts payable.............................. 176.6 165.0 -- 341.6 Accrued expenses.............................. 99.8 108.8 (14.8)(m) 200.3 4.7(d) 1.8(n) Current portion of self-insurance reserves.... 27.5 28.6 -- 56.1 ----------- ----------- ----------- --------- Total current liabilities............. 439.4 328.3 (142.9) 624.8 Long-term debt.................................. 883.0 525.5 562.0(o) 1,970.5 Self-insurance reserves......................... 44.9 50.7 -- 95.6 Deferred income taxes........................... 0.0 14.7 -- 14.7 Lease valuation reserve......................... 29.0 0.0 -- 29.0 Other non-current liabilities................... 86.4 5.0 (27.8)(p) 77.6 11.0(q) 3.0(e) ----------- ----------- ----------- --------- Total liabilities..................... 1,482.7 924.2 405.3 2,812.2 ----------- ----------- ----------- --------- Stockholders' equity: Preferred Stock............................... 0.0 64.5 (64.5)(r) 0.0 Common Stock.................................. 0.3 0.0 (0.3)(s) 0.0 Additional paid-in capital.................... 175.2 107.7 64.5(r) 464.3 10.0(p) 100.0(t) 32.1(u) 150.0(s) (175.2)(v) Notes receivable from shareholders of parent..................................... 0.0 (0.7) -- (0.7 ) Retained deficit.............................. (148.3) (108.9) (22.6)(w) (173.7 ) 148.3(v) (40.4)(d) (1.8)(n) Treasury stock................................ 0.0 (2.2) (3.7)(x) (5.9 ) ----------- ----------- ----------- --------- Total stockholder's equity(y)......... 27.2 60.4 196.4 284.0 ----------- ----------- ----------- --------- Total liabilities and stockholder's equity.............................. $ 1,509.9 $ 984.6 $ 601.7 $3,096.2 ======== ========= ========= ========
See Notes to Unaudited Pro Forma Combined Balance Sheet. 38 50 NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (a) Reflects gross proceeds received from (i) the New Term Loans, (ii) the New Revolving Facility, (iii) the New Equity Investment and (iv) the Public Offerings used to retire certain debt and liabilities and to pay financing costs and other related fees as set forth in the following table: New Term Loans............................................................................ $ 750.0 New Revolving Facility.................................................................... 54.5 New F4L Senior Notes...................................................................... 295.0 New Notes................................................................................. 200.0 New Equity Investment..................................................................... 140.0 New Discount Debentures................................................................... 59.0 Purchase Discount Notes................................................................... (83.9) Purchase RSI Common Stock................................................................. (375.9) Repay Ralphs 1992 Credit Agreement........................................................ (297.4) Repay F4L Credit Agreement................................................................ (174.4) Purchase Old RGC Notes.................................................................... (226.8) Pay EAR liability......................................................................... (17.8) Loan to affiliate......................................................................... (5.0) Repay other Ralphs debt................................................................... (188.9) Purchase New Holdings Common Stock........................................................ (3.7) Accrued Interest.......................................................................... (14.8) Fees and Expenses......................................................................... (109.9) ------- Pro forma adjustment.............................................................. $ 0.0 =======
(b) Reflects the elimination of Ralphs historical LIFO reserve ($17.4 million) and the write-up of merchandise inventory ($22.5 million); both to reflect current estimated selling prices less costs of disposal and a reasonable profit allowance for the selling effort of the acquiring company. (c) Reflects the estimated write-up to fair value of Ralphs property, plant and equipment as of the date of the Merger. (d) Reflects estimated restructuring charge associated with closing 29 Food 4 Less conventional supermarkets or warehouse stores and converting 5 Food 4 Less conventional supermarkets to warehouse stores. Pursuant to the settlement agreement with the State of California, 24 Food 4 Less stores (as well as 3 Ralphs stores) must be closed by December 31, 1995. See "Business -- California Settlement Agreement." Although not required by such settlement agreement, an additional 5 under-performing stores selected by the Company also are scheduled to be closed by December 31, 1995. The restructuring charge consists of write-downs of property, plant and equipment ($22.8 million), write-off of the Alpha Beta trademark ($8.6 million), write-off of other assets ($4.3 million), lease termination expenses ($3.1 million), and miscellaneous expense accruals ($1.6 million). The expected cash payments to be made in connection with the restructuring charge total $7.1 million. It is expected that such cash payments will be made by December 31, 1995. The estimated restructuring charge will be recorded as an expense once the Merger is completed. No additional expenses are expected to be incurred in future periods in connection with these closings. Food 4 Less has determined that there is no impairment of existing goodwill related to the store closures based on its projections of future undiscounted cash flows. (e) Reflects the anticipated closing of 3 Ralphs stores. (f) Reflects the excess of costs over the fair value of the net assets of Ralphs acquired in connection with the Merger ($866.8 million) and the elimination of Ralphs historical excess of costs over the fair value of the net assets acquired ($365.4 million). The purchase price and preliminary calculation of the excess of cost over the net book value of assets acquired is as follows: Purchase price: Purchase of outstanding common equity................................................... $ 525.9 Fees and expenses....................................................................... 55.8 ------- Total purchase price.................................................................... $ 581.7 ------- Purchase price is financed by: Seller Debentures....................................................................... $ 131.5 New Discount Debentures................................................................. 18.5 New Equity Investment................................................................... 140.0 New borrowings.......................................................................... 291.7 ------- $ 581.7 ====== Preliminary calculation of purchase price allocated to assets and liabilities based on management's estimate of fair values as of January 29, 1995: Cash.................................................................................... $ 35.1 Receivables............................................................................. 43.6 Inventories............................................................................. 261.3 Other current assets.................................................................... 19.8 Property, fixtures and equipment........................................................ 782.7 Beneficial lease rights................................................................. 49.2 Goodwill................................................................................ 866.8 Other assets............................................................................ 18.0 Current liabilities..................................................................... (424.8) Obligations under capital leases........................................................ (89.1) Long-term debt.......................................................................... (806.6) Other non-current liabilities........................................................... (174.3) ------- $ 581.7 ======
39 51 Pro forma book value of historical assets acquired: Historical net book value at January 29, 1995...................................... $ 27.2 Less book value of historical assets with no value at the acquisition date: Historical deferred tax asset.................................................... 112.5 Historical goodwill.............................................................. 365.4 Historical deferred debt costs................................................... 20.2 (498.1) ----- -------- Negative pro forma book value of net assets acquired............................. 470.9 Purchase price..................................................................... 581.7 -------- Excess of purchase price to be allocated........................................... $1,052.6 =======
Excess allocated to: Inventories........................................................................ $ 39.9 Property, fixtures and equipment................................................... 160.0 Goodwill........................................................................... 866.8 Other non-current liabilities...................................................... (14.1) -------- $1,052.6 =======
(g) Reflects the debt issuance costs associated with the New Credit Facility ($33.4 million), the Offers ($2.2 million), the F4L Exchange Offers ($2.6 million), the Senior Note Public Offering ($8.9 million) and the Subordinated Note Public Offering ($6.0 million), the cash exchange payments associated with the Offers ($4.5 million) and the F4L Exchange Offers ($3.0 million) and other financing costs ($27.8 million). These amounts have been capitalized as deferred financing costs. (h) Reflects the elimination of deferred debt issuance costs associated with the Ralphs 1992 Credit Agreement (as defined) ($6.3 million), the F4L Credit Agreement (as defined) ($9.2 million), the Old RGC Notes ($10.4 million) and the Old F4L Notes ($13.4 million) and other indebtedness of RGC and Food 4 Less ($3.5 million) to be repaid in connection with the Merger. (i) Reflects the elimination of Ralphs deferred tax asset associated with changes in the financial reporting basis of assets. The combined Company may be required to record a valuation allowance on all or some deferred tax assets in compliance with Financial Accounting Standard No. 109 "Accounting for Income Taxes." This determination may be based, in part, on historical or expected earnings. For purposes of these pro forma financial statements it has been assumed that all deferred net tax assets have been fully reserved. (j) Represents a loan to a corporation owned by Yucaipa affiliates. The corporation will invest the proceeds in a partnership that will purchase New Discount Debentures. All proceeds received by the Company from the repayment of the loan will be paid to former holders of the Ralphs EARs in satisfaction of the deferred EAR liability. See "Certain Relationships and Related Transactions -- Food 4 Less." (k) Reflects the repayment and cancellation of the current maturities of Ralphs 1992 Credit Agreement ($65.0 million), the F4L Credit Agreement ($19.8 million), certain other Ralphs debt ($2.1 million) and the recording of the current maturities of the New Credit Facility ($3.8 million). (l) Reflects the repayment of Ralphs' old revolving credit facility. (m) Reflects the payment of accrued interest on the Ralphs 1992 Credit Agreement ($1.5 million), the F4L Credit Agreement ($1.7 million), the Old RGC Notes ($5.5 million), the Old F4L Notes ($4.5 million) and other indebtedness of RGC and Food 4 Less ($1.6 million) to be repaid in connection with the Merger. (n) Represents the liability to an executive under his employment contract due to a change of control provision. (o) Reflects the repayment and cancellation of the Ralphs 1992 Credit Agreement and the F4L Credit Agreement and the repayment of certain other Ralphs debt, and records borrowings under the New Credit Facility as set forth in the table below: New Term Loans............................................................................ $ 746.2 New Revolving Facility.................................................................... 54.5 New F4L Senior Notes...................................................................... 295.0 New Notes................................................................................. 200.0 Repay Ralphs 1992 Credit Agreement........................................................ (180.0) Repay F4L Credit Agreement................................................................ (154.6) Purchase Old RGC Notes.................................................................... (224.5) Repay other Ralphs debt................................................................... (174.6) ------- Net pro forma adjustment.......................................................... $ 562.0 =======
(p) Reflects payments with respect to a portion of the Ralphs EAR liability ($17.8 million) and the issuance of New Holdings stock options in consideration of the cancellation of the remaining Ralphs EAR liability ($10.0 million). See "Executive Compensation -- Equity Appreciation Rights Plan." No future compensation expense will be recorded as the cancellation of certain EAR liabilities ($10.0 million) in consideration for the issuance of New Holdings stock options is deemed to reflect fair value. (q) Reflects a reserve for Ralphs unfunded defined benefit pension plan, determined as the difference between the projected benefit obligation of the plans as compared to the fair value of plan assets, less amounts previously accrued. (r) Reflects cancellation of cumulative convertible preferred stock of Food 4 Less held by Holdings. (s) Reflects the contribution by New Holdings of RSI stock acquired through the issuance of $131.5 million aggregate principal amount of the Seller Debentures and $18.5 million initial accreted value of the New Discount Debentures. 40 52 (t) Reflects the contribution by New Holdings of RSI stock acquired with $100 million of the cash proceeds from the New Equity Investment. (u) Reflects the contribution by New Holdings of $12.1 million in cash proceeds from the New Equity Investment and the satisfaction by New Holdings, through the issuance of New Discount Debentures, of $20.0 million in fees otherwise payable by the Company in connection with the Merger and the Financing. (v) Reflects the elimination of Ralphs historical equity. (w) Represents the write-off of the historical deferred debt issuance costs of Food 4 Less related to its refinanced debt. (x) Represents the purchase of shares of New Holdings common stock from stockholders who have exercised statutory dissenters' rights in connection with the FFL Merger. There are no other shares subject to statutory dissenters' rights. (y) The unaudited pro forma combined balance sheet as of January 7, 1995 does not include certain one-time non-recurring costs related to (i) severance payments under certain employment contracts with Food 4 Less management totaling $1.4 million that are subject to change of control provisions and the achievement of earnings and sales targets, (ii) costs related to the integration of the Company's operations which are estimated to be $50.0 million (includes an estimated $12.0 million related to termination and severance costs) over a three-year period, (iii) other costs related to warehouse closures, which costs are not presently determinable, or (iv) any contingent liability to reimburse Yucaipa in the event it incurs a loss on the resale of $10 million principal amount of Seller Debentures. 41 53 SELECTED HISTORICAL FINANCIAL DATA OF RALPHS The following table presents selected historical financial data of RGC (as the predecessor of RSI) as of and for the 53 weeks ended February 3, 1991, and the 52 weeks ended February 2, 1992, and summary historical financial data of RSI for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29, 1995, which have been derived from the financial statements of RSI and RGC audited by KPMG Peat Marwick LLP, independent certified public accountants. The following information should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of RSI and RGC and related notes thereto included elsewhere in this Amended and Restated Prospectus and Solicitation Statement.
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED ENDED FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29, 1991 1992 1993 1994 1995 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN MILLIONS) OPERATING DATA: Sales..................................................... $ 2,799.1 $ 2,889.2 $ 2,843.8 $ 2,730.2 $ 2,724.6 Cost of sales............................................. 2,225.4 2,275.2 2,217.2 2,093.7 2,101.0 ----------- ----------- ----------- ----------- ----------- Gross profit.............................................. 573.7 614.0 626.6 636.5 623.6 Selling, general and administrative expenses(a)........... 438.0 459.2 470.0 471.0 467.0 Provision for equity appreciation rights.................. 15.3 18.3 -- -- -- Amortization of excess of cost over net assets acquired... 11.0 11.0 11.0 11.0 11.0 Provisions for restructuring and tax indemnification payments(b)............................................. -- 10.0 7.1 2.4 -- ----------- ----------- ----------- ----------- ----------- Operating income.......................................... 109.4 115.5 138.5 152.1 145.6 Interest expense(c)....................................... 128.5 130.2 125.6 108.8 112.7 Loss on disposal of assets and provisions for legal settlement and earthquake losses(d)..................... 6.4 13.0 10.1 12.9 0.8 Income tax expense (benefit).............................. 12.8 13.5 8.3 (108.0)(e) -- Cumulative effect of change in accounting for postretirement benefits other than pensions............. (13.1) -- -- -- -- Extraordinary item-debt refinancing, net of tax benefits................................................ -- -- (70.6) -- -- ----------- ----------- ----------- ----------- ----------- Net earnings (loss)(f).................................... $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 32.1 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges(g)..................... --(g) --(g) 1.02x 1.24x 1.24x BALANCE SHEET DATA (end of period): Working capital surplus (deficit)......................... $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5) Total assets.............................................. 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9 Total debt(h)............................................. 986.1 941.9 1,029.8 998.9 1,018.5 Redeemable stock.......................................... 3.0 3.0 -- -- -- Stockholders' equity (deficit)............................ (16.0) (57.2) (133.3) 5.1 27.2 OTHER DATA: Depreciation and amortization(i).......................... $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0 Capital expenditures...................................... 87.6 50.4 102.7 62.2 64.0 Stores open at end of period.............................. 150 158 159 165 173 EBITDA (as defined)(j).................................... $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2 EBITDA margin(k).......................................... 7.4% 7.8% 8.0% 8.4% 8.4%
- --------------- (a) Includes provision for post retirement benefits other than pensions of $2.2 million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and January 29, 1995, respectively. (b) Provisions for restructuring are charges for expenses relating to closing of Ralphs central bakery operation. The charge reflected the complete write-down of the bakery building, machinery and equipment, leaseholds, related inventory and supplies, and providing severance pay to terminated employees. These charges were $7.1 million and $2.4 million for the 52 weeks ended January 31, 1993 and the 52 weeks ended January 30, 1994, respectively. Provision for tax indemnification payments to Federated were $10.0 million for the 52 weeks ended February 2, 1992. (c) Interest expense includes non-cash charges related to the amortization of deferred debt issuance costs of $4.1 million for the 53 weeks ended February 3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995, respectively. (d) Loss on disposal of assets was $6.4 million, $13.0 million, $2.6 million, $1.9 million and $0.8 million for the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and January 29, 1995, respectively. The 52 weeks ended February 2, 1992 includes approximately $12.2 million representing a reserve against losses related to the closing of three stores. Provision for legal settlement was $7.5 million for the 52 weeks ended January 31, 1993. Provision for earthquake losses was $11.0 million for the 52 weeks ended January 30, 1994. This represents reserve for losses, net of anticipated insurance recoveries, resulting from the January 17, 1994 Southern California earthquake. (e) Includes recognition of $109.1 million of deferred income tax benefit and $1.1 million current income tax expense for Fiscal 1993 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.). (f) Net earnings (loss) includes a pre-tax provision for self insurance, which is classified in cost of sales, selling, general and administrative expenses and interest expense, of $29.2 million, $31.2 million, $36.9 million, $36.3 million, and $20.0 million, for the 53 weeks ended February 3, 1991, the 52 weeks 42 54 ended February 2, 1992, the 52 weeks ended January 31, 1993, the 52 weeks ended January 30, 1994 and the 52 weeks ended January 29, 1995, respectively. Included in the 52 weeks ended January 30, 1994 and the 52 weeks ended January 29, 1995 are reduced employer contributions of $11.8 million and $12.7 million, respectively, related to union health and welfare benefit plans. (g) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, cumulative effect of change in accounting principles, extraordinary items and fixed charges before capitalized interest. "Fixed charges" consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 53 weeks ended February 3, 1991 and the 52 weeks ended February 2, 1992 by $25.5 million and $27.7 million, respectively. (h) Total debt includes long-term debt, current maturities of long-term debt, short-term debt and capital lease obligations. (i) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation and amortization includes amortization of the excess of cost over net assets acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and $11.0 million, respectively. (j) "EBITDA," as defined and presented historically by RGC, represents net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provisions for Equity Appreciation Rights, provision for tax indemnification payments to Federated, provision for postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses, a one-time charge for Teamsters Union sick pay benefits, transition expense and gains and losses on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Ralphs' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (k) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 43 55 SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS The following table presents selected historical financial data of Food 4 Less as of and for the 53 weeks ended June 30, 1990 and the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994 which have been derived from the financial statements of Food 4 Less audited by Arthur Andersen LLP, independent public accountants. The summary historical financial data of Food 4 Less presented below as of and for the 28 weeks ended January 8, 1994 and January 7, 1995 have been derived from unaudited interim financial statements of Food 4 Less which, in the opinion of management, reflect all material adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of Food 4 Less and related notes thereto included elsewhere in this Amended and Restated Prospectus and Solicitation Statement.
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 28 WEEKS 28 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED ENDED JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7, 1990 1991(A) 1992 1993 1994(B) 1994 1995 -------- -------- -------- -------- -------- ------------- ------------- (DOLLARS IN MILLIONS) (UNAUDITED) OPERATING DATA: Sales...................... $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $1,416.2 $1,404.7 Cost of sales.............. 1,113.4 1,340.9 2,392.7 2,257.8 2,115.9 1,154.0 1,167.2 -------- -------- -------- -------- -------- ------------- ------------- Gross profit............... 204.8 265.7 520.8 484.2 469.3 262.2 237.5 Selling, general, administrative and other expenses................. 157.8 213.1 469.7 434.9 388.8 221.5 199.2 Amortization of excess cost over net assets acquired................. 5.3 5.3 7.8 7.6 7.7 4.1 4.2 Restructuring charge....... -- -- -- -- -- -- 5.1(d) -------- -------- -------- -------- -------- ------------- ----------- Operating income........... 41.7 47.3 43.3 41.7 72.8 36.6 29.0 Interest expense(c)........ 50.8 50.1 70.2 69.8 68.3 36.8 37.7 Loss (gain) on disposal of assets................... -- 0.6 (1.3 ) (2.1 ) -- 0.1 (0.5) Provision for earthquake losses................... -- -- -- -- 4.5 -- -- Provision for income taxes.................... 1.0 2.5 3.4 1.4 2.7 0.7 0.5 Extraordinary charge....... -- 3.7(f) 4.8(g) -- -- -- -- -------- -------- -------- -------- -------- ------------- ------------- Net loss(e)................ $ (10.1) $ (9.6) $ (33.8) $ (27.4) $ (2.7) $ (1.0) $ (8.7) ======== ======== ======== ======== ======== =========== =========== Ratio of earnings to fixed charges(h)............... -- (h) -- (h) -- (h) -- (h) 1.0x -- (h) -- (h) BALANCE SHEET DATA (end of period)(i): Working capital surplus (deficit)................ $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (14.9) $ (44.8) Total assets............... 574.7 980.0 998.5 957.8 980.1 969.6 984.6 Total debt(j).............. 360.7 558.9 525.3 538.1 517.9 521.3 551.4 Redeemable stock........... 5.1 -- -- -- -- -- -- Stockholder's equity....... 20.6 84.6 50.8 72.9 69.0 71.2 60.4 OTHER DATA: Depreciation and amortization(k).......... $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 30.4 $ 30.8 Capital expenditures....... 36.4 34.7 60.3 53.5 57.5 20.4 39.0 Stores open at end of period................... 115 259 249 248 258 249 266 EBITDA (as defined)(l)..... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 69.1 $ 69.4 EBITDA margin(m)........... 5.3% 5.0% 3.5% 3.9% 5.0% 4.9% 4.9%
- --------------- (a) Operating data for the 52 weeks ended June 29, 1991 include the results of Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha Beta's sales for the two weeks ended June 29, 1991 were $59.2 million. (b) Operating data for the 52 weeks ended June 25, 1994 include the results of the Food Barn stores, which were not material, from March 29, 1994, the date of the acquisition of the Food Barn stores. (c) Interest expense includes non-cash charges related to the amortization of deferred financing costs of $4.1 million for the 53 weeks ended June 30, 1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June 26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $2.9 million for the 28 weeks ended January 8, 1994 and $3.1 million for the 28 weeks ended January 7, 1995. (d) Represents the recording of a restructuring charge for the write-off of property and equipment in connection with the conversion of 11 conventional format supermarkets to warehouse format stores. (e) Net loss includes a pre-tax provision for self insurance, which is classified in cost of sales, selling, general and administrative expenses, and interest expense of $11.2 million, $15.1 million, $51.1 million, $43.9 million, $25.7 million, $24.8 million, and $14.9 million for the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25, 1994, the 28 weeks 44 56 ended January 8, 1994 and the 28 weeks ended January 7, 1995, respectively. Included in the 52 weeks ended June 25, 1994, the 28 weeks ended January 8, 1994 and the 28 weeks ended January 7, 1995 are reduced employer contributions of $8.1 million, $2.8 million and $13.7 million, respectively, related to union health and welfare plans. (f) Represents an extraordinary charge of $3.7 million (net of related income tax benefit of $2.5 million) relating to the refinancing of certain indebtedness in connection with the Alpha Beta acquisition and the write-off of related debt issuance costs. (g) Represents an extraordinary net charge of $4.8 million reflecting the write-off of $6.7 million (net of related income tax benefit of $2.5 million) of deferred debt issuance costs as a result of the early redemption of a portion of Food 4 Less' term loan facility under the F4L Credit Agreement, partially offset by a $1.9 million extraordinary gain (net of a related income tax expense of $0.7 million) on the replacement of partially depreciated assets following the civil unrest in Los Angeles. (h) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of loss before provision for income taxes and extraordinary charges, plus fixed charges. "Fixed charges" consist of interest on all indebtedness, amortization of deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993 and the 28 weeks ended January 8, 1994 and January 7, 1995 by approximately $9.1 million, $3.4 million, $25.6 million, $25.9 million, $0.3 million and $8.2 million, respectively. However, such earnings included non-cash charges of $29.9 million for the 53 weeks ended June 30, 1990, $37.0 million for the 52 weeks ended June 29, 1991, $61.2 million for the 52 weeks ended June 27, 1992 and $62.5 million for the 52 weeks ended June 26, 1993, $33.3 million for the 28 weeks ended January 8, 1994 and $39.0 million for the 28 weeks ended January 7, 1995, primarily consisting of depreciation and amortization. (i) Balance sheet data as of June 30, 1990 relate to Food 4 Less and include the effect of the BHC Acquisition, as well as the acquisitions of Bell Markets, Inc. and certain assets of ABC Market Corp. Balance sheet data as of June 29, 1991, June 27, 1992, June 26, 1993 and January 8, 1994 relate to Food 4 Less and reflect the Alpha Beta acquisition and the financings and refinancings associated therewith. Balance sheet data as of June 25, 1994 and January 7, 1995 relate to Food 4 Less and reflect the acquisition of the Food Barn stores. (j) Total debt includes long-term debt, current maturities of long-term debt and capital lease obligations. (k) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994, and the 28 weeks ended January 8, 1994 and January 7, 1995, depreciation and amortization includes amortization of excess of cost over net assets acquired of $5.3 million, $5.3 million, $7.8 million, $7.6 million, $7.7 million, $4.1 million and $4.2 million, respectively. (l) "EBITDA," as defined and presented historically by Food 4 Less, represents income before interest expense, depreciation and amortization expense, the LIFO provision, provision for incomes taxes, provision for earthquake losses and the one-time adjustment to the Teamsters Union sick pay accrual. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Food 4 Less' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (m) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 45 57 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The combination of Ralphs and Food 4 Less will create the largest supermarket operator in Southern California with an estimated 264 conventional format Ralphs stores and an estimated 68 price-impact Food 4 Less warehouse format stores. The Company will operate an additional 63 stores in Northern California and certain areas of the Midwest. Management believes that the Company's dual format strategy will appeal to a broad range of Southern California consumers and enable the Company to significantly enhance its overall competitive position. In addition, the Company expects to achieve cost savings and incremental profitability through the integration of advertising, administration, purchasing, distribution, manufacturing and other operations. Due to its increased size, dual format strategy and integration related costs, the Company believes that its future operating results may not be directly comparable to the historical operating results of either Ralphs or Food 4 Less. Certain factors which are expected to affect the future operating results of the Company (or their comparability to prior periods) are discussed below. Regional Economic Conditions. In recent periods Ralphs and Food 4 Less have each been affected by the adverse economic conditions that have existed in Southern California since approximately 1991. These conditions were exacerbated by the substantial layoffs in the defense and aerospace industries and by the civil unrest in Los Angeles in April, 1992. In addition, management estimates that approximately eight million square feet of supermarket selling space has been added in Southern California over the past five years. As a result of these factors and general deflationary pressures in certain food product categories, Ralphs and Food 4 Less have each experienced declining comparable store sales in recent periods. Over the last three fiscal years, Food 4 Less' and Ralphs' total sales declined by 11.3% and 4.2%, respectively, however, both Food 4 Less' and Ralphs' comparable store sales declines have begun to moderate in recent months. Despite these adverse sales trends, however, each company has improved its profitability over the same period as discussed in greater detail below. Although data indicate a mild recovery in the Southern California economy and management believes that overall sales trends in Southern California should improve along with the economy, there can be no assurance that such improvements will occur. Management believes that its dual format strategy and anticipated cost savings will leave it well positioned to take advantage of improvements in the regional economy and growing population and to compete effectively in the Southern California marketplace. See "Risk Factors -- Regional Economic Conditions." Integration Costs and Restructuring Charges. The two principal components of the Company's integration strategy will be (i) the conversion of up to 122 of Food 4 Less' conventional stores (primarily Alpha Beta stores) to the Ralphs name and format and the conversion of 16 other (Boys and Viva) Food 4 Less conventional stores (11 of which were recently completed) and 23 Ralphs stores to the Food 4 Less price impact warehouse format; and (ii) the achievement of substantial cost savings through the consolidation of warehousing, manufacturing and distribution operations and the elimination of certain other duplicative overhead costs. Management has estimated that approximately $90 million of net annual cost savings (as compared to such costs for the pro forma combined fiscal year ended June 25, 1994) are achievable by the end of the fourth year of combined operations. Although a portion of the anticipated cost savings is premised upon the completion of certain capital expenditures, management believes that over 70% of the cost savings could be achieved without making any Merger-related capital expenditures. See "Business -- The Merger" and "Risk Factors -- Ability to Achieve Anticipated Cost Savings." Management believes that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over this four-year period. Management expects that the non-recurring integration costs will effectively offset any cost savings in the first year following the Merger. See "-- Liquidity and Capital Resources." In addition, management anticipates that certain non-recurring costs associated with the integration of operations will be recorded as a restructuring charge. The charge will cover costs associated with the writedown of property and equipment and related reserves associated with the conversion of certain Food 4 Less conventional supermarkets to warehouse stores and the closure of certain Food 4 Less conventional stores as well as the write-off of the Alpha Beta trademark. This restructuring charge has been estimated, for purposes of the pro 46 58 forma financial information included elsewhere herein, at approximately $45.5 million. On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement Agreement (the "Settlement Agreement") with the State of California. See "Business -- California Settlement Agreement." Under the Settlement Agreement, the Company must divest a total of 27 stores (24 Food 4 Less conventional supermarkets or warehouse stores and 3 Ralphs stores). In addition, although not required pursuant to the Settlement Agreement, an additional 5 under-performing stores selected by the Company are scheduled to be closed following the Merger. It is anticipated that such closures and store conversions will be substantially completed by December 31, 1995. The estimated restructuring charge aggregating $45.5 million for the 24 Food 4 Less stores to be divested under the Settlement Agreement, the planned closures (5 Food 4 Less stores) and the conversion of 16 Food 4 Less conventional stores to warehouse format stores reflects (i) the writedown of property, plant and equipment ($27.9 million), (ii) the write-off of the Alpha Beta trademark ($8.6 million), (iii) the write-off of other assets ($4.3 million), (iv) lease termination expense ($3.1 million) and (v) miscellaneous expense accruals ($1.6 million). The expected cash payments to be made in connection with the restructuring charge will total $7.1 million. It is expected that such cash payments will be made by December 31, 1995. As a result of the completion of 11 of the 16 planned Food 4 Less conventional store conversions during the second quarter of the current fiscal year, Food 4 Less has recorded a non-cash restructuring charge of $5.1 million in its results of operations for the 28 weeks ended January 7, 1995. Food 4 Less has determined that there is no impairment of existing goodwill related to the store closures based on its projections of future undiscounted cash flows. The remaining estimated restructuring charge will be recorded as an expense once the Merger is completed. The divestiture of the 3 Ralphs stores pursuant to the Settlement Agreement will be reflected in the allocation of the purchase price and therefore will not give rise to any restructuring charge. Store Mix. Approximately 28% of the Company's total anticipated number of stores following the Merger are expected to be warehouse format stores. Because these stores offer prices that are generally 5-12% below those in Food 4 Less' conventional stores, they produce lower gross profit margins than an average conventional supermarket. As a result, the Company's consolidated gross margin following the Merger is expected to decline from the levels historically reported by Ralphs. In addition, if the percentage of warehouse stores in the overall store mix increases following the Merger, as expected, the Company's consolidated gross margins should also be expected to decline slightly over time. Because of the reduced SG&A (as defined) costs associated with the warehouse format stores, management believes that overall profitability of the warehouse stores is comparable to that of conventional stores. Purchase Accounting. The Merger will be accounted for as a purchase of Ralphs by Food 4 Less. As a result, the assets and liabilities of Ralphs will be recorded at their estimated fair market values on the date the Merger is consummated. The purchase price in excess of the fair market value of Ralphs' assets will be recorded as goodwill and amortized over a forty year period. The purchase price allocation reflected in the pro forma statements is based on management's preliminary estimates. The actual purchase accounting adjustments will be determined following the Merger and may vary from the amounts reflected in the Unaudited Pro Forma Financial Data included elsewhere herein. Fiscal Year and Restatement of Food 4 Less Financial Statements. Food 4 Less and Holdings each have filed a Form 8-K with the Commission to announce that they will adopt Ralphs' fiscal year end for financial reporting purposes. Ralphs' fiscal year ends on the Sunday closest to January 31. In connection with the preparation of this Amended and Restated Prospectus and Solicitation Statement, Food 4 Less elected to restate its historical financial statements to conform to Ralphs' classification of certain expenses. The changes primarily involved the reclassification of certain labor, occupancy and utility costs associated with product deliveries as cost of goods sold, which were previously classified as selling, general, administrative and other expense, net. In addition, depreciation expense, which had been reported separately by Food 4 Less with the amortization of goodwill, was classified as cost of goods sold or selling, general, administrative and other expense, net, as appropriate. The amounts aggregated $236.2 million, $224.5 million, $219.5 million and $114.3 million (unaudited) for the fiscal years ended June 27, 1992, June 26, 1993, June 25, 1994 and the 28 weeks ended January 8, 1994. Food 4 Less has also classified a portion of its self-insurance costs as interest expense that was previously recorded in selling, general, administrative and other expense, net. These self-insurance amounts were reclassified to more completely segregate the interest component of self-insurance 47 59 costs arising from discounting long-term obligations. The amounts reclassified aggregated $5.0 million, $5.9 million, $5.8 million and $3.3 million (unaudited) for the fiscal years ended June 27, 1992, June 26, 1993, June 25, 1994 and the 28 weeks ended January 8, 1994. All historical financial information for Food 4 Less included in this Amended and Restated Prospectus and Solicitation Statement reflects these reclassifications. See Note 14 of Notes to Food 4 Less Consolidated Financial Statements. RESULTS OF OPERATIONS OF RALPHS The following table sets forth the historical operating results of Ralphs for the 52 weeks ended January 31, 1993 ("Fiscal 1992"), January 30, 1994 ("Fiscal 1993") and January 29, 1995 ("Fiscal 1994"):
52 WEEKS ENDED -------------------------------------------------------- JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ---------------- ---------------- ---------------- (IN MILLIONS) Sales............................................... $2,843.8 100.0% $2,730.2 100.0% $2,724.6 100.0% Cost of sales....................................... 2,217.2 78.0 2,093.7 76.7 2,101.0 77.1 Selling, general and administrative expenses........ 470.0 16.5 471.0 17.2 467.0 17.2 Operating income(a)................................. 138.5 4.9 152.1 5.6 145.6 5.3 Net interest expense................................ 125.6 4.4 108.8 4.0 112.7 4.1 Provision for earthquake losses(b).................. -- -- 11.0 0.4 -- -- Income tax expense (benefit)........................ 8.3 0.3 (108.0) (4.0) -- -- Extraordinary item.................................. 70.6 2.5 -- -- -- -- Net earnings (loss)................................. (76.1) (2.7) 138.4 5.1 32.1 1.2
- --------------- (a) Operating income reflects charges of $7.1 million in Fiscal 1992 and $2.4 million in Fiscal 1993, for expenses relating to closing of central bakery operation. The charges reflected the complete write-down of the bakery building, machinery and equipment, leaseholds, related inventory and supplies, and providing severance pay to terminated employees. (b) Represents reserve for losses, net of expected insurance recoveries, resulting from the January 17, 1994 Southern California earthquake. COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 29, 1995 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30, 1994. Sales For the fifty-two weeks ended January 29, 1995, ("Fiscal 1994"), sales were $2,724.6 million, a decrease of $5.6 million or 0.2% from the fifty-two weeks ended January 30, 1994 ("Fiscal 1993"). During Fiscal 1994, Ralphs opened ten new stores (four in Los Angeles County, three in Orange County, one in San Diego County and two in Riverside County), closed two stores (in conjunction with new stores opening in the same areas), and completed five store remodels. Comparable store sales decreased 3.7%, which included an increase of 0.3% for replacement store sales, from $2,707.9 million in Fiscal 1993 to $2,606.4 million in Fiscal 1994. Ralphs sales continued to be adversely affected by the continuing softness of the economy in Southern California, continuing competitive new store and remodeling activity and recent pricing and promotional changes by competitors. Ralphs continued to take steps to mitigate the impact of the weak retailing environment in its markets, which included continuing its own new store and remodeling program and initiating the Ralphs Savings Plan in February 1994, a new marketing campaign specifically designed to enhance customer value. See "Business -- Advertising and Promotion." On January 17, 1994, an earthquake in Southern California caused considerable damage in Los Angeles and surrounding areas. Several Ralphs supermarkets suffered earthquake damage, with 54 stores closed on the morning of January 17th. Thirty-four stores reopened within one day and an additional 17 stores reopened within three days. Three stores in the San Fernando Valley area of Los Angeles suffered major structural damage. All three stores have since reopened for business, with the last reopening on April 15, 1994. Management believes that there was some negative impact on sales resulting from the temporary disruption of business resulting from the earthquake. Ralphs is partially insured for earthquake losses. The pre-tax financial impact, net of expected insurance recoveries, is expected to be approximately $11.0 million and Ralphs 48 60 reserved for this loss in Fiscal 1993. The gross earthquake loss is approximately $25.3 million and the expected insurance recovery is approximately $14.3 million. Cost of Sales Cost of sales increased $7.3 million or 0.3% from $2,093.7 million in Fiscal 1993 to $2,101.0 million in Fiscal 1994. As a percentage of sales, cost of sales increased to 77.1% in Fiscal 1994 from 76.7% in Fiscal 1993. The increase in cost of sales as a percentage of sales included a one-time charge for Teamsters Union sick pay benefits pursuant to a new contract ratified in August 1994 with the Teamsters. The total charge was $2.5 million, of which $2.1 million was included in cost of sales and $0.4 million in selling, general and administrative expense. Increases in cost of sales were partially offset by savings in warehousing and distribution costs, reductions in self-insurance costs, pass-throughs of increased operating costs and increases in relative margins where allowed by competitive conditions. Warehousing and distribution cost savings were primarily attributable to Ralphs' ASRS and PSC facilities along with the ongoing implementation of new computer-controlled programs and labor standards that improved distribution productivity. The ASRS facility can hold substantially more inventory and requires fewer employees to operate than does a conventional warehouse of equal size. This facility has reduced Ralphs' warehousing costs of non-perishable items markedly, enabling it to take advantage of advance buying opportunities and minimize "out-of-stocks." Ralphs engages in forward-buy purchases to take advantage of special prices or to delay the impact of upcoming price increases by purchasing and warehousing larger quantities of merchandise than immediately required. The PSC facility has consolidated the operations of three existing facilities and holds more inventory than the facilities it replaced, thereby reducing Ralphs' warehouse distribution costs. Over the last several years, Ralphs has been implementing modifications in its workers compensation and general liability insurance programs. Ralphs believes that these modifications have resulted in a significant reduction in self-insurance costs for Fiscal 1994. Based on a review of the results of these modifications by Ralphs and its actuaries, adjustments to the accruals for self-insurance costs were made during Fiscal 1994 resulting in a reduction of approximately $18.9 million. Of the total $18.9 million reduction in self-insurance costs, $7.5 million is included in cost of sales and $11.4 million is included in selling, general and administrative expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") decreased $4.0 million or 0.8% from $471.0 million in Fiscal 1993 to $467.0 million in Fiscal 1994. As a percentage of sales, SG&A was 17.2% in Fiscal 1993 and 17.2% in Fiscal 1994. The decrease in SG&A was primarily due to a reduction in contributions to the United Food and Commercial Workers Union ("UFCW") health care benefit plans, due to an excess reserve in these plans, a reduction in self-insurance costs, as discussed above, and the results of cost savings programs instituted by Ralphs. Ralphs is continuing its expense reduction program. The decrease in SG&A was partially offset by several factors including increases in union wage rates, a one-time charge for Teamsters Union sick pay benefits, as discussed above, transition expense relating to the Merger ($1.4 million) and increased rent expense resulting from new stores, including fixture and equipment financing. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During Fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans received a pro rata share of excess reserve in these health care benefit plans through a reduction in current maintenance payments. Ralphs' share of the excess reserve was approximately $24.5 million of which $11.8 million was recognized in Fiscal 1993 and the remainder, $12.7 million, was recognized in Fiscal 1994. Since employers 49 61 are required to make contributions to the benefit funds at whatever level is necessary to maintain plan benefits, there can be no assurance that plan maintenance payments will remain at current levels. Operating Income Operating income in Fiscal 1994 decreased 4.3% to $145.6 million from $152.1 million in Fiscal 1993. Operating margin, defined as operating income as a percentage of sales, was 5.3% in Fiscal 1994 compared to 5.6% in Fiscal 1993. EBITDA, defined as net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provision for postretirement benefits, provision for LIFO expense, gain or loss on disposal of assets, transition expense and a one-time charge for Teamsters Union sick pay benefits, was 8.4% of sales or $230.2 million in Fiscal 1994 and 8.4% of sales or $230.2 million in Fiscal 1993. Net Interest Expense Net interest expense for Fiscal 1994 was $112.7 million versus $108.8 million for Fiscal 1993. Net interest expense increased primarily as a result of increases in interest rates. Included as interest expense during Fiscal 1994 was $97.4 million, representing interest expense on existing debt obligations, capitalized leases and a swap agreement. Comparable interest expense for Fiscal 1993 was $92.8 million. Also included in net interest expense for Fiscal 1994 was $15.3 million representing certain other charges related to amortization of debt issuance costs, self-insurance discounts, lease valuation reserves and other miscellaneous charges (categorized by Ralphs as non-cash interest expense) as compared to $16.0 million for Fiscal 1993. Investment income, which is immaterial, has been offset against interest expense. The continuation of higher interest rates subsequent to the end of Fiscal 1994 has continued to increase interest expense and adversely affect Ralphs' net income. Net Earnings For Fiscal 1994, Ralphs reported net earnings of $32.1 million compared to net earnings of $138.4 million for Fiscal 1993. The decrease in net earnings is primarily the result of decreased operating income, higher interest expense due to increased interest rates, the recognition of $109.1 million of deferred income tax benefit in Fiscal 1993 partially offset by $11.0 million recorded for earthquake losses in Fiscal 1993. Other In February 1994, the Board of Directors of Ralphs authorized a dividend of $10.0 million to be paid to RSI, and the Board of Directors of RSI authorized distribution of this dividend to its shareholders subject to certain restrictive covenants in the instruments governing certain of Ralphs' indebtedness that impose limitations on the declaration or payment of dividends. Ralphs' credit agreement, entered into in 1992 (the "1992 Credit Agreement"), was amended to allow for the payment of the dividend to RSI for distribution to RSI's shareholders. The fee for the amendment was approximately $500,000, which was included in interest expense for the period. The dividend was distributed to the shareholders of RSI in the second quarter of Fiscal 1994. COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30, 1994 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 31, 1993. Sales Sales in Fiscal 1993 were $2,730.2 million, a decrease of $113.6 million or 4.0% compared to Fiscal 1992. During Fiscal 1993, Ralphs opened eight new stores, four in Los Angeles County, two in Orange County and two in Riverside County, and remodeled six stores. Two of the eight new stores replaced the two stores closed during the fiscal year. Comparable store sales decreased 5.8%, which included an increase of 0.6% for the replacement stores, from $2,823.4 million to $2,659.3 million in Fiscal 1993. Ralphs' sales continued to be adversely affected by the significant recession in Southern California, continuing competitive new store and remodelling activity and pricing and promotional changes by competitors. 50 62 Cost of Sales Cost of sales decreased $123.5 million or 5.6% from $2,217.2 million in Fiscal 1992 to $2,093.7 million in Fiscal 1993. As a percentage of sales, cost of sales declined to 76.7% in Fiscal 1993 from 78.0% in Fiscal 1992. The decrease in cost of sales as a percentage of sales was the result of savings in warehousing and distribution costs, the pass-through of increased operating costs and increases in relative margins where allowed by competitive conditions. Selling, General and Administrative Expenses SG&A increased $1.0 million or 0.2% from $470.0 million in Fiscal 1992 to $471.0 million in Fiscal 1993. As a percentage of sales, SG&A increased from 16.5% in Fiscal 1992 to 17.2% in Fiscal 1993. The increase in SG&A as a percentage of sales was the result of several factors including the soft sales environment. Increases in expense were partially offset by cost savings programs instituted by Ralphs. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both Fiscal 1992 and Fiscal 1993 the UFCW multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During Fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans are to receive a pro rata share of the excess reserve in these health care benefit plans through a reduction in current maintenance payments. Ralphs' share of the excess reserve was approximately $24.5 million of which $11.8 million was recognized in Fiscal 1993 and the remainder will be recognized in the fiscal year ending January 29, 1995. The change in health and welfare plan expenses resulted from the $11.8 million credit associated with the collective bargaining agreement as well as a reduction in the current year plan expense due to the overfunded status of the plan. Since employers are required to make contributions to the benefit funds at whatever level is necessary to maintain plan benefits, there can be no assurance that plan maintenance payments will remain at current levels. Partially offsetting the reductions of health and welfare maintenance payments was a $6.0 million contract ratification bonus paid by Ralphs at the conclusion of contract negotiations with the UFCW in Fiscal 1993. The $6.0 million contract ratification payment was an item separate from either of these plans. Operating Income Operating income in Fiscal 1993 increased to $152.1 million from $138.5 million in Fiscal 1992, a 9.8% increase. Operating margin increased in Fiscal 1993 to 5.6% from 4.9% in Fiscal 1992. This increase was primarily the result of the aforementioned improvements in Ralphs' cost of sales percentage. EBITDA, defined as net earnings before interest expense, income tax expense (benefit), depreciation and amortization expenses, postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses and loss on disposal of assets, improved to $230.2 million or 8.4% of sales in Fiscal 1993 from $227.3 million or 8.0% of sales in Fiscal 1992. Net Interest Expense Net interest expense for Fiscal 1993 was $108.8 million, compared to $125.6 million for Fiscal 1992. The reduction in net interest expense was attributable to the refinancing and defeasance of Ralphs 14% Senior Subordinated Debentures due 2000 (the "14% Debentures") with the proceeds from the issuance of the Old RGC 9% Notes as the final step in a recapitalization plan initiated on July 30, 1992. Cash interest expense during Fiscal 1993 was $92.8 million compared to $105.5 million in Fiscal 1992. Also included in interest expense for Fiscal 1993 was $16.0 million representing certain other charges relating to amortization of debt issuance costs, self-insurance discount, lease valuation reserves and other miscellaneous charges (categorized by Ralphs as non-cash interest expense) as compared to $20.1 million for Fiscal 1992. Investment income, which is immaterial, has been offset against interest expense. 51 63 Earthquake Losses Several Ralphs stores suffered earthquake damage from the January 17, 1994 earthquake in Southern California and 54 stores were completely shutdown on the morning of January 17th. Management believes that there was some negative impact on sales resulting from the temporary disruption of business resulting from the earthquake. Ralphs is partially insured for earthquake losses. The pre-tax financial impact, net of expected insurance recoveries, is expected to be approximately $11.0 million and Ralphs reserved for this loss in Fiscal 1993. The gross earthquake loss is approximately $25.3 million and the expected insurance recovery is approximately $14.3 million. Income Taxes In Fiscal 1993, Ralphs recorded the incremental impact of The Omnibus Budget Reconciliation Act of 1993 on net deductible temporary differences and Ralphs increased its deferred income tax assets by a net amount of $109.1 million. Income tax expense (benefit) for Fiscal 1993 includes recognition of $109.1 million of deferred income tax benefit and $1.1 million current income tax expense for Fiscal 1993. See Note 11 of Notes to Ralphs Consolidated Financial Statements. Net Earnings In Fiscal 1993, Ralphs reported net earnings of $138.4 million compared to a net loss of $76.1 million for Fiscal 1992. This increase in net earnings was primarily the result of Ralphs' recognition of $109.1 million of deferred income tax benefit for Fiscal 1993 and the following items recorded in Fiscal 1992: (1) an extraordinary charge, net of tax benefit, of $70.6 million relating to Ralphs' recapitalization plan, (2) a provision of $7.1 million made for expenses related to the closure of the central bakery operation (an additional charge of $2.4 million was recorded in Fiscal 1993) and (3) a provision of $7.5 million made for the maximum loss under a judgment rendered against Ralphs. RESULTS OF OPERATIONS OF FOOD 4 LESS The following table sets forth the historical operating results of Food 4 Less for the 52 weeks ended June 27, 1992 ("Fiscal 1992"), June 26, 1993 ("Fiscal 1993") and June 25, 1994 ("Fiscal 1994"), and for the 28 weeks ended January 8, 1994 and January 7, 1995:
52 WEEKS ENDED 28 WEEKS ENDED ---------------------------------------------------------- ----------------------------------------- JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7, 1992 1993 1994 1994 1995 ---------------- ---------------- ---------------- ------------------ ------------------ (IN MILLIONS) (UNAUDITED) Sales.................. $2,913.5 100.0% $2,742.0 100.0% $2,585.2 100.0% $1,416.2 100.0% $1,404.7 100.0% Gross profit........... 520.8 17.9 484.2 17.7 469.3 18.1 262.2 18.5 237.5 16.9 Selling, general, administrative and other, net........... 469.7 16.1 434.9 15.9 388.8 15.0 221.5 15.6 199.2 14.2 Amortization of excess costs over net assets acquired............. 7.8 0.3 7.6 0.3 7.7 0.3 4.1 0.3 4.2 0.3 Restructuring charge... -- -- -- -- -- -- -- -- 5.1 0.4 Operating income....... 43.3 1.5 41.7 1.5 72.8 2.8 36.6 2.6 29.0 2.0 Interest expense....... 70.2 2.4 69.8 2.5 68.3 2.6 36.8 2.6 37.7 2.6 Loss (gain) on disposal of assets............ (1.3) -- (2.1) (0.1) -- -- 0.1 -- (0.5) -- Provision for earthquake losses.... -- -- -- -- 4.5 0.2 -- -- -- -- Provision for income taxes................ 3.4 0.1 1.4 0.1 2.7 0.1 0.7 0.1 0.5 -- Loss before extraordinary charge............... (29.0) (1.0) (27.4) (1.0) (2.7) (0.1) (1.0) (0.1) (8.7) (0.6) Extraordinary charges.............. 4.8 0.2 -- -- -- -- -- -- -- -- Net loss............... (33.8) (1.2) (27.4) (1.0) (2.7) (0.1) (1.0) (0.1) (8.7) (0.6)
52 64 COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 28 WEEKS ENDED JANUARY 7, 1995 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 28 WEEKS ENDED JANUARY 8, 1994 Sales Sales decreased $11.5 million, or 0.8%, from $1,416.2 million in the 28 weeks ended January 8, 1994, to $1,404.7 million in the 28 weeks ended January 7, 1995, primarily as a result of a 4.5% decline in comparable store sales, partially offset by sales from new and acquired stores opened since January 8, 1994. Management believes that the decline in comparable store sales is attributable to the weak economy in Southern California and, to a lesser extent, in Food 4 Less' other operating areas, and competitive store openings and remodels in Southern California. Gross Profit Gross profit decreased as a percentage of sales from 18.5% in the 28 weeks ended January 8, 1994, to 16.9% in the 28 weeks ended January 7, 1995. The decrease in gross profit margin resulted primarily from pricing and promotional activities related to Food 4 Less' "Total Value Pricing" program and an increase in the number of warehouse format stores (which have lower gross margins resulting from prices that are generally 5-12% below the prices in Food 4 Less' conventional stores) from 48 at January 8, 1994, to 87 at January 7, 1995. The decrease in the gross profit margin was partially offset by improvements in product procurement. Selling, General, Administrative and Other, Net Selling, general, administrative and other expenses, net ("SG&A") were $221.5 million and $199.2 million for the 28 weeks ended January 8, 1994 and January 7, 1995, respectively. SG&A decreased as a percentage of sales from 15.6% to 14.2% for the same period. Food 4 Less experienced a reduction of workers' compensation and general liability self-insurance costs of $9.7 million due to continued improvement in the cost and frequency of claims. The improved experience was due primarily to cost control programs implemented by Food 4 Less, including awards for stores with the best loss experience, specific achievable goals for each store, and increased monitoring of third-party administrators. In addition, Food 4 Less maintained tight control of administrative expenses and store level expenses, including payroll (due primarily to increased productivity), advertising and other controllable store expenses. Because Food 4 Less' warehouse stores have lower SG&A than conventional stores, the increase in the number of warehouse stores, from 48 at January 8, 1994, to 87 at January 7, 1995, also contributed to decreased SG&A. Food 4 Less participates in multi-employer health and welfare plans for its store employees who are members of the UFCW. As part of the renewal of the Southern California UFCW contract in October 1993, employers contributing to UFCW health and welfare plans are to receive a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. Food 4 Less' share of the excess reserves was $24.2 million, of which Food 4 Less recognized $8.1 million in Fiscal 1994 and $13.7 million in the 28 weeks ended January 7, 1995. The remainder of the excess reserves will be recognized as the credits are taken in the future. On August 28, 1994, the Teamsters and Food 4 Less ratified a new contract which, among other things, provided for the vesting of sick pay benefits resulting in a one-time charge of $2.1 million. Restructuring Charge Food 4 Less has converted 11 of its conventional format supermarkets to warehouse format stores. During the 28 weeks ended January 7, 1995, Food 4 Less recorded a non-cash restructuring charge for the write-off of property and equipment at the 11 stores of $5.1 million. Interest Expense Interest expense (including amortization of deferred financing costs) was $36.8 million and $37.7 million for the 28 weeks ended January 8, 1994 and January 7, 1995, respectively. The increase in interest expense was primarily due to higher interest rates on the term loan portion (the "Term Loan") of Food 4 Less' credit 53 65 agreement dated as of June 17, 1991, as amended (the "F4L Credit Agreement") and on the revolving credit portion of the F4L Credit Agreement (the "Revolving Credit Facility"). The increase was partially offset by the reduction of indebtedness under the Term Loan as a result of amortization payments. Food 4 Less increased its borrowing under the F4L Credit Agreement as a result of higher capital expenditures subsequent to the end of its first quarter. Net Loss Primarily as a result of the factors discussed above, Food 4 Less' net loss increased from $1.0 million in the 28 weeks ended January 8, 1994, to $8.7 million in the 28 weeks ended January 7, 1995. COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 25, 1994 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26, 1993. Sales Sales decreased $156.8 million or 5.7% from $2,742.0 million in Fiscal 1993 to $2,585.2 million in Fiscal 1994. The decrease in sales resulted primarily from a 6.9% decline in comparable store sales. The decline in comparable store sales primarily reflects (i) the continuing softness of the economy in Southern California, (ii) lower levels of price inflation in certain key food product categories, and (iii) competitive factors, including new stores, remodeling and recent pricing and promotional activity. This decrease in sales was partially offset by sales from 13 stores opened or acquired during Fiscal 1994. Gross Profit Gross profit increased as a percent of sales from 17.7% in Fiscal 1993 to 18.1% in Fiscal 1994. The increase in gross profit margin was attributable to improvements in product procurement and an increase in vendors' participation in Food 4 Less' promotional costs. These improvements were partially offset by an increase in the number of warehouse format stores (which have lower gross margins resulting from prices that are generally 5-12% below the prices in Food 4 Less' conventional stores) from 45 at June 26, 1993 to 66 at June 25, 1994, and the effect of the fixed cost component of gross profit as compared to a lower sales base. Selling, General, Administrative and Other, Net SG&A was $434.9 million and $388.8 million in Fiscal 1993 and Fiscal 1994, respectively. SG&A decreased as a percent of sales from 15.9% to 15.0% for the same periods. Food 4 Less experienced a reduction of self-insurance costs of $18.2 million due to continued improvement in the cost and frequency of claims. The improved experience was due primarily to cost control programs implemented by Food 4 Less, including awards for stores with the best loss experience, specific achievable goals for each store, and increased monitoring of third-party administrators, and, to a lesser extent, a lower sales base which reduced Food 4 Less' exposure. In addition, Food 4 Less maintained tight control of administrative expenses and store level expenses, including payroll (due primarily to increased productivity), advertising, and other controllable store expenses. Because Food 4 Less' warehouse stores have lower SG&A than conventional stores, the increase in the number of warehouse stores, from 45 at June 26, 1993 to 66 at June 25, 1994, also contributed to decreased SG&A as a percentage of sales. The reduction in SG&A as a percentage of sales was partially offset by the effect of the fixed cost component of SG&A as compared to a lower sales base. Food 4 Less participates in multi-employer health and welfare plans for its store employees who are members of the UFCW. As part of the renewal of the Southern California UFCW contract in October 1993, employers contributing to UFCW health and welfare plans are to receive a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. Food 4 Less' share of the excess reserves was $24.2 million, of which Food 4 Less recognized $8.1 million in Fiscal 1994 and the remainder of which will be recognized as the credits are taken in the future. Offsetting the reduction in employer contributions was a $5.5 million contract ratification bonus and contractual wage increases. 54 66 Interest Expense Interest expense (including amortization of deferred financing costs) decreased $1.5 million from $69.8 million to $68.3 million for Fiscal 1993 and Fiscal 1994, respectively. The decrease in interest expense is due primarily to reduced borrowings under the F4L Credit Agreement. Provision for Earthquake Losses On January 17, 1994, Southern California was struck by a major earthquake which resulted in the temporary closing of 31 of Food 4 Less' stores. The closures were caused primarily by loss of electricity, water, inventory, or structural damage. All but one of the closed stores reopened within a week of the earthquake. The final closed store reopened on March 24, 1994. Food 4 Less is insured against earthquake losses (including business interruption), subject to certain deductibles. The pre-tax financial impact, net of expected insurance recovery, was approximately $4.5 million. Net Loss Primarily as a result of the factors discussed above, Food 4 Less' net loss decreased from $27.4 million in Fiscal 1993 to $2.7 million in Fiscal 1994. COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26, 1993 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 27, 1992. Sales Sales decreased $171.5 million or 5.9% from $2,913.5 million in Fiscal 1992 to $2,742.0 million in Fiscal 1993, primarily as a result of a 5.1% decline in comparable store sales and a net reduction in Food 4 Less' total store count of one store at June 26, 1993 compared to June 27, 1992. Management believes that the decline in comparable store sales was attributable to (i) the weak economy in Southern California, and, to a lesser extent, in Food 4 Less' other operating areas, (ii) lower levels of price inflation in certain key food categories, and (iii) increased competitive store openings in Southern California. Gross Profit Gross profit decreased as a percent of sales from 17.9% in Fiscal 1992 to 17.7% in Fiscal 1993 primarily as a result of an increase in the number of Food 4 Less warehouse stores (which have lower gross margins resulting from prices that are generally 5-12% below the prices in Food 4 Less' conventional stores), from 34 stores in Fiscal 1992 to 45 stores in Fiscal 1993, and as a result of the fixed cost component of gross profit being compared to a lower sales base, partially offset by increases in relative margins allowed by competitive conditions, improvements in the procurement function, and cost savings and operating efficiencies associated with Food 4 Less' warehousing and manufacturing facilities. Selling, General, Administrative and Other, Net SG&A was $469.7 million and $434.9 million in Fiscal 1992 and Fiscal 1993, respectively. SG&A decreased as a percent of sales from 16.1% to 15.9% for the same periods as a result of tight control of direct store expenses, primarily payroll costs, the impact in Fiscal 1992 of the $12.8 million non-cash self-insurance reserve adjustment partially offset by market-wide contractual increases in union wages, current year increases in workers' compensation costs primarily associated with the new law which took effect in 1990, and the fixed cost component of SG&A being compared to a lower sales base. Interest Expense Interest expense (including amortization of deferred financing costs) was $70.2 million for Fiscal 1992 and $69.8 million for Fiscal 1993, respectively. The decrease in interest expense is due to the reduction of indebtedness as a result of amortization payments combined with decreasing interest rates on the Term Loan, 55 67 partially offset by higher interest expense incurred in connection with the Old F4L Senior Notes which replaced lower cost debt under the F4L Credit Agreement. Loss Before Extraordinary Charge Primarily as a result of the factors discussed above, Food 4 Less' loss before extraordinary charge decreased from $29.0 million in Fiscal 1992 to $27.4 million in Fiscal 1993. Food 4 Less recorded a net extraordinary charge of $4.8 million in Fiscal 1992, reflecting the write-off of certain deferred financing costs which were partially offset by a gain on the replacement of partially depreciated assets following the civil unrest in Los Angeles. LIQUIDITY AND CAPITAL RESOURCES In order to consummate the Merger, Holdings and Food 4 Less expect to utilize total new financing proceeds in the amount of approximately $1.5 billion. Pursuant to the New Equity Investment, New Holdings (as the successor to Holdings) will issue capital stock for total cash proceeds of approximately $140 million (excluding a $5 million commitment fee of which $2.5 million will be paid in cash and $2.5 million will be satisfied through the issuance of New Discount Debentures). In addition, Food 4 Less will enter into the New Credit Facility pursuant to which it will have available up to $750 million of New Term Loans, all of which is anticipated to be drawn at the Closing Date (assuming all Old RGC Notes are tendered into the Offers), and will have available a $325 million New Revolving Facility, of which $16.4 million is anticipated to be drawn at the Closing Date. Food 4 Less will also issue up to $295 million principal amount of New F4L Senior Notes pursuant to the Senior Note Public Offering and will issue up to $200 million principal amount of New Notes pursuant to the Subordinated Note Public Offering. The proceeds from the New Credit Facility and the Public Offerings, together with the $140 million cash proceeds of the New Equity Investment, $59 million cash proceeds of the New Discount Debenture Placement, $41 million in initial accreted value of additional New Discount Debentures issued other than for cash and $131.5 million principal amount of the Seller Debentures, will provide the sources of financing required to consummate the Merger and to repay existing bank debt of approximately $161.5 million at Food 4 Less and $255.1 million at Ralphs, to repay existing mortgage debt of $174.1 million (excluding prepayment fees) at Ralphs and to pay $83.9 million in consideration for the Discount Notes (excluding related fees). Proceeds from the New Credit Facility and the Public Offerings will also be used to pay the cash portions of the Offers and the F4L Exchange Offers, as well as the Change of Control Offer, if any, and accrued interest on all exchanged debt securities in the amount of $29.3 million (as of May 30, 1995), to pay $17.8 million to the holders of Ralphs Equity Appreciation Rights and to loan $5 million to an affiliate for the benefit of such holders, to pay up to $109.9 million of fees and expenses of the Merger and the Financing and to pay $3.7 million to purchase shares of New Holdings Common Stock. The Company will also assume certain existing indebtedness of Food 4 Less and Ralphs. Pursuant to the Offers described hereunder and the F4L Exchange Offers, Food 4 Less will seek the exchange of at least a majority of the Old RGC Notes for New Notes and the exchange of at least 80% of the Old F4L Notes for New F4L Notes. The primary purpose of the Offers described hereunder and the F4L Exchange Offers is to refinance Food 4 Less' and RGC's existing public debt securities with longer term public debt securities, to obtain all necessary consents to consummate the Merger and to eliminate substantially all of the restrictive covenants contained in the Old RGC Indentures and the Old F4L Indentures. After the Merger the Company's principal sources of liquidity are expected to be cash flow from operations, amounts available under the New Revolving Facility and capital and operating leases. It is anticipated that the Company's principal uses of liquidity will be to provide working capital, finance capital expenditures, including the costs associated with the integration of Food 4 Less and Ralphs, and to meet debt service requirements. The New Revolving Facility will be a $325 million line of credit which will be available for working capital requirements and general corporate purposes. Up to $150 million of the New Revolving Facility may be used to support standby letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the New Credit Facility. The Company anticipates that letters of credit for approximately $92.6 million will be drawn under the New Revolving Facility at closing, in replacement of existing letters of credit, primarily to satisfy the State of California's requirements relating to 56 68 workers compensation self-insurance. The New Revolving Facility will be non-amortizing and will have a six-year term. The Company will be required to reduce loans outstanding under the New Revolving Facility to $75 million for a period of not less than 30 consecutive days during each consecutive 12-month period. Assuming that the Merger closes on May 30, 1995, giving effect to currently anticipated borrowings and letter of credit issuances, the Company's remaining borrowing availability under the New Revolving Facility would have been approximately $216.0 million. Pursuant to the New Credit Facility, the New Term Loans will be issued in four tranches: (i) Tranche A, in the amount of $375 million, will have a six-year term; (ii) Tranche B, in the amount of $125 million, will have a seven-year term; (iii) Tranche C, in the amount of $125 million, will have an eight-year term; and (iv) Tranche D, in the amount of $125 million, will have a nine-year term. The Tranche A Loan may not be fully funded at the Closing Date. The New Credit Facility will provide that the portion of the Tranche A Loan not funded at the Closing Date will be available for a period of 91 days following the Closing Date to fund the Change of Control Offer. The New Term Loans will require quarterly amortization payments aggregating $3.8 million in the first year, $48.8 million in the second year and increasing thereafter. The New Credit Facility will be guaranteed by New Holdings and each of the Company's subsidiaries and secured by liens on substantially all of the unencumbered assets of the Company and its subsidiaries and by a pledge of New Holdings' stock in the Company. The New Credit Facility will contain financial covenants which are expected to require, among other things, the maintenance of specified levels of cash flow and stockholder's equity. See "Description of the New Credit Facility." Standard & Poor's has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline under the Old RGC Indentures. The consummation of the Merger (which is conditioned on, among other things, successful consummation of the Offers, the Other Debt Financing Transactions, the New Equity Investment and the Bank Financing) and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline, would constitute a Change of Control Triggering Event under the Old RGC Indentures. Although Food 4 Less does not anticipate that there will be a significant amount of Old RGC Notes outstanding following consummation of the Offers, upon such a Change of Control Triggering Event the Company would be obligated to make the Change of Control Offer following the consummation of the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The portion of the Tranche A Loan not fully funded at the Closing Date will be available to fund the purchase of Old RGC Notes tendered pursuant to the Change of Control Offer. Management anticipates that significant capital expenditures will be required following the Merger in connection with the integration of Ralphs and Food 4 Less. In order to implement the Company's store format strategy, up to 122 conventional stores currently operated by Food 4 Less will be converted to the Ralphs format and 16 conventional stores (primarily Boys and Viva) have been or will be converted and 23 Ralphs stores will be converted to the Food 4 Less warehouse format. An additional 18 Ralphs and Food 4 Less warehouse stores are scheduled to be opened during calendar 1995. It is estimated that the gross capital expenditures to be made by the Company in the first fiscal year following the closing will be approximately $153 million (or $106 million net of expected capital leases), of which approximately $98 million relate to ongoing expenditures for new stores, equipment and maintenance and approximately $55 million relate to store conversions and other Merger-related and non-recurring items. An additional $33 million of Merger-related and non-recurring capital expenditure items (or $22 million net of expected capital leases) are anticipated to be incurred in the second year following the consummation of the Merger. Management expects that these expenditures will be financed primarily through cash flow from operations and capital leases. Ralphs cash flow from operating activities was $55.4 million for the 52 weeks ended January 29, 1995 and $104.0 million for Fiscal 1993. Food 4 Less generated approximately $87.8 million of cash from operating activities during the 52-week period ended June 25, 1994 and used approximately $18.0 million of cash for its operating activities during the 28 weeks ended January 7, 1995 (as compared to generating $30.5 million of cash during the 28 weeks ended January 8, 1994). The decrease in cash from operating activities is due primarily to changes in operating assets and liabilities. The Company anticipates that one of the principal uses of cash in its operating activities will be inventory purchases. However, supermarket operators typically require 57 69 small amounts of working capital since inventory is generally sold prior to the time that payments to suppliers are due. This reduces the need for short-term borrowings and allows cash from operations to be used for non-current purposes such as financing capital expenditures and other investing activities. Consistent with this pattern, Ralphs and Food 4 Less had working capital deficits of $119.5 million and $44.8 million at January 29, 1995 and January 7, 1995, respectively. Ralphs cash used in investing activities was $45.5 million during Fiscal 1993 and $50.8 million during the 52 weeks ended January 29, 1995. These amounts reflected increased capital expenditures related to store remodels and new store openings (including store acquisitions) and, to a lesser extent, expansion of other warehousing, distribution and manufacturing facilities and equipment, including data processing and computer systems. For the 52 weeks ended June 25, 1994, Food 4 Less' cash used in investing activities was $55.8 million. Investing activities consisted primarily of capital expenditures of $57.5 million, partially offset by $9.3 million of sale/leaseback transactions, and $11.1 million of costs in connection with the acquisition of ten former "Food Barn" stores. For the 28 weeks ended January 7, 1995, Food 4 Less' cash used in investing activities was $32.8 million. Investing activities consisted primarily of capital expenditures of $39.0 million, partially offset by $6.5 million of sale/leaseback transactions. The capital expenditures, net of the proceeds from sale/leaseback transactions, were financed primarily with cash provided by financing activities. The capital expenditures included the costs associated with the conversion of 11 conventional format stores to the Food 4 Less warehouse format. See "Business -- The Merger -- Two Leading Complementary Formats." In January 1995, Food 4 Less entered into an amendment to the F4L Credit Agreement to, among other things, allow for the acceleration of the capital expenditures and other costs associated with the conversion of stores to the warehouse format. Ralphs cash used in financing activities was approximately $24.6 million for the 52 weeks ended January 29, 1995. Reduction of capital lease obligations of $12.2 million and the payment of a $10.0 million dividend reduced cash flow. Food 4 Less' cash provided by financing activities was $33.6 million for the 28 weeks ended January 7, 1995, which consisted primarily of $48.7 million of borrowings outstanding on its revolving credit facility at January 7, 1995 partially offset by a $11.3 million repayment of its term loan. At January 7, 1995, $48.6 million of standby letters of credit had been issued under Food 4 Less' existing letter of credit facility. Ralphs and FFL have significant net operating loss carryforwards for regular federal income tax purposes. As a result of the Merger and the New Equity Investment, the Company's ability to utilize such loss carryforwards in future periods will be limited to approximately $15.6 million per year with respect to FFL net operating loss carryforwards and approximately $15.0 million per year with respect to Ralphs' net operating loss carryforwards. The Company does not expect the Merger to materially adversely affect any of its other tax assets. The Company will be a party to a tax sharing agreement with New Holdings and the subsidiaries of the Company. Pursuant to the tax sharing agreement, payments by the Company will not exceed the amount it would be required to pay if its consolidated liability was calculated on a separate company basis. Conversely, if the Company generates losses or credits which reduce the consolidated tax liability of New Holdings, New Holdings will credit to the Company the amount of such reduction in the consolidated tax liability. See "Certain Relationships and Related Transactions." The Company will continue to be a party to an indemnification agreement with Federated and certain other parties. See Note 1 of Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc. Pursuant to the terms of such agreement, Ralphs will make annual tax payments of $1.0 million in 1995 and 1996 and a final tax payment of $5.0 million in 1997. Following the Merger, the Company will be a wholly-owned subsidiary of New Holdings. In addition, following the Merger, New Holdings will have $100 million initial accreted value of the New Discount Debentures and $131.5 million principal amount of the Seller Debentures outstanding. New Holdings is a holding company which will have no assets other than the capital stock of the Company. New Holdings will be required to commence semi-annual cash payments of interest on (i) the New Discount Debentures and the Seller Debentures commencing five years from their date of issuance in the amount of $61.0 million per annum and (ii) any Discount Notes that remain outstanding following the Merger commencing June 15, 1998. Subject to the limitations contained in its debt instruments, the Company intends to make dividend payments to New Holdings in amounts which are sufficient to permit New Holdings to service its cash interest 58 70 requirements. The Company may pay other dividends to New Holdings in connection with certain employee stock repurchases and for routine administrative expenses. Following the consummation of the Merger and the Financing, the Company will be highly leveraged. Based upon current levels of operations and anticipated cost savings and future growth, the Company believes that its cash flow from operations, together with available borrowings under the New Revolving Facility and its other sources of liquidity (including leases), will be adequate to meet its anticipated requirements for working capital, capital expenditures, integration costs and interest payments. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that future costs savings and growth can be achieved. See "Risk Factors -- Leverage and Debt Service." Interest Rate Protection Agreements Ralphs and Food 4 Less currently are parties to certain interest rate protection agreements required under the terms of their existing bank indebtedness. In connection with the New Credit Facility, these interest rate protection agreements will be replaced by a new agreement which will be finalized prior to the closing of the Merger. The Company will be exposed to credit loss in the event of nonperformance by the counterparty to the interest rate protection agreement. However, the Company does not anticipate nonperformance by such counterparty. The following details the impact of Ralphs' hedging activity on its weighted average interest rate for each of the last three fiscal years of Ralphs:
WITH WITHOUT HEDGE HEDGE -------- -------- 1992............................................ 10.52% 10.22% 1993............................................ 8.96% 8.96% 1994............................................ 9.37% 9.18%
Due to increasing interest rates under its existing credit facility, Ralphs' interest expense has increased during recent periods and may continue to increase, reducing Ralphs' net income during such periods. The following details the impact of Food 4 Less' hedging activity on its weighted average interest rate for each of the last three fiscal years of Food 4 Less:
WITH WITHOUT HEDGE HEDGE -------- -------- 1992............................................ 10.28% 10.25% 1993............................................ 10.07% 10.03% 1994............................................ 10.10% 10.09%
Effects of Inflation The Company's primary costs, inventory and labor, are affected by a number of factors that are beyond its control, including inflation, availability and price of merchandise, the competitive climate and general and regional economic conditions. As is typical of the supermarket industry, Ralphs and Food 4 Less have generally been able to maintain margins by adjusting their retail prices, but competitive conditions may from time to time render the Company unable to do so while maintaining its market share. 59 71 BUSINESS THE MERGER The combination of Ralphs Grocery Company and Food 4 Less Supermarkets, Inc. will create the largest food retailer in Southern California. Pro forma for the Merger, the Company will operate approximately 332 Southern California stores with an estimated 26% market share among the area's supermarkets. The Company will operate the second largest conventional supermarket chain in the region under the "Ralphs" name and the largest warehouse supermarket chain in the region under the "Food 4 Less" name. In addition, the Company will operate approximately 24 conventional format stores and 39 warehouse format stores in Northern California and the Midwest. On a pro forma basis giving effect to the Merger, the Company would have had sales of approximately $5.1 billion and $2.8 billion, operating income of approximately $183 million and $90 million and EBITDA (as defined) of approximately $343 million and $189 million for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995, respectively. TWO LEADING COMPLEMENTARY FORMATS In Southern California the Company plans to convert up to 122 conventional stores currently operated by Food 4 Less to the "Ralphs" name and format and 39 Ralphs and Food 4 Less conventional stores to the "Food 4 Less" name and warehouse format. As a result, and pro forma for the Merger, Ralphs will be the region's second largest conventional format supermarket chain, with 264 stores and Food 4 Less will be the region's largest warehouse format supermarket chain with 68 stores. The Ralphs stores will continue to emphasize a broad selection of merchandise, high quality fresh produce, meat and seafood and service departments, including bakery and delicatessen departments in most stores. The Company's conventional stores will also benefit from Ralphs' strong private label program and its strengths in merchandising, store operations and systems. Passing on format-related efficiencies, the Company's price impact warehouse format stores will continue to offer consumers the lowest overall prices while still providing product selections comparable to conventional supermarkets. Management believes the Food 4 Less warehouse format has demonstrated its appeal to a wide range of demographic groups in Southern California and offers a significant opportunity for future growth. The Company plans to open nine new Food 4 Less warehouse stores and 21 new Ralphs stores over the next two years. Management believes the consolidation of its formats will improve the Company's ability to adapt its stores' merchandising strategy to the local markets in which they operate while achieving cost savings and other efficiencies. These conversions will be effected in three phases which the Company believes will be completed within the first 18 months of combined operation. Phase 1. Food 4 Less has converted 11 of its conventional format stores operated under the names "Viva" and "Boys" into Food 4 Less warehouse format supermarkets. Such conversions took up to eight weeks to complete and generally required the store to be closed for up to two weeks. These Phase 1 conversions, which were planned independently, were completed prior to the end of Food 4 Less' second quarter at a cost of approximately $1 million per store. Phase 2. Following the Merger, the Company plans to begin converting up to 122 conventional format stores currently operated by Food 4 Less under the names "Viva," "Alpha Beta" and "Boys" into Ralphs conventional format stores. It is anticipated that these conversions will be completed at the rate of approximately 10 stores per week. Management expects that the Company will be able to substantially complete each conversion without closing the store. Management believes that these Phase 2 conversions will be completed within the first 12-16 weeks of the Company's combined operation at a cost of approximately $75,000 per store. Phase 3. Following the Merger, the Company also plans to convert 23 conventional Ralphs format stores and five Food 4 Less conventional format stores into Food 4 Less warehouse format stores. Management expects that each such conversion will take up to eight weeks and may require the store to be closed for up to two to eight weeks during such period. Management believes that these Phase 3 conversions will be completed within the first 18 months of the Company's combined operation at a cost of approximately $1 million per store. 60 72 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 61 73 not have service departments such as delicatessens, bakeries and fresh seafood departments, although they do offer a complete line of fresh meat, fish, produce and baked goods. Additionally, labor rates are generally lower than in conventional supermarkets. The Food 4 Less format generally consists of large facilities constructed with high ceilings to accommodate warehouse racking with overhead pallet storage. Wide aisles accommodate forklifts and, compared to conventional supermarkets, a higher percentage of total store space is devoted to retail selling because the top of the warehouse-style grocery racks on sales floors are used to store inventory. This reduces the need for large backroom storage. The Food 4 Less warehouse format supermarkets have brightly painted walls and inexpensive signage in lieu of more expensive graphics. In addition, a "Wall of Values" located at the entrance of each store presents the customer with a selection of specially priced merchandise. SUBSTANTIAL COST SAVINGS OPPORTUNITIES Management believes that approximately $90 million of net annual cost savings (as compared to such costs for the pro forma combined fiscal year ended June 25, 1994) will be achieved by the end of the fourth full year of combined operations. It is also anticipated that approximately $117 million in Merger-related capital expenditures and $50 million of other non-recurring costs will be required to complete store conversions, integrate operations and expand warehouse facilities over the same period. Although a portion of the anticipated cost savings is premised upon the completion of such capital expenditures, management believes that over 70% of the cost savings could be achieved without making any Merger-related capital expenditures. The following anticipated savings are based on estimates and assumptions made by the Company that are inherently uncertain, though considered reasonable by the Company, and are subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of management. There can be no assurance that such savings will be achieved. The sum of the components of the estimated cost savings exceeds $90 million; however, management's estimate of $90 million in net annual cost savings gives effect to an offsetting adjustment to reflect its expectation that a portion of the savings will be reinvested in the Company's operations. See "Risk Factors -- Ability to Achieve Anticipated Cost Savings." Reduced Advertising Expenses. As a result of the consolidation of conventional format stores in Southern California under the "Ralphs" name, the Company will eliminate most of the separate advertising associated with Food 4 Less' existing Alpha Beta, Boys and Viva formats. Because Ralphs' current advertising program now covers the Southern California region, the Company will be able to expand the number of Ralphs stores without significantly increasing advertising costs. Management estimates that there will be annual advertising cost savings of approximately $28 million as compared to such costs for the pro forma combined fiscal year ended June 25, 1994. Because of reductions in certain advertising and promotional expenses on its conventional format stores that Food 4 Less has already begun to implement and certain refinements in the post-Merger advertising plan, actual cost savings related to advertising expenses are presently expected to be $19 million in the first full year of combined operations following the Merger as compared to the current annualized costs. Reduced Store Operations Expense. Management expects to reduce store operations costs as a result of both reduced labor and benefit costs and reduced non-labor expenses. Projected labor and benefit cost savings are based primarily on Ralphs' labor scheduling system, which has reduced Ralphs' labor costs relative to those of Food 4 Less. Other labor savings will result from the reduction of certain high-cost labor as a result of changed manufacturing, warehouse and distribution practices, and productivity enhancements resulting from the installation of Ralphs store level systems. Non-labor expense reductions are based primarily on the installation of Ralphs' computerized energy management equipment in Food 4 Less stores which will require significant capital expenditures. The expense savings associated with the use of this equipment is based on Ralphs' historical experience. Other significant non-labor expense reductions are projected to come from improved safety programs, increased cardboard baling revenues, changes to guard and shoplift agent programs and a reduction in supply and packaging costs. Total labor and non-labor operational savings estimated at approximately $21 million annually are anticipated to be achieved by the fourth full year of combined operation. 62 74 Increased Volume Purchasing Efficiencies. Management has identified approximately $19 million of cost savings it believes can be achieved as a result of purchasing efficiencies. These efficiencies consist primarily of (i) savings from increased discounts and allowances as a result of the combined volume of the two companies; (ii) an improvement in the terms of vendor contracts for products carried in the Company's stores on an exclusive or promoted basis; and (iii) savings from the conversion of some less-than-truckload shipping quantities to full truckload quantities. These savings are anticipated to be achieved by the second full year of combined operation. Warehousing and Distribution Efficiencies. The consolidation of the Company's warehousing and distribution facilities into Ralphs' two primary facilities located in Compton, California and in the Atwater district of Los Angeles and Food 4 Less' primary facility located in La Habra, California will result in lower outside storage, transportation and labor costs. The Company plans facility additions at one Ralphs facility to accommodate the additional volume as a result of such consolidation. Management anticipates improvements in the areas of automation, inventory management and handling, delivering, scheduling and route optimization and worker safety. In addition, the Company plans to close three existing facilities, which will result in lower occupancy expenses. Management believes that annual savings of approximately $16 million associated with warehousing and distribution will be achieved, before giving effect to capital expenditures in connection with facilities expansions and facility closing costs. Such savings are expected to be achieved by the third full year of combined operations. Consolidated Manufacturing. Ralphs and Food 4 Less operate manufacturing facilities that produce similar products or have excess capacity. Through the consolidation of meat, bakery, dairy and other manufacturing and processing operations, and the discontinuance of external purchases of certain goods that can be manufactured internally, management believes that annual cost savings of approximately $10 million can be achieved. In each instance, management has identified the facilities best suited to the needs of the combined company and has estimated the expense savings associated with each consolidation. The combined company will utilize a 316,000 square foot bakery and a 25,722 square foot milk processing plant, located at Food 4 Less' La Habra facility, and a 28,000 square foot milk processing plant, a 9,000 square foot ice cream processing plant, and a 23,000 square foot delicatessen kitchen located at Ralphs' Compton facility. Previously, Ralphs purchased bakery products externally and Food 4 Less purchased ice cream and delicatessen items externally. Management also plans to utilize Ralphs' third party meat processors, which have historically provided Ralphs with a full line of prefabricated and retail cuts of beef, to produce meat for Food 4 Less stores. Management anticipates that manufacturing expense savings will be achieved by the second full year of combined operation. Consolidated Administrative Functions. The Company expects to achieve savings from the elimination of redundant administrative staff, the consolidation of management information systems and a decreased reliance on certain outside services and consultants. To reduce headcount, the Company plans to target several functions for consolidation, including accounting, marketing, management information systems, and administration and human resources. The Company plans to eliminate a data processing center, which is anticipated to result in savings in the areas of equipment, software, headcount and outside programmer fees. The Company also plans to eliminate the use of third party administrators to handle workers compensation and general liability claims. Management estimates that annual savings of approximately $15 million associated with consolidating administrative functions will be achieved by the second full year of combined operation. EXPERIENCED MANAGEMENT TEAM The executive officers of the Company have extensive experience in the supermarket industry. The strength of Ralphs management expertise is evidenced by Ralphs' reputation for quality and service, its technologically advanced systems, strong store operations and high historical EBITDA margins. The Food 4 Less management team will provide valuable experience in operating warehouse supermarkets and in effectively integrating companies into a combined operation. Following the acquisition of Alpha Beta in 1991, Food 4 Less management successfully integrated Alpha Beta with its existing Southern California operations and (within three years) achieved annual cost savings in excess of $40 million (compared to a pre-acquisition estimate of approximately $33 million). See "Management." 63 75 WAREHOUSING AND DISTRIBUTION The combined Company will utilize Ralphs' technologically advanced warehousing and distribution systems, which include a 17 million cubic foot high-rise automated storage and retrieval system warehouse (the "ASRS") for non-perishable items and a 5.4 million cubic foot perishable service center (the "PSC") designed for processing, storing and distributing all perishable items. These facilities and the Food 4 Less La Habra warehouse will provide the Company with substantial operating benefits, including: (i) enhanced turnover to further improve the freshness and quality of in-store products, (ii) additional opportunities in forward buying programs and (iii) an increase in the percentage of inventory supplied by the Company's own warehousing and distribution system. Management believes the consolidation of these operations will enable the Company to meet the combined inventory requirements of all stores with fewer employees and lower operating and occupancy-related expenses. In November 1987, Ralphs opened the 17 million cubic foot highrise ASRS warehouse for non-perishable items in the Atwater district of Los Angeles, at a cost of approximately $50 million. This facility significantly increased capacity and improved the efficiency of Ralphs' warehouse operations. The automated warehouse has a ground floor area of 170,000 square feet and capacity of approximately 50,000 pallets. Guided by computer software, ten-story high cranes move pallets from the receiving dock to programmed locations in the ASRS warehouse while recording the location and time of storage. Goods are retrieved and delivered by the cranes to conveyors leading to an adjacent "picking" warehouse where individual store orders are filled and shipped. The Company plans to utilize existing unused capacity to accommodate additional volume resulting from the consolidation. The ASRS facility can hold substantially more inventory and requires fewer employees to operate than a conventional warehouse of equal size. This facility has reduced Ralphs' warehousing costs of non-perishable items markedly, enabling it to take advantage of advance buying opportunities and minimize "out-of-stocks." The Company plans to close two existing Ralphs warehouse facilities in Los Angeles and Carson, California and one Food 4 Less facility in Los Angeles, California. In mid-1992, Ralphs opened the 5.4 million cubic foot PSC facility in Compton, California, designed to process and store all perishable products. This facility cost approximately $35 million and has provided Ralphs with the ability to deliver perishable products to its stores on a daily basis, thereby improving the freshness and quality of these products. The facility contains an energy efficient refrigeration system and a computer system designed to document the location and anticipated delivery time of all inventory. The PSC has consolidated the operations of three existing facilities and holds more inventory than the facilities it replaced, thereby reducing Ralphs' warehouse distribution costs. The Company also plans to expand the PSC facility to accommodate additional volume resulting from the consolidation. Most Ralphs stores and Food 4 Less Southern California stores are located within approximately a one-hour drive from Ralphs' distribution and warehousing facilities. This geographical concentration, combined with Ralphs' efficient order system, shortens the lead time between the placement of a merchandise order and its receipt. Food 4 Less currently operates a centralized manufacturing, warehouse and office facility in La Habra, California which it leases from Alpha Beta's former parent corporation. The La Habra facility measures 1,378,083 total square feet over 75 acres and, in addition to serving warehousing, distribution and office functions, houses manufacturing operations which include a bakery and a creamery. The La Habra facility is operated pursuant to a long-term lease which expires in 2001. The La Habra facility is expected to be used as an additional distribution and warehouse facility. Food 4 Less is party to a joint venture with a subsidiary of Certified Grocers of California, Ltd. which operates a general merchandise warehouse in Fresno, California. Management is evaluating the role of such warehouse in the operation of the combined Company. MANUFACTURING Ralphs' manufacturing operations produce a variety of dairy and other products, including fluid milk, ice cream, yogurt and bottled waters and juices as well as packaged ice, cheese and salad preparations. Ralphs 64 76 contracts with meat processors to provide a full line of prefabricated and retail cuts of beef. Ralphs ceased its bakery operations during the second quarter of Fiscal 1993 at its 102,000 square foot facility in Los Angeles. Food 4 Less' La Habra facility includes a full-line bakery as well as a creamery and certain other manufacturing operations. The following table sets forth information concerning the principal manufacturing and processing facilities expected to be owned and operated by the Company:
FACILITY SQUARE FEET LOCATION ----------------------------------------------- ----------- ---------- Milk processing................................ 28,000 Compton Ice cream processing........................... 9,000 Compton Delicatessen kitchen........................... 23,000 Compton Bakery......................................... 316,000 La Habra Milk processing................................ 25,722 La Habra
Management believes that Ralphs' manufacturing facilities and the La Habra bakery can accommodate the volume requirements of the Company, after planned expenditures of approximately $3.0 million over the next year. PRIVATE LABEL PROGRAM Through its private label program, Ralphs offers approximately 2,800 items under the "Ralphs," "Private Selection," "Perfect Choice" and "Plain Wrap" brand names. These products provide quality comparable to that of national brands at prices 20-30% lower. Gross margins on private label goods are generally higher than on national brands. Management believes its private label program is one of the most successful programs in the supermarket industry, representing 17.3% of sales (excluding meats, service delicatessen and produce items) during the twelve months ended July 17, 1994. This figure has grown in the past few years, and management intends to continue the growth of its private label program in the future. Food 4 Less has entered into several private label licensing arrangements which allow it to exclusively utilize recognized brand names in connection with certain goods it manufactures or purchases from others, including "Carnation" and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked goods). In addition, Food 4 Less has entered into an agreement to distribute private label dry grocery and frozen products under the "Sunny Select" and "Grocers Pride" labels and has established its own private label, "Equality," for health and beauty aid products. Food 4 Less actively promoted its private label products during fiscal 1994, and management believes that the additional variety, superior quality and promotional program resulted in an overall increase in private label sales and corresponding gross margins. It is expected that the Company will continue the Carnation, Van de Kamps and certain of its other licensing agreements following the Merger. EXPANSION AND DEVELOPMENT As a result of Ralphs' 122-year history and Alpha Beta's 91-year history in Southern California, the Company will have valuable and well established store locations, many of which are in densely populated metropolitan areas. Additionally, the Company will have a technologically advanced store base. During the five years ended June 25, 1994, on a combined basis, Ralphs and Food 4 Less opened 74 new stores and remodeled 211 stores. Approximately 84% of the Company's stores have been opened or remodeled in the last five years. The Company plans to expand the Southern California Division by acquiring existing stores and constructing new ones. The Company intends to continue to focus its new store construction and store conversion efforts during calendar 1995 and future years primarily within existing marketing areas. Such efforts will encompass both of the Company's store formats, namely Food 4 Less and Ralphs. To this end, the Company plans to continue its store expansion program in Southern California by opening 17 new stores during calendar 1995 (including three Food 4 Less stores which will be located in San Diego, a new market for Food 4 Less), and additional stores in subsequent years. During the second quarter of its current fiscal year, Food 4 Less converted 11 of its conventional format stores to warehouse format stores and, following the 65 77 Merger, the Company plans to convert approximately five additional conventional stores currently managed by Food 4 Less and approximately 23 stores currently managed by RGC to the "Food 4 Less" name and warehouse format, as Food 4 Less stores have proven to have a strong appeal to value-conscious consumers across a wide range of demographic groups. See "-- The Merger -- Two Leading Complementary Formats." Remodeling activity in Southern California will be focused on the conventional format stores, including 13 planned major remodels of such stores during calendar 1995. The Company's expansion, remodel and conversion efforts have required, and will continue to require, the funding of significant capital expenditures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." During the last five fiscal years, Ralphs has opened 46 new stores and remodeled 54 stores at a cost of approximately $277.2 million. A majority of these new and remodeled stores offer expanded produce and European-style seafood departments, service delicatessens, fresh bakeries and a broad selection of general merchandise. With enhanced decor reflecting contemporary interior design, these stores are designed to provide a quality shopping experience. At the end of Fiscal 1994, 100 of Ralphs' 173 total stores were newly built or remodeled within the past five fiscal years. While Ralphs has sold or closed 15 stores during the last five fiscal years, the number of Ralphs' stores has increased from 142 stores at January 28, 1990 to 173 stores at January 29, 1995. During the last five fiscal years, in Southern California Food 4 Less has acquired or opened 172 stores (which includes 142 stores acquired in connection with the acquisition of Alpha Beta) and remodeled 113 stores. Since its acquisition of Alpha Beta in 1991, Food 4 Less has undertaken an extensive program of store remodels, conversions and additions, which have resulted in a substantially improved store base. During Fiscal 1994, Food 4 Less spent approximately $50.7 million on capital improvements in Southern California. Additionally, since the Alpha Beta acquisition, Food 4 Less has converted 22 Southern California stores from conventional formats to the warehouse format. As Food 4 Less has remodeled existing stores, opened new larger stores and closed smaller, marginally performing stores, there has been a net reduction in store count, from 209 stores to 196 stores from the year ended June 29, 1991 ("Fiscal 1991") to the end of Fiscal 1994, but an increase in average store size. The average square feet per store has increased from 28,700 at the end of Fiscal 1991 to 30,500 at the end of Fiscal 1994. During the last five fiscal years, 29 stores have been closed or sold (including five stores which closed as a result of the April 1992 civil unrest in Los Angeles). The Company will select most new store sites from developers' proposals after such proposals have been researched and analyzed by the Company's personnel. Each site will be monitored for population shifts, zoning changes, traffic patterns, and nearby new construction and competitors' stores in an effort to determine sales potential. The Company will actively participate with developers in order to attain the Company's objectives for the site, including adequate parking and complementary co-tenant mix. Remodeling involves enhancing a store's decor through fixture replacement, upgrading of service departments and improvements to lighting systems. In order to minimize the disruptive effect on sales, most stores will be kept open during the remodeling period. The primary objectives of remodeling will be to improve the attractiveness of stores, increase sales of higher margin product categories and to increase selling area where feasible. Remodelings and openings, among other things, are subject to the availability of developers' financing, agreements with developers and landlords, local zoning regulations, construction schedules and other factors, including costs, often beyond the Company's control. Accordingly, there can be no assurance that the schedule will be met. Further, the Company expects increasing competition for new store sites, and it is possible that this competition might adversely affect the timing of its new store opening program. ADVERTISING AND PROMOTION Ralphs' marketing strategy is to provide a combination of wide product selection, quality and freshness of perishable products, competitive prices and double coupons supporting Ralphs' advertising theme "Everything You Need. Every Time You Shop." In February 1994, Ralphs launched the Ralphs Savings Plan, a new marketing campaign designed to enhance customer value. The Ralphs Savings Plan is comprised of six major components: Guaranteed Low Prices ("GLPs"), Price Breakers, Big Buys, Multi-Buys, Ralphs Brand 66 78 Products and Double Coupons. GLPs guarantee low prices on certain high volume items that are surveyed and updated every four weeks. Price Breakers are weekly advertised items that offer significant savings. Big Buys are club size items at prices competitive to club store prices and Multi-Buys offer Ralphs shoppers the opportunity to purchase club store quantities of regular sized items at prices competitive to club store prices. In conjunction with this new campaign Ralphs' private label offering of approximately 2,800 products provides value to the customer. In the second quarter of 1994, Ralphs began more aggressively promoting perishables through weekly ad features and lower prices. In addition, Ralphs increased the number of storewide GLPs. Further, a mailer program was intensified to highlight the perishable pricing and increased GLPs. Ralphs stores promote sales through the use of product coupons, consisting of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a double coupon program in all stores with Ralphs matching the price reduction offered by the manufacturer. Ralphs also generates store traffic through weekly advertised specials, special sales promotions such as discounts on recreational activities, seasonal and holiday promotions, increased private label selection, club pack items and exclusive product offerings. Current advertising by Ralphs has substantially the same market coverage as Food 4 Less and it is expected that following the Merger duplicative advertising can be eliminated. The Food 4 Less warehouse stores utilize print and radio advertising which emphasizes Food 4 Less' low-price leadership, rather than promoting special prices on individual items. The Food 4 Less warehouse stores also utilize weekly advertising circulars, customized to local communities, which highlight the merchandise offered in each store. INFORMATION SYSTEMS AND TECHNOLOGY Ralphs' management utilizes technology and industrial engineering methods to enhance operating efficiency. Every checkout lane in every Ralphs store has a point of sale terminal. Information from these terminals is utilized to allocate shelf space, select merchandise based on the buying patterns of each store, reduce out-of-stocks and increase efficiency at the checkstand and in the warehouses. Industrial engineering methods are used to schedule labor thereby improving productivity at the store level and in warehousing and distribution operations. Ralphs was the first supermarket chain in the western United States to adopt scanning in all of its stores and has upgraded this equipment through the purchase of IBM 4680 point-of-sale computers. All Ralphs stores use laser scanning equipment, operating through an integrated computer system, to scan the Universal Product Code, which provides prices and descriptions for most products. Ralphs has a Uniform Communications Standard purchase order system that electronically links Ralphs to major suppliers via computer. This system has enabled the automated processing of purchase orders which management believes reduces the lead time required for product purchases. In Fiscal 1993, Ralphs completed installation of an industry standard, direct store delivery receiving system for goods delivered directly by vendors. This system allows the receipt of each order to be recorded electronically, thereby confirming product retail price and purchase authorization. This system has reduced the incidence of billing errors and unauthorized deliveries. Industrial engineering standards have been established for all major work functions in Ralphs stores, ranging from stocking to checkout. Performance of each major department in each store is measured weekly against these standards. Similar measurements are made in Ralphs' distribution, warehouse and manufacturing operations. Ralphs believes that its application of qualitative methods to the operation of the business has given it a competitive advantage and has better enabled management to run its business efficiently and to control costs. The Company plans to convert the Food 4 Less management information systems to the Ralphs management information systems. Ralphs stores that will be converted to the Food 4 Less format will continue to use the Ralphs programs. 67 79 NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS The Northern California Division of Food 4 Less operates 19 conventional supermarkets in the greater San Francisco Bay Area under the names "Cala" and "Bell," and six warehouse format stores under the "Foods Co." name. Management believes that the Northern California Division has excellent store locations in the city of San Francisco that are very difficult to replicate. The Midwestern Division of Food 4 Less operates 38 stores, of which 33, including ten former "Food Barn" stores which Food 4 Less acquired in March 1994, are warehouse format stores operated under the "Food 4 Less" name, and five of which are conventional supermarkets operated under the "Falley's" name. Of these 38 stores, 34 are located in Kansas and four are located in Missouri. Management believes the Food 4 Less warehouse format stores are the low-price leaders in each of the markets in which they compete. The Northern California Division's conventional store strategy is to attract customers through its convenient locations, broad product line and emphasis on quality and service and its advertising and promotion strategy highlights the reduced price specials offered in its stores. In contrast, the Company's warehouse format stores, operated under the Food 4 Less name in the Midwestern Division and the Foods Co. name in the Northern California Division, emphasize lowest overall prices rather than promoting special prices on individual items. The Northern California Division's conventional stores range in size from approximately 8,900 square feet to 32,800 square feet, and average approximately 19,400 square feet. The Northern California Division's warehouse stores range in size from approximately 30,000 square feet to 59,600 square feet, and average approximately 37,900 square feet. The Midwestern Division's warehouse format stores range in size from approximately 8,800 square feet to 60,200 square feet and average approximately 37,300 square feet. The Northern California Division purchases merchandise from a number of suppliers; however, approximately 40% of its purchases are made through Certified Grocers of California, Ltd. ("Certified"), a food distribution cooperative, pursuant to supply contracts. The Northern California Division does not operate its own warehouse facilities, relying instead on direct delivery to its stores by Certified and other vendors. Food 4 Less' Southern California warehouse facilities supply a portion of the merchandise sold in the Northern California Division stores, and it is expected that, following completion of the Merger, the Company's Southern California warehouses will continue to do so. The Midwestern Division's primary supplier is Associated Wholesale Grocers ("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The Midwestern Division does not operate a central warehouse, but purchases approximately 73% of the merchandise sold in its stores from AWG. Management believes that, as AWG's largest single customer, the Midwestern Division has significant buying power, allowing it to provide a broader product line more economically than it could if it maintained its own full-line warehouse. The Midwestern Division produces approximately 50% of all case-ready fresh meat items sold in its stores at its central meat plant located in Topeka, Kansas. In fiscal 1990, the Northern California Division initiated a remodeling program to upgrade its stores and to increase profitability. Food 4 Less remodeled 15 stores during the past five fiscal years, and opened five new stores during the past four fiscal years. During fiscal 1994, Food 4 Less opened one new warehouse store, converted three existing stores to the warehouse format and remodeled one conventional format store. The Company has closed 4 stores during the past five fiscal years and increased its number of stores from 22 at the end of the fiscal year ended June 30, 1990 to 24 at the end of the fiscal year ended June 25, 1994. The average square feet per store has increased from 20,000 at the end of fiscal 1990 to 23,300 at the end of fiscal 1994. The Company plans to open one additional warehouse format store and remodel two conventional format stores during fiscal 1995. Management plans to further expand the Northern California Division in the future by acquiring existing stores and constructing new stores, including warehouse stores. The Northern California Division Food 4 Less warehouse stores were renamed "Foods Co." in fiscal 1994 following the sale by Food 4 Less of exclusive rights to use the "Food 4 Less" name in Northern California to Fleming Companies, Inc. See "-- Licensing Operations." The Company intends to focus its Midwestern Division expansion primarily on its Food 4 Less operations. While Food 4 Less expects to construct new stores, it may also expand operations by purchasing existing Food 4 Less stores from unaffiliated licensees, or by acquiring existing supermarkets and converting 68 80 them to the Food 4 Less warehouse format. The acquisition in March 1994 of ten warehouse stores formerly operated as "Food Barn" stores increased the Midwestern Division's Food 4 Less warehouse store count from 23 at June 26, 1993 to 33 at June 25, 1994. During the last five fiscal years, the Midwestern Division has opened 3 new stores, acquired 13 stores, closed one store and remodeled 10 stores. COMPETITION The supermarket industry is highly competitive and characterized by narrow profit margins. The Company's competitors in each of its operating divisions include national and regional supermarket chains, independent and specialty grocers, drug and convenience stores, and the newer "alternative format" food stores, including warehouse club stores, deep discount drug stores and "super centers." Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. The Company regularly monitors its competitors' prices and adjusts its prices and marketing strategy as management deems appropriate in light of existing conditions. Some of the Company's competitors have greater financial resources than the Company and could use these resources to take steps which could adversely affect the Company's competitive position. The Southern California stores compete with several large national and regional chains, principally Albertsons, Hughes, Lucky, Smith's, Stater Bros., and Vons, and with smaller independent supermarkets and grocery stores as well as warehouse clubs and other "alternative format" food stores. The Northern California Division competes with large national and regional chains, principally Lucky and Safeway, and with independent supermarket and grocery store operators and other retailers, including "alternative format" stores. The Midwestern Division's supermarkets compete with several national and regional supermarket chains, principally Albertsons and Dillons, as well as independent and "alternative format" stores such as Hypermarket USA. Food 4 Less positions its Food 4 Less warehouse format supermarkets as the overall low-price leader in each marketing area in which they operate. In addition, management believes that Ralphs is a leading competitor in many of its marketing areas, based on its strong customer franchise, desirable store locations, technology and efficient distribution systems. EMPLOYEES RALPHS At January 29, 1995, Ralphs had 6,213 full-time and 8,940 part-time employees as follows:
EMPLOYEE TYPE UNION NON-UNION TOTAL --------------------------------------------- ------ --------- ------ Hourly....................................... 13,854 245 14,099 Salaried..................................... -- 1,054 1,054 ------ --------- ------ Total employees.................... 13,854 1,299 15,153
Of Ralphs' 15,153 total employees at January 29, 1995, 13,854 were covered by union contracts principally with the UFCW. The table below sets forth information regarding Ralphs' union contracts which cover more than 100 employees.
UNION NUMBER OF EMPLOYEES COVERED DATE OF EXPIRATION - ---------------------------------- -------------------------------- ------------------- UFCW 10,723 clerks and meatcutters October 6, 1996 International Brotherhood of 1,675 drivers and warehousemen September 13, 1998 Teamsters Hotel Employees and Restaurant Employees 977 September 10, 1995 Hospital and Service Employees 328 Los Angeles January 19, 1997 67 San Diego April 20, 1997
69 81 FOOD 4 LESS At June 25, 1994, Food 4 Less had a total of 5,728 full-time and 8,959 part-time employees as follows:
EMPLOYEE TYPE UNION NON-UNION TOTAL ----------------------------------------------- ------ --------- ------ Hourly......................................... 11,882 1,907 13,789 Salaried....................................... -- 898 898 ------ --------- ------ Total employees...................... 11,882 2,805 14,687
Of Food 4 Less' 14,687 total employees at June 25, 1994, 11,882 were covered by union contracts, principally with UFCW. The table below sets forth information regarding Food 4 Less' union contracts which cover more than 100 employees.
NUMBER OF DATE OF UNION EMPLOYEES COVERED EXPIRATION - ---------------------------------------------- -------------------------- --------------------- UFCW.......................................... 7,908 Southern California October 6, 1996 clerks and meatcutters Hospital and Service Employees................ 299 Southern California January 19, 1997 store porters International Brotherhood of Teamsters........ 886 Southern California September 13, 1998 produce drivers and warehousemen UFCW.......................................... 971 Northern California February 28, 1995(a) clerks and meatcutters UFCW.......................................... 1,532 Southern California February 25, 1996 clerks and meatcutters Bakery and Confectionery Workers.............. 192 Southern California July 8, 1995 bakers
- --------------- (a) Certain of such employees are covered by a contract expiring on June 2, 1996. The contract which expired on February 28, 1995 and an additional contract which expired on March 4, 1995 have each been provisionally extended for a five-month period and currently are being renegotiated. Pursuant to their collective bargaining agreements, both Ralphs and Food 4 Less contribute to various union-sponsored, multi-employer pension plans. The terms of most collective bargaining agreements that cover employees of conventional stores operated by Food 4 Less are substantially identical to the terms of the corresponding collective bargaining agreements of Ralphs. The terms of each company's collective bargaining agreements generally will remain in effect following the Merger, although it is expected that, as a result of current negotiations, Ralphs' collective bargaining agreements will apply to all Company stores converted to the Ralphs name and format, and the collective bargaining agreements that cover employees of Food 4 Less warehouse format stores will apply to all Company stores converted to the Food 4 Less name and warehouse format. Management believes that both Ralphs and Food 4 Less have good relations with their employees. LICENSING OPERATIONS Food 4 Less owns the "Food 4 Less" trademark and service mark and licenses the "Food 4 Less" name for use by others. In Fiscal 1994, earnings from licensing operations were approximately $270,000. An exclusive license with the right to sublicense the "Food 4 Less" name in all areas of the United States except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas, Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"), a major food wholesaler and retailer. In August of 1993, Food 4 Less amended (the "Amendment") its licensing agreement with Fleming to give Fleming exclusive use of the Food 4 Less name in Northern California and Food 4 Less exclusive use in Southern California. Fleming paid Food 4 Less a fee of $1.9 million for the Amendment. With the exception of Northern California, and subject to the Amendment and certain proximity restrictions, Food 4 Less retains the right to open and operate its own 70 82 "Food 4 Less" warehouse supermarkets throughout the United States. As of June 25, 1994, there were 158 Food 4 Less warehouse supermarkets in 20 states, including the 61 stores owned or leased and operated by Food 4 Less. Of the remaining 97 stores, Fleming operates three under license, 67 are operated under sublicenses from Fleming and 27 are operated by other licensees. PROPERTIES At October 1, 1994, Ralphs and Food 4 Less operated a total of 429 stores, as set forth in the table below:
TOTAL SELLING SQUARE FEET SQUARE FEET ----------- ----------- NUMBER OF SUPERMARKETS -------------- OWNED LEASED ----- ------ (IN THOUSANDS) Southern California..................... 49 317(a) 12,929 9,174 Northern California..................... -- 25 610 424 Midwestern.............................. 2(b) 36 1,357 1,025 ----- ------ ----------- ----------- Total......................... 51 378(c) 14,896 10,623 ===== ===== ========= =========
- --------------- (a) Includes 17 stores located on real property subject to a ground lease. (b) Includes one store that is partially owned and partially leased. (c) The average remaining term (including renewal options) of Ralphs' and Food 4 Less' supermarket leases is 27 years. The number of Ralphs and Food 4 Less stores by size classification as of October 1, 1994 is as follows:
AVERAGE GROSS SQUARE FEET AVERAGE SELLING SQUARE FEET NUMBER OF STORES TOTAL SQUARE --------------------------- --------------------------- ----------------------------------- FEET RALPHS FOOD 4 LESS RALPHS FOOD 4 LESS RALPHS FOOD 4 LESS TOTAL - ---------------- ----------- ----------- ----------- ----------- --------- ----------- ----- 8,800 - 15,599 -- 13,175 -- 9,478 -- 8 8 15,600 - 25,000 21,867 21,740 16,709 14,880 3 92 95 25,001 - 30,000 27,926 26,966 19,725 18,633 15 37 52 30,001 - 35,000 32,993 32,574 24,204 23,247 31 51 82 35,001 - 40,000 37,254 36,804 27,053 26,272 32 27 59 40,001 - 45,000 43,264 42,329 31,422 30,038 59 12 71 45,001 - 50,000 46,356 48,037 33,185 34,572 15 11 26 50,001 - 84,280 68,400 55,056 48,466 37,814 13 23 36
At October 1, 1994, the Company also operated 20 distribution, warehouse and administrative facilities and five manufacturing and processing facilities, 14 of which are owned and 11 of which are leased. Certain of the facilities are expected to be sold, closed or subleased following completion of the Merger. See "-- Warehousing and Distribution." Ralphs' distribution and warehouse facilities include the 17 million cubic foot ASRS warehouse for nonperishable items that Ralphs opened in November 1987 and the 5.4 million cubic foot PSC facility for the processing and storage of perishable products opened in mid-1992. Food 4 Less operates two warehouse facilities: The largest of such facilities is Food 4 Less' central office, manufacturing and warehouse complex in La Habra, California, which occupies approximately 1.4 million total square feet over 75 acres. Food 4 Less has entered into a lease of the La Habra property which expires in 2001 (and which may be extended for up to 15 years at the election of Food 4 Less), with American Food and Drug, Inc. ("AFDI"), a subsidiary of American Stores Company, and has an option to purchase such property. Rent on the La Habra property was $6.3 million in Fiscal 1994. Four of Food 4 Less' supermarkets are also leased from AFDI. In addition to the La Habra facility, Food 4 Less leases a 321,000 square foot warehouse in Los Angeles. This warehouse, which was formerly owned by Food 4 Less, was the subject of a sale leaseback arrangement entered into by Food 4 Less in August 1990. For information regarding the Company's plan to consolidate its warehouse facilities following completion of the Merger, see "-- The Merger -- Substantial Cost Savings Opportunities -- Warehousing and Distribution Efficiencies." LEGAL PROCEEDINGS In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against RGC and Food 4 Less and other major supermarket chains located in Southern 71 83 California, alleging that they conspired to refrain from competing in the retail market for fluid milk and to fix the retail price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14, and December 23, 1992, respectively. The Court has yet to certify any of these classes. A demurrer to the complaints was denied. Notwithstanding that it believes there is no merit to these cases, RGC had reached an agreement in principle to settle them. However, no settlement agreement has been signed. Food 4 Less is continuing to actively defend these suits and Ralphs has elected to defer any further settlement discussions until after the consummation of the Merger. The Company does not believe that the resolution of these cases will have a material adverse effect on its future financial condition. Any settlement would be subject to court approval. On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates") commenced an action in San Diego Superior Court alleging that RGC breached an alleged utility rate consulting agreement. In December 1992, a jury returned a verdict of approximately $4.9 million in favor of Koteen Associates and in March 1993, attorney's fees and certain other costs were awarded to the plaintiff. RGC has appealed the judgment and fully reserved in Fiscal 1992 against an adverse ruling by the appellate courts. In April 1994, RGC was served with a complaint filed by over 240 former employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery Plaintiffs"). The action was commenced in the United States District Court for the Central District of California, and, among other claims, the Bakery Plaintiffs alleged that RGC breached its collective bargaining agreement and violated the Workers Adjustment Retraining Notification Act (the "WARN Act") when it downsized and subsequently closed the bakery. In their complaint, the Bakery Plaintiffs are seeking damages for lost wages and benefits as well as punitive damages. The Bakery Plaintiffs also named RGC and two of its management employees in fraud, conspiracy and emotional distress causes of action. In addition, the Bakery Plaintiffs sued their union local for breach of its duty of fair representation and other alleged misconduct, including fraud and conspiracy. The defendants have answered the complaint and discovery is ongoing. Trial is set for February, 1996, and RGC is vigorously defending this suit. Management believes, based on its assessment of the facts, that the resolution of this case will not have a material effect on the Company's financial position or results of operations. In addition, Food 4 Less and Ralphs are defendants in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on Food 4 Less' or Ralphs' financial position or results of operations. CALIFORNIA SETTLEMENT AGREEMENT On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement Agreement (the "Settlement Agreement") with the State of California to settle potential antitrust and unfair competition claims the State of California asserted against Ralphs and Food 4 Less relating to the effects of the Merger on supermarket competition in Southern California (the "State Claims"). Without admitting any liability in connection with the State Claims, Food 4 Less and Ralphs agreed in the Settlement Agreement to divest 27 specific stores in Southern California. Under the Settlement Agreement, the Company must divest 14 stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. The Company also agreed not to acquire new stores from third parties in the six Southern California areas specified in the Settlement Agreement for five years following the date of the Settlement Agreement. If the Company fails to divest the required stores by the two dates set forth in the Settlement Agreement, the Company has agreed not to object to the appointment of a trustee to effect the required sales. The Settlement Agreement also requires the Company to pay the reasonable fees and costs of the attorneys and experts of the State of California associated with its review. GOVERNMENT REGULATION Ralphs and Food 4 Less are subject to regulation by a variety of governmental agencies, including, but not limited to, the California Department of Alcoholic Beverage Control, the California Department of Agriculture, the U.S. Food and Drug Administration, the U.S. Department of Agriculture and state and local health departments. In addition, the Merger is subject to the review of the Federal Trade Commission and the 72 84 requirements and waiting period imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). The waiting period under the HSR Act has expired and on February 2, 1995, the Federal Trade Commission advised Food 4 Less and Ralphs that it had closed its investigation of the Merger. ENVIRONMENTAL MATTERS In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a subsurface characterization of Ralphs' Atwater property. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where Ralphs' Atwater property is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, because of regional groundwater contamination. On June 18, 1991, the EPA made its own request for information concerning the Atwater property. Since that time, the Regional Board has requested further investigations by Ralphs. Ralphs has conducted the requested investigations and has reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Atwater property. Ralphs is not a party to that Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on Ralphs' property. On or about May 2, 1995 the EPA mailed a General Notice Letter to 14 parties, including Ralphs as owner and operator of the Atwater property, naming them as additional potentially responsible parties ("PRPs"). As such, Ralphs and the other PRPs may be requested to perform or pay remediation or pay oversight costs in connection with the Superfund site. Ralphs is evaluating the implications of this letter to determine an appropriate response. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. Ralphs has removed underground storage tanks and remediated soil contamination at the Atwater property. In some instances the removals and the contamination were associated with grocery business operations; in others they were associated with prior property users. Although the possibility of other contamination from prior operations or adjacent properties exists at the Atwater property, management does not believe that the costs of remediating such contamination will be material to the Company. Apart from the Atwater property, Ralphs and Food 4 Less have recently had environmental assessments performed on a significant portion of Ralphs' facilities and Food 4 Less' facilities, including warehouse and distribution facilities. Management believes that any responsive actions required at the examined properties as a result of such assessments will not have a material adverse effect on its financial condition or results of operations. Ralphs has incurred approximately $4.5 million in non-recurring capital expenditures for conversion of refrigerants during 1994. Food 4 Less may incur some additional capital expenditures for such conversion. Other than these expenditures, neither Ralphs nor Food 4 Less has incurred material capital expenditures for 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. 73 85 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information regarding the persons who are expected to serve as the executive officers and directors of the Company and New Holdings, as successor to Holdings, following the consummation of the Merger, the FFL Merger and the Reincorporation Merger.
YEARS OF SUPERMARKET INDUSTRY SERVICE ---------------------------- NAME AGE POSITION MANAGERIAL POSITIONS TOTAL - ------------------------- --- ----------------------------------- -------------------- ----- Ronald W. Burkle 42 Director and Chairman of the Board 19 24 of New Holdings and the Company Byron E. Allumbaugh 63 Director and Chief Executive 36 36 Officer of New Holdings and the Company George G. Golleher 47 Director and Vice Chairman of New 21 21 Holdings and the Company Alfred A. Marasca 53 Director of the Company and 30 38 President and Chief Operating Officer of New Holdings and the Company Joe S. Burkle 71 Director and Executive Vice 44 48 President of New Holdings and the Company Greg Mays 48 Executive Vice President of New 21 21 Holdings and the Company Terry Peets 50 Executive Vice President of New 18 18 Holdings and the Company Jan Charles Gray 47 Senior Vice President, General 20 31 Counsel and Secretary of New Holdings and the Company Alan J. Reed 48 Senior Vice President and Chief 22 22 Financial Officer of New Holdings and the Company Patrick L. Graham 45 Director of New Holdings and the -- -- Company Mark A. Resnik 47 Director of New Holdings and the -- -- Company
Ronald W. Burkle has been a Director and the Chairman of the Board and Chief Executive Officer of Food 4 Less since its inception in 1989. Mr. Burkle co-founded Yucaipa in 1986 and has served as Director, Chairman of the Board, President and Chief Executive Officer of FFL since 1987 and of Holdings since 1992. From 1986 to 1988, Mr. Burkle was Chairman and Chief Executive Officer of Jurgensen's, a Southern California gourmet food retailer. Before joining Jurgensen's, Mr. Burkle was a private investor in Southern California. Mr. Burkle is the son of Joe S. Burkle. Byron E. Allumbaugh has been Chairman of the Board and Chief Executive Officer of Ralphs since 1976 and a Director since 1988. He also is a Director of the H.F. Ahmanson Company, El Paso Natural Gas Company and Ultramar, Inc. George G. Golleher has been a Director of Food 4 Less since its inception in 1989 and has been the President and Chief Operating Officer of Food 4 Less since January 1990. From 1986 through 1989 Mr. Golleher served as Senior Vice President, Finance and Administration, of The Boys Markets, Inc. Prior to joining The Boys Markets, Inc. in 1984, Mr. Golleher served as Vice President and Chief Financial Officer of Mayfair Markets, Inc. from 1983 to 1984. Alfred A. Marasca has been President, Chief Operating Officer and a Director of Ralphs since February 1994 and he was President from February 1993 to February 1994, Executive Vice President, Retail from 1991 until 1993 and Executive Vice President, Marketing from 1985 to 1991. 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 74 86 supermarket industry in 1946, and served as President and Chief Executive Officer of Stater Bros. Markets, a Southern California supermarket chain. Prior to 1987, Mr. Burkle was a private investor in Southern California. Mr. Burkle is the father of Ronald W. Burkle. Greg Mays has been Executive Vice President -- Finance and Administration, and Chief Financial Officer of Food 4 Less and of Holdings since December 1992. From 1989 until 1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. and, from 1991 to December 1992, President and Chief Financial Officer of Almac's. From April 1988 to June 1989, Mr. Mays was Chief Financial Officer of Food 4 Less of Modesto, Inc. and Cala Foods, Inc. Terry Peets has been Executive Vice President of Ralphs since February 1994. He was Senior Vice President, Marketing from 1991 to February 1994, Senior Vice President, Merchandising from 1990 to 1991, Group Vice President, Merchandising from 1988 to 1990 and Group Vice President, Store Operations from 1987 to 1988. Jan Charles Gray has been Senior Vice President, General Counsel and Secretary of Ralphs since 1988. He was Senior Vice President and General Counsel from 1985 to 1988 and Vice President and General Counsel from 1978 to 1985. Alan J. Reed has been Senior Vice President and Chief Financial Officer of Ralphs since 1988. He was Senior Vice President, Finance from 1985 to 1988 and Vice President, Finance from 1983 to 1985. Patrick L. Graham joined Yucaipa as a general partner in January 1993. Prior to that time he was a Managing Director in the corporate finance department of Libra Investments, Inc. from 1992 to 1993 and PaineWebber Inc. from 1990 to 1992. From 1982 to 1990, he was a Managing Director of the corporate finance department of Drexel Burnham Lambert Incorporated and an Associate Director in the corporate finance department of Bear Stearns & Co., Inc. Mark A. Resnik has been a Director and the Vice President and Secretary of Food 4 Less since its inception in 1989, co-founded Yucaipa in 1986 and has been a Director, Vice President and Secretary of FFL since 1987. From 1986 until 1988, Mr. Resnik served as a Director, Vice President and Secretary for Jurgensen's. From 1983 through 1986, Mr. Resnik served as a Director, Vice President and General Counsel of Stater Bros. Markets. In addition to the directors named above, two members will be nominated to the Board of Directors of each of the Company and New Holdings by Apollo, and one member will be nominated to the Board of Directors of each of the Company and New Holdings by the other New Equity Investors, pursuant to the terms of the 1995 Stockholders Agreement. See "Description of Capital Stock -- 1995 Stockholders Agreement." All directors of the Company and New Holdings will hold office until the election and qualification of their successors. Executive officers of each of the Company and New Holdings will be chosen by its Board of Directors and will serve at its discretion. It is anticipated that neither the Company nor New Holdings will pay any fees or remuneration to its directors for service on the board or any board committee, but that the Company and New Holdings will reimburse directors for their ordinary out-of-pocket expenses incurred in connection with attending meetings of the Board of Directors. 75 87 EXECUTIVE COMPENSATION EMPLOYMENT AGREEMENTS Concurrently with the consummation of the Merger, the Company will enter into employment agreements with certain of the current executive officers of Ralphs and Food 4 Less. It is expected that Byron E. Allumbaugh, George G. Golleher, Alfred A. Marasca, as well as other executive officers of the Company, including Messrs. Mays, Peets, Gray and Reed, will enter into three-year employment contracts with the Company and that the existing employment contracts, if any, of such officers will be cancelled. New Allumbaugh Agreement. The employment agreement between the Company and Byron Allumbaugh, 63, is expected to provide for a salary of $1 million for the first year and $1.25 million for the second year. If Mr. Allumbaugh continues as the Chief Executive Officer during the third year following the Merger, he would be entitled to a salary of $2 million and if he is employed in another capacity then he would be entitled to a salary of $1.25 million for the third year. Mr. Allumbaugh will be entitled to a bonus equal to his salary in each year if certain prescribed earnings targets (the "Earnings Targets") for the year are reached. If the Company completes an initial public offering of capital stock during the first two years of Mr. Allumbaugh's employment, Mr. Allumbaugh will remain Chief Executive Officer for one year after the public offering. If the public offering is anticipated to occur during the third year of Mr. Allumbaugh's employment agreement, Mr. Allumbaugh will resign as Chief Executive Officer six months prior to the intended date of the public offering but will continue to be employed at the lesser compensation level provided in his employment agreement until its termination. New Golleher Agreement. Food 4 Less is currently a party to a five-year employment agreement with George G. Golleher providing for annual base compensation of $350,000, plus employee benefits and an incentive bonus calculated in accordance with a formula based on Food 4 Less' earnings. Under the employment agreement, Mr. Golleher may terminate his employment agreement in the event of a change of control of Food 4 Less, in which case he is entitled to receive all of the salary and benefits provided under the agreement for the remaining term thereof, notwithstanding the termination of his employment. In connection with the consummation of the Merger, the Food 4 Less board of directors has authorized the payment of a special bonus to George Golleher in a lump sum amount equal to the base salary due him under the remaining term of his employment agreement. As a condition of the payment of such bonus, Mr. Golleher's existing employment agreement will be cancelled, and he will enter into a new agreement containing terms to be mutually agreed upon between Food 4 Less and Mr. Golleher. The new employment agreement is expected to provide for an annual salary of $500,000 plus a bonus equal to his salary in each year if the Earnings Targets are reached. Certain existing contractual rights of Mr. Golleher, including the right to be elected to the Company's board of directors and the right to require the Company to repurchase certain of his shares of New Holdings stock upon his death, disability or termination without cause, will continue in effect pursuant to the new employment agreement. New Marasca Agreement. The employment agreement between the Company and Alfred Marasca is expected to provide for a salary of $500,000 per annum and an annual bonus equal to his salary if the Earnings Targets for the year are reached. General Provisions of the New Employment Agreements. The new employment agreements are expected to provide generally that the Company may terminate the agreement for cause or upon the failure of the employee to render services to the Company for a continuous period to be agreed upon by the Company and the employee because of the employee's disability. In addition, the employee's services may be suspended upon notice by the Company and in such event the employee will continue to be compensated by the Company during the remainder of the term of the agreement subject to certain offsets if the employee becomes engaged in another business. Existing Food 4 Less Employment Agreements. Food 4 Less entered into employment agreements with 24 officers providing for their employment for a one-year term commencing on the date of a change of control of Food 4 Less. These agreements provide for the payment of an incentive bonus calculated in accordance with Food 4 Less policies, and certain of the agreements provide for the payment of a special bonus payable upon a change of control (provided certain financial performance targets have been met). These agreements will become effective upon the consummation of the Merger. Greg Mays, who will be an Executive Vice 76 88 President of the Company, will be entitled to receive a base salary of not less than $250,000 and a special bonus of $150,000 (provided certain financial performance targets have been met). It is anticipated that some, but not all, of these employment agreements will be replaced by new employment agreements with the Company. Joe Burkle Consulting Agreement. Food 4 Less has a consulting agreement with Joe S. Burkle providing for compensation of $3,000 per week, pursuant to which Mr. Burkle provides the management and consulting services of an executive vice president. The agreement has a five-year term, which is automatically renewed on January 1 of each year for a five-year term unless sixty days' notice is given by either party; provided that if Food 4 Less terminates Mr. Burkle's services for reasons other than for good cause, the payments due under the agreement continue for the balance of the term. It is expected that the Company will assume Mr. Burkle's consulting agreement upon the consummation of the Merger. EQUITY APPRECIATION RIGHTS PLAN RGC has 1,500,000 EARs outstanding that were granted under the RGC 1988 Equity Appreciation Rights Plan, as amended (the "EAR Plan"). The outstanding EARs are held by 36 officers and former officers of Ralphs, including Byron Allumbaugh, Alfred Marasca, Alan Reed, Terry Peets and Jan Charles Gray. All outstanding EARs are vested in full and not subject to forfeiture by the holders, except in the event a holder's employment is terminated for cause within the meaning of the EAR Plan. The outstanding EARs represent the right to receive, in the aggregate, 15% of the increase of the appraised value of RGC's equity at the time of exercise over a base value of $120 million. Concurrently with the consummation of the Merger, the outstanding EARs will be redeemed for $17.8 million in cash and a deferred payment of up to $5.0 million. An additional $10 million of EAR payments that would otherwise be payable upon consummation of the Merger will be cancelled in exchange for the issuance of the Reinvestment Options (as defined). No future compensation expense will be recorded as the cancellation of certain EAR liabilities ($10.0 million) in consideration for the Reinvestment Options is deemed by management to reflect fair and equal value. See "-- New Management Stock Option Plan and Management Investment," "Description of Capital Stock -- New Equity Investment" and "Certain Relationships and Related Transactions -- Food 4 Less." The price to redeem the EARs is based on a $517 million valuation (the maximum valuation possible under the EAR Plan) of RGC's equity. NEW MANAGEMENT STOCK OPTION PLAN AND MANAGEMENT INVESTMENT Upon the consummation of the Merger, certain members of Ralphs' management and Food 4 Less' management will be entitled to receive options to purchase common stock of New Holdings (the "New Options"). The New Options will have a term of ten years and the exercise price with respect to each New Option will be $10 per share, which is equal to the price paid by the New Equity Investors for the New Equity Investment. The New Options will represent 7.5% of the total equity of New Holdings, and will be allocated as follows: New Options representing 1.5%, 0.5% and 0.5% of the total equity of New Holdings will be granted to Byron Allumbaugh, George Golleher and Alfred Marasca, respectively (the "Tier One Options"). The Tier One Options will be fully vested upon issuance and will be immediately exercisable. New Options for an additional 2.5% of the total equity of New Holdings will be granted to certain other management employees of the Company (the "Tier Two Options"). Fifty percent (50%) of the Tier Two Options granted to each holder will vest immediately upon issuance and 10% will vest each year thereafter. In addition, New Options representing an aggregate of 2.5% of the total equity of New Holdings will be issued to holders of EARs in exchange for the cancellation of $10 million of the EAR payments which would otherwise be payable upon consummation of the Merger (the "Reinvestment Options"). The value of the EAR payments cancelled will be credited against the exercise price for each Reinvestment Option. The Reinvestment Options will be fully vested upon issuance and will be immediately exercisable. Certain of Ralphs' officers, including Messrs. Allumbaugh, Marasca, Reed, Peets and Gray currently hold options to purchase common stock of RSI. These options will be cancelled for cash payments aggregating $880,000 in connection with the Merger. 77 89 Each holder of New Options (collectively, the "Management Shareholders") will also execute a management shareholder agreement with New Holdings (collectively, the "Management Shareholder Agreements"). The Management Shareholder Agreements generally will provide New Holdings with a right of first refusal in the event of proposed sales of New Holdings stock acquired by the Management Shareholders upon the exercise of New Options and an option, exercisable following any termination for cause of a Management Shareholder's employment, or if the Management Shareholder commences employment with a competitor, to repurchase at Fair Market Value (as defined in the Management Shareholder Agreements) any New Holdings stock acquired by such Management Shareholder upon the exercise of New Options. Each Management Shareholder Agreement will contain certain rights of the Management Shareholders to participate in sales by Yucaipa of New Holdings stock and certain obligations of the Management Shareholders to sell their New Holdings stock in the case of a sale for cash of all of the outstanding New Holdings stock. Finally, the Management Shareholders will be required to vote their New Holdings stock to elect to the New Holdings Board of Directors the directors nominated by Yucaipa, Apollo and the other New Equity Investors under New Holdings' 1995 Stockholders Agreement. See "Description of Capital Stock -- 1995 Stockholders Agreement." The Management Shareholders Agreements, and all rights and obligations of the Management Shareholders thereunder described above, will terminate upon an initial public offering of New Holdings common stock meeting certain criteria. SUMMARY COMPENSATION TABLE -- RALPHS The following Summary Compensation Table sets forth information concerning the compensation of the Chief Executive Officer and the other four most highly compensated executive officers of Ralphs who are expected to serve as executive officers of the Company, whose total annual salary and bonus exceeded $100,000 for the year ended January 29, 1995.
LONG TERM COMPENSATION AWARDS ------------------- ANNUAL COMPENSATION SECURITIES ---------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS/SARS(#) COMPENSATION($)(2) - ---------------------------- ----- -------- ----------- ------------------- ------------------ Byron E. Allumbaugh, 1994 650,000 0 N/A 25,580 Chairman and 1993 645,000 387,000 N/A 20,075 Chief Executive Officer 1992 620,000 372,000 587,753 21,897 Alfred A. Marasca, 1994 400,000 0 N/A 10,580 President and 1993 340,000 204,000 N/A 7,187 Chief Operating Officer 1992 296,260 148,125 308,812 8,206 Alan J. Reed, 1994 225,000 0 N/A 6,248 Senior Vice President, 1993 222,500 111,250 N/A 8,879 Finance and 1992 211,250 105,625 154,406 6,125 Chief Financial Officer Terry Peets, 1994 215,000 0 N/A 7,562 Executive Vice President 1993 192,500 96,250 N/A 6,127 1992 182,500 91,250 154,406 6,027 Jan Charles Gray, 1994 213,750 0 N/A 9,047 Senior Vice President, 1993 207,500 103,750 N/A 9,084 General Counsel and 1992 196,250 98,125 154,406 6,605 Secretary
- --------------- (1) Bonuses for services performed in Fiscal Year 1994 were paid in Fiscal Year 1995. Bonus amounts for Messrs. Allumbaugh, Marasca, Reed, Peets and Gray were $390,000, $240,000, $112,500, $107,500 and $106,875 respectively. (2) Represents (i) insurance premiums and the dollar value of the remainder of premiums paid under the Senior Executive Supplemental Benefit Plan, and (ii) Ralphs' contributions under the Ralphs Thrift Incentive Plan. The respective amount paid for Messrs. Allumbaugh, Marasca, Reed, Peets and Gray are as follows: (A) insurance premiums: $18,500, $6,600, $4,025, $5,460 and $4,500; (B) dollar value of the remainder of premiums: $5,232, $2,702, $0, $0 and $2,699; (C) incentive plan contributions: $1,848, $1,278, $2,223, $2,102 and $1,848. 78 90 AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION/SAR VALUES -- RALPHS
NUMBER OF VALUE OF SECURITIES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($) ACQUIRED --------------------- -------------------- ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/ NAME (#)(1) REALIZED($) UNEXERCISABLE(2) UNEXERCISABLE(3)(4) - ------------------------------- ----------- ----------- --------------------- -------------------- Byron E. Allumbaugh............ 70,000 1,961,646 352,652/ 0/ 375,101 3,923,290 Alfred A. Marasca.............. 13,500 378,317 108,084/ 0/ 259,228 1,639,375 Alan J. Reed................... 10,500 294,247 54,042/ 0/ 145,864 1,275,069 Terry Peets.................... 7,500 210,176 54,042/ 0/ 132,864 910,764 Jan Charles Gray............... 0 0 54,042/ 0/ 132,864 1,120,940
- --------------- (1) Represents EARs exercised under the EAR Plan. (2) Each number represents the aggregate number of options and EARs outstanding, as currently exercisable/unexercisable. Options and EARs were granted under different plans, not in tandem. All EARs are free standing. (3) Represents value of EARs, based on a value of $28.0235 per EAR at the time of exercise. Outstanding options are not currently in-the-money, based on current estimates of the fair market value of the Common Stock. (4) A portion of the EARs will be redeemed in connection with the Merger and the remaining EARs will be cancelled in exchange for the issuance of the Reinvestment Options by New Holdings, based upon their maximum possible valuation of $39.70 per EAR (or $517 for the total equity of RGC). For purposes of such redemptions and cancellations, the value of outstanding EARs held by Messrs. Allumbaugh, Marasca, Reed, Peets and Gray is expected to equal approximately $8.0 million, $2.7 million, $2.1 million, $1.5 million and $1.7 million, respectively. RALPHS' RETIREMENT PLANS Retirement Plan. The Ralphs Grocery Company Retirement Plan (the "Retirement Plan") is a defined benefit pension plan for salaried and hourly nonunion employees with at least one year of credited service (1,000 hours). Ralphs makes annual contributions to the Retirement Plan in such amounts as are actuarially required to fund the benefits payable to participants in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Supplemental Executive Retirement Plan. To allow Ralphs' retirement program to provide benefits based upon a participant's total compensation and without regard to other ERISA or tax code pension plan limitations, eligible executive employees of Ralphs participate in the Ralphs Grocery Company Supplemental Executive Retirement Plan and, after December 31, 1993, the Ralphs Grocery Company Retirement Supplement Plan (collectively, the "Supplemental Plan"). The Supplemental Plan also modifies the benefit formula under the Retirement Plan in other respects. Benefits provided under the Supplemental Plan were improved effective April 9, 1994. 79 91 The following table sets forth the combined estimated annual benefits payable in the form of a (single) life annuity under both the Retirement Plan and the Supplemental Plan (unreduced by the cash surrender value of any life insurance policies) to a participant in both plans who is retiring at a normal retirement date of January 1, 1995 for the specified final average salaries and years of credited service.
YEARS OF CREDITED SERVICE ------------------------------------------------------------ FINAL AVERAGE SALARY 15 20 25 30 35 - -------------------- -------- -------- -------- -------- -------- $ 100,000 $ 19,484 $ 25,978 $ 32,473 $ 38,967 $ 45,462 200,000 41,984 55,978 69,973 83,967 97,962 300,000 90,000 120,000 150,000 180,000 180,000 400,000 120,000 160,000 200,000 240,000 240,000 600,000 180,000 240,000 300,000 360,000 360,000 800,000 240,000 320,000 400,000 480,000 480,000 1,000,000 300,000 400,000 500,000 600,000 600,000 1,200,000 360,000 480,000 600,000 720,000 720,000
Messrs. Allumbaugh, Marasca, Reed, Peets and Gray have completed 36, 38, 22, 18 and 31 years of credited service, respectively. Compensation covered by the Supplemental Plan includes both salary and bonus. The calculation of retirement benefits generally is based on average compensation for the highest three years of the ten years preceding retirement. The benefits earned by a participant under the Supplemental Plan are reduced by any benefits which the participant has earned under the Retirement Plan and may be offset under certain circumstances by the cash surrender value of life insurance policies maintained by Ralphs pursuant to the split dollar life insurance agreements entered into by Ralphs and the executive. Benefits are not subject to any deduction for social security offset. It is currently anticipated, although there can be no assurance, that Ralphs and Food 4 Less salaried employees will participate in the Retirement Plan and other existing Ralphs benefit plans following the Merger. These plans are currently being evaluated to determine the feasibility of such participation. SUMMARY COMPENSATION TABLE -- FOOD 4 LESS The following Summary Compensation Table sets forth information concerning the compensation of the Chief Executive Officer and the other three most highly compensated executive officers of Food 4 Less who are expected to serve as executive officers of the Company, whose total annual salary and bonus exceeded $100,000 for services rendered in all capacities to Food 4 Less and its subsidiaries for Fiscal 1994.
ANNUAL COMPENSATION ---------------------- ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(4)($) - ---------------------------------------------- ---- --------- -------- ------------------ Ronald W. Burkle, Chairman and................ 1994 -- -- -- Chief Executive Officer(1) 1993 -- -- -- 1992 -- -- -- George G. Golleher,........................... 1994 500,000 500,000 3,937 President 1993 500,000 500,000 -- 1992 500,000 235,000 5,300 Greg Mays, Executive Vice-President........... 1994 250,000 150,000 -- Finance/Administration and 1993 108,000 75,000 -- Chief Financial Officer(2) 1992 -- -- -- Joe Burkle,................................... 1994 196,000 50,000 -- Executive Vice President(3) 1993 156,000 -- -- 1992 156,000 -- --
- --------------- (1) Ronald W. Burkle and Mark A. Resnik, Vice President and Secretary of Food 4 Less, provide services to Food 4 Less pursuant to a management agreement between Yucaipa and Food 4 Less. See "Certain Relationships and Related Transactions." Pursuant to this management agreement, Food 4 Less paid Yucaipa and an affiliate of Yucaipa $2.4 million in the fiscal year ended June 25, 1994 for the services of Messrs. Ronald Burkle and Resnik and other Yucaipa personnel. Such payments to Yucaipa and its affiliate are not reflected in the table set forth above. (2) During Fiscal 1993, Greg Mays became Executive Vice President-Finance/Administration and Chief Financial Officer. (3) Mr. Joe Burkle provides services to Food 4 Less pursuant to a consulting agreement. See " -- Employment Agreements." (4) The amounts shown in this column represent annual payments by Food 4 Less to the Employee Profit Sharing and Retirement Program of Food 4 Less for the benefit of Mr. Golleher. 80 92 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION -- FOOD 4 LESS Food 4 Less does not have a board committee performing the functions of a compensation committee. Ronald W. Burkle, Chief Executive Officer of Food 4 Less, and George G. Golleher, President of Food 4 Less, made decisions with regard to Food 4 Less' executive officer compensation for Fiscal 1994. FOOD 4 LESS STOCK PLAN As of June 25, 1994, certain employees of Food 4 Less (the "Management Stockholders") collectively owned approximately 4.5% of Holdings' outstanding common stock which they acquired under the management stock plan of Food 4 Less. Pursuant to this plan, the Board of Directors of Holdings from time to time has offered common stock of Holdings for sale to selected employees at a price and for consideration (which may include a promissory note) determined at the discretion of the Board. Management Stockholders who have purchased shares are party to a Management Stockholders Agreement (the "Stockholders Agreement") with Holdings, a Stockholder Voting Agreement and Proxy (the "Voting Agreement"), and such other documents as Holdings may require. The Stockholders Agreement prohibits the transfer of any of the Management Stockholder's common stock for a period of four years from the date of its original issuance (although such date may, in the case of certain Management Stockholders who were shareholders of BHC, relate back to the date that shares were issued to them by BHC) other than transfers to certain family members and heirs or pursuant to a registration statement. The Management Stockholder's shares may be purchased by Holdings if, (a) prior to the fourth anniversary of their issuance, the Management Stockholder's employment terminates for any reason, or (b) after such fourth anniversary, the Management Stockholder wishes to sell his/her common stock to a third party. In the event of the death or permanent disability of the Management Stockholder, each Management Stockholder has an irrevocable option for one year to require Holdings to purchase all (or a portion) of his common stock in the manner and on the terms set forth in the Stockholders Agreement; provided, however, that the Management Stockholder may exercise such option in the event of death or disability only to the extent that Holdings or Food 4 Less has insurance, under which Holdings or Food 4 Less is the named beneficiary, with respect to such event. Additionally, if shareholders holding at least fifty percent (50%) of the issued and outstanding common stock of Holdings agree to sell to a third party more than eighty percent (80%) of the shares of common stock then held by them, then upon the demand of such selling stockholders, each Management Stockholder must sell to such third party the same percentage of his common stock as is proposed to be sold by the selling stockholders. The Stockholders Agreement terminates on the tenth anniversary of the Merger. Under the Voting Agreement, Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors, Inc. have sole voting control over the shares of common stock owned by the other Management Stockholders until the tenth anniversary of the Merger (unless extended by such Management Stockholders). As of January 7, 1995, there was outstanding $0.7 million principal amount of notes receivable from certain Management Stockholders, representing loans for the purchase of Holdings' common stock. The notes are due over various periods, bear interest at the bank "prime" lending rate, and are secured by such common stock. Pursuant to the Reincorporation Merger, New Holdings will succeed to the rights and obligations of Holdings under the Food 4 Less stock plan. It is expected that following the Merger, equity issuances to management will cease to be made under the Food 4 Less stock plan and instead will be made under the New Holdings option plan. See "-- New Management Stock Option Plan and Management Investment." 81 93 PRINCIPAL STOCKHOLDERS The information in the following table gives effect to (i) the Merger and the Financing and (ii) the FFL Merger and the Reincorporation Merger. The information in the following table assumes that the outstanding stock options of RSI have been cancelled, that certain new stock options of New Holdings have been granted to management and that certain warrants to purchase New Holdings Common Stock have been issued to institutional investors who currently hold warrants to purchase Common Stock of Holdings. Based on such assumption and giving effect to the foregoing events, the following table sets forth the ownership of Common Stock and Series A Preferred Stock and Series B Preferred Stock of New Holdings by each person who to the knowledge of Food 4 Less will own 5% or more of New Holdings' outstanding voting stock, by each person who will be a director or named executive officer of the Company, and by all executive officers and directors of the Company as a group. Share amounts and percentage ownership information set forth for the Series A Preferred Stock and Series B Preferred Stock are subject to change pending finalization of the Financing.
SERIES A SERIES B COMMON PREFERRED PREFERRED STOCK(1)(2) STOCK(1) STOCK(1) ------------------ ----------------- ----------------- PERCENTAGE PERCENTAGE NUMBER NUMBER NUMBER OF TOTAL OF ALL OF OF OF VOTING OUTSTANDING BENEFICIAL OWNER(3) SHARES % SHARES % SHARES % POWER STOCK - ---------------------------- ---------- ----- ---------- ---- --------- ---- ---------- ----------- Yucaipa and affiliates: The Yucaipa Companies(4)(5)......... 17,567,622 62.3% -- -- -- -- 39.1% 36.6% Ronald W. Burkle(4)(6).... 2,046,392 10.1% -- -- -- -- 5.5% 5.1% George G. Golleher (2)(6).................. 462,525 2.3% -- -- -- -- 1.3% 1.2% 10000 Santa Monica Boulevard, Los Angeles, California 90067 ---------- ----- ---------- ----------- Total................. 20,076,539 71.2% -- -- -- -- 44.7% 41.8% Byron E. Allumbaugh(2)(7)... 600,000 3.0% -- -- -- -- 1.6% 1.5% Alfred A. Marasca(2)(7)..... 200,000 1.0% -- -- -- -- 0.5% 0.5% Greg Mays(8)................ -- -- -- -- -- -- -- -- Alan J. Reed(7)............. -- -- -- -- -- -- -- -- Terry Peets(7).............. -- -- -- -- -- -- -- -- Jan Charles Gray(7)......... -- -- -- -- -- -- -- -- Apollo Advisors, L.P.(9) 2 Manhattanville Road Purchase, NY 10577........ 1,285,165 6.4% 12,283,244 73.6% -- -- 36.8% 33.9% BT Investment Partners, Inc.(10) 130 Liberty Street New York, NY 10006........ 509,812 2.5% 900,000 5.4% 3,100,000 100% 3.8% 11.3% Other New Equity Investors as a group(11)............ 3,500,000 21.0% -- -- 9.5% 8.8% All directors and executive officers as a group (15 persons)(2)(4)(5)(6)...... 20,876,539 74.0% -- -- -- -- 46.5% 43.5%
- --------------- (1) Gives effect to (i) a stock split to be effected with respect to the outstanding common stock of Holdings prior to the Merger, (ii) the conversion (in connection with the FFL Merger) of the outstanding common stock of FFL into newly-issued common stock of Holdings in an amount which will preserve the proportionate ownership interests of FFL's stockholders, and of the equity holders of Holdings, in the combined Company, (iii) the conversion (in connection with the Reincorporation Merger) of the outstanding common stock, and warrants to acquire common stock, of Holdings into New Holdings common stock and warrants, (iv) the issuance by New Holdings of 16,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock in connection with the New Equity Investment and the concurrent exchange of outstanding shares of common stock acquired by the New Equity Investors from an existing stockholder and (v) the assumed exercise of the outstanding warrants to acquire New Holdings common stock issued to the former Holdings warrantholders in connection with the Reincorporation Merger. (2) Gives effect to the exercise of Tier One Options to be issued to Byron E. Allumbaugh, George G. Golleher and Alfred A. Marasca under a new management stock option plan to be adopted prior to completion of the Merger, covering 600,000, 200,000 and 200,000 shares, respectively. Does not give effect to the exercise of (a) Tier Two Options to purchase up to 1,000,000 shares of New Holdings common stock to be issued at the discretion of the Board of Directors to certain management employees of the Company, 82 94 under such stock option plan, concurrently with or following completion of the Merger or (b) Reinvestment Options to purchase up to 1,000,000 shares of New Holdings common stock to be issued to holders of EARs in exchange for the cancellation of $10 million of the EAR payments which would otherwise be payable upon consummation of the Merger. See "Executive Compensation -- New Management Stock Option Plan and Management Investment." (3) Except as otherwise indicated, each beneficial owner has the sole power to vote, as applicable, and to dispose of all shares of Common Stock or Series A Preferred Stock or Series B Preferred Stock owned by such beneficial owner. (4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners, L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These entities are affiliated partnerships which are controlled, directly or indirectly, by Ronald W. Burkle. Following completion of the Merger, the foregoing entities will be parties to a stockholders agreement with other New Holdings investors which will give to Yucaipa the right to elect a majority of the directors of New Holdings. See "Description of Capital Stock -- 1995 Stockholders Agreement." (5) Share amount and percentages shown for Yucaipa include a warrant to purchase 8,000,000 shares of New Holdings Common Stock to be issued to Yucaipa concurrently with the completion of the Merger and the Financing. Such warrant will become exercisable only upon the occurrence of an initial public offering or certain sale transactions involving New Holdings. See "Description of Capital Stock -- Yucaipa Warrant." (6) Certain management stockholders who own in the aggregate 852,326 shares of Common Stock (pro forma for the events and assumptions described above) have entered into a Stockholder Voting Agreement and Proxy pursuant to which Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors, Inc. have sole voting control over the shares currently owned by such management stockholders until December 31, 2002 (unless extended by such stockholders). See "Executive Compensation -- Food 4 Less Stock Plan." The 852,326 shares have been included, solely for purposes of the above table, in the share amounts shown for Mr. Burkle but not for Mr. Golleher. Neither Messrs. Burkle and Golleher nor Yucaipa Capital Advisors, Inc. have the power to dispose of, or any other form of investment power with respect to, such shares. Messrs. Burkle and Golleher have sole voting and investment power with respect to 1,194,066 and 462,525 shares of Common Stock they respectively own (including, in the case of Mr. Golleher, 200,000 shares issuable upon the exercise of Tier One Options). (7) Does not include Reinvestment Options to purchase 228,428 shares, 100,000 shares, 60,000 shares, 60,000 shares and 174,940 shares of New Holdings Common Stock to be issued to Messrs. Allumbaugh, Marasca, Reed, Peets and Gray, respectively, in exchange for the cancellation of EAR payments which would otherwise be payable upon consummation of the Merger. (8) Mr. Mays owns 8,890 of the 852,326 shares of Common Stock which are subject to the Stockholder Voting Agreement and Proxy described in note (6) above. (9) Represents shares owned by one or more entities managed by or affiliated with Apollo Advisors, L.P., together with certain affiliates or designees of Apollo. (10) Represents shares owned by BT Investment Partners, Inc. ("BTIP"), Bankers Trust New York Corporation and BT Securities Corporation. Bankers Trust New York Corporation and BT Securities Corporation are affiliated with BTIP. BTIP expressly disclaims beneficial ownership of all shares owned by Bankers Trust New York Corporation and BT Securities Corporation. (11) Includes certain institutional investors, other than Apollo and BTIP, which will purchase Series A Preferred Stock of New Holdings in connection with the Financing. Pursuant to the 1995 Stockholders Agreement, certain corporate actions by New Holdings and its subsidiaries will require the consent of the directors whom the New Equity Investors, including Apollo and BTIP, are entitled to elect to the New Holdings Board of Directors. See "Description of Capital Stock -- 1995 Stockholders Agreement." Such investors do not affirm the existence of a "group" within the meaning of Rule 13d-5 under the Exchange Act, and expressly disclaim beneficial ownership of all New Holdings shares except for those shares held of record by each such investor or its nominees. DESCRIPTION OF CAPITAL STOCK Following is a description of the capital stock of the Company and New Holdings to be authorized and outstanding upon completion of the Merger, the FFL Merger and the Reincorporation Merger, including the terms of the New Equity Investment to be made in New Holdings in connection with the closing of the Merger. THE COMPANY Upon completion of the Merger, the authorized capital stock of the Company will consist of 1,600,000 shares of common stock, $.01 par value per share, of which 1,513,938 shares will be outstanding. All of such outstanding shares will be owned by New Holdings. There will be no public trading market for the common stock of the Company. The indentures that will govern outstanding debt securities of the Company will contain certain restrictions on the payment of cash dividends with respect to the Company's common stock. In addition, it is expected that the New Credit Facility will also restrict such payments. Subject to the limitations contained in the New Credit Facility and such indentures, holders of common stock of the Company will be entitled to dividends when and as declared by the Board of Directors from funds legally available therefor, and upon liquidation, will be entitled to share ratably in any distribution to holders of common stock. All holders of common stock will be entitled to one vote per share on any matter coming before the stockholders for a vote. 83 95 NEW HOLDINGS Following completion of the Merger, the FFL Merger, the Reincorporation Merger and the New Equity Investment, (i) the authorized capital stock of New Holdings will consist of 60,000,000 shares of common stock, $.01 par value, 25,000,000 shares of Series A Preferred Stock, $.01 par value, and 25,000,000 shares of Series B Preferred Stock, $.01 par value, (ii) 17,207,882 shares of common stock, 16,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock will be outstanding and held by approximately 100 holders of record, (iii) 2,008,874 shares of common stock will be reserved for issuance upon the exercise of outstanding warrants held by institutional investors, and (iv) 3,000,000 shares of common stock will be reserved for issuance upon the exercise of the New Options. See "Executive Compensation -- New Management Stock Option Plan and Management Investment." An additional 8,000,000 shares of common stock will be reserved for issuance upon the exercise of a warrant to be issued to Yucaipa upon closing of the Merger. See "Yucaipa Warrant" below. There is no public trading market for the capital stock of New Holdings, nor will any such market exist following completion of the Merger. New Holdings does not expect in the foreseeable future to pay any dividends on its capital stock. Holders of common stock of New Holdings are entitled to dividends when and as declared by the Board of Directors of New Holdings from funds legally available therefor, and upon liquidation, are entitled to share ratably in any distribution to holders of common stock. All holders of New Holdings common stock are entitled to one vote per share on any matter coming before the stockholders for a vote. The Series A Preferred Stock initially will have an aggregate liquidation preference of $166,832,440, or $10 per share, which will accrete as described below. The holders of the Series A Preferred Stock will vote (on an as-converted basis) together with the common stock as a single class on all matters submitted for stockholder vote. Each share of Series A Preferred Stock initially will be convertible at the option of the holder thereof into a number of shares of New Holdings common stock equal to the liquidation preference of such share of Series A Preferred Stock divided by $10. Upon consummation of an initial public offering of New Holdings equity securities which meets certain criteria, the shares of Series A Preferred Stock will automatically convert into shares of common stock of New Holdings at the same rate as applicable to an optional conversion. The Series B Preferred Stock initially will have an aggregate liquidation preference of $31,000,000, or $10 per share, which will accrete as described below. The holders of Series B Preferred Stock generally will not be entitled to vote on any matters, except as required by the Delaware General Corporation Law. Upon the occurrence of a change of control, each share of Series B Preferred Stock initially will be convertible at the option of the holder thereof into a number of shares of New Holdings common stock equal to the liquidation preference of such share of Series B Preferred Stock divided by $10. Upon consummation of an initial public offering of New Holdings equity securities which meets certain criteria, shares of Series B Preferred Stock will automatically convert into shares of non-voting common stock of New Holdings at the same rate as applicable to an optional conversion. The liquidation preference of the Series A Preferred Stock and the Series B Preferred Stock initially will accrete daily at the rate of 7% per annum, compounded quarterly, until the later of the fifth anniversary of the date of issuance or the date the Company first reports EBDIT (as defined) of at least $500 million for any twelve-month period. Thereafter, the liquidation preference will remain constant. The accretion rate of the liquidation preference will increase (a) by 2% per annum if the Company fails to report EBDIT of at least $400 million for the four fiscal quarters ending closest to the third anniversary of the date of issuance (or for the rolling four-quarter period ending on any of the three subsequent quarter-ends), (b) by 2% per annum if the Company fails to report EBDIT of at least $425 million for the four fiscal quarters ending closest to the fourth anniversary of the date of issuance (or for the rolling four-quarter period ending on any of the three subsequent quarter-ends) or (c) by 2% per annum if the Company fails to report EBDIT of at least $450 million for the four fiscal quarters ending closest to the fifth anniversary of the date of issuance, in each case, such increase to take effect on the first day after the last day of the fiscal quarter with respect to which such failure occurred; provided that the accretion rate of the liquidation preference will not at any time exceed 84 96 13% per annum. The accretion of the liquidation preference will result in a proportional increase in the number of shares of common stock issuable upon conversion of the Series A Preferred Stock and the Series B Preferred Stock. In addition, the initial aggregate liquidation preference of the Series A Preferred Stock and the Series B Preferred Stock may increase from the amounts set forth above depending on whether New Holdings determines to increase the number of shares it may sell pursuant to the New Equity Investment, and depending on whether certain existing equity holders of FFL and Holdings exercise preemptive rights to participate in the New Equity Investment. Upon any transfer or sale of shares of either Series A Preferred Stock or Series B Preferred Stock, such shares may be converted (subject to certain conditions) at the option of the holder into shares of the other series. The holders of Series A Preferred Stock and Series B Preferred Stock have no rights to any fixed dividends in respect thereof. Subject to certain exceptions, New Holdings will be prohibited from declaring dividends with respect to its common stock without the consent of holders of a majority of the Series A Preferred Stock and of the Series B Preferred Stock. If dividends are declared on the Series A Preferred Stock or the Series B Preferred Stock which are payable in voting securities of New Holdings, New Holdings will make available to each holder of Series A Preferred Stock and Series B Preferred Stock, at such holder's request, dividends consisting of non-voting securities of New Holdings which are otherwise identical to the voting securities and which are convertible into or exchangeable for such voting securities upon a change of control. NEW EQUITY INVESTMENT Concurrently with the issuance of the New Notes and the closing of the Merger, certain existing stockholders of New Holdings, including affiliates of George Soros, will sell 5,783,244 outstanding shares of common stock of New Holdings to CLH, which in turn will sell such shares to the New Equity Investors for an aggregate purchase price of $57.8 million. New Holdings will then issue 16,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock in a private placement to the New Equity Investors led by Apollo and including affiliates of BT Securities, CS First Boston and DLJ for an aggregate consideration of $140 million plus the contribution to New Holdings of the shares of common stock purchased from CLH in the secondary sale transaction. The shares of Series A Preferred Stock and Series B Preferred Stock acquired by the New Equity Investors will represent approximately 41% in the aggregate of the fully diluted common equity of New Holdings (assuming exercise of the Yucaipa Warrant). See "Principal Stockholders." The $140 million cash proceeds from the issuance of Series A Preferred Stock and Series B Preferred Stock will be applied by New Holdings as set forth under "The Merger and the Financing." Food 4 Less has accepted a commitment letter (the "Equity Commitment") from Apollo pursuant to which Apollo has agreed (subject to certain conditions) to purchase up to $140 million of the Series A Preferred Stock to be offered by New Holdings as part of the New Equity Investment. In consideration of its equity commitment, upon the closing of the Merger Apollo will receive from New Holdings a fee of $5 million, of which $2.5 million will be satisfied through the issuance to Apollo of New Discount Debentures and $2.5 million will be paid to Apollo in cash. See "Certain Relationships and Related Transactions -- Food 4 Less." The Company anticipates that the remainder of the Series A Preferred Stock and Series B Preferred Stock so offered will be purchased by affiliates of lenders and other financial institutions which have provided financing to the Company, including BTIP, which is an affiliate of Bankers Trust, by affiliates of CS First Boston and DLJ and by certain other investors. The amounts of New Holdings stock expected to be held by Apollo, affiliates of Bankers Trust and all other holders of 5% or more of New Holdings' outstanding stock following completion of the Merger and the Financing are set forth above under "Principal Stockholders." 1995 STOCKHOLDERS AGREEMENT Under the terms of the 1995 Stockholders Agreement (which is expected to be entered into by New Holdings, Yucaipa and its affiliates, the New Equity Investors and other stockholders), the New Equity Investors holding Series A Preferred Stock will be entitled to nominate three directors to the Board of Directors of each of New Holdings and the Company (the "Series A Directors"), of which two directors will 85 97 be nominees of Apollo and one director will be a nominee of the other New Equity Investors holding Series A Preferred Stock. The 1995 Stockholders Agreement will give to Yucaipa the right to nominate six directors of New Holdings and seven directors of the Company, and the boards of New Holdings and the Company will consist of a total of nine and ten directors, respectively. The numbers of directors which may be nominated by the foregoing stockholders will be reduced if such stockholders cease to own certain specified percentages of their initial holdings. Unless and until New Holdings has effected an initial public offering of its equity securities meeting certain criteria, New Holdings and its subsidiaries may not take certain actions without the approval of the Series A Directors, including but not limited to certain mergers, sale transactions, transactions with affiliates, issuances of capital stock and payments of dividends on or repurchases of capital stock. In addition, the New Equity Investors will have certain "demand" and "piggyback" registration rights with respect to their Series A Preferred Stock and Series B Preferred Stock, as well as the right to participate, on a pro rata basis, in sales by Yucaipa of the New Holdings stock it holds. In certain circumstances, Yucaipa will have the right to compel the participation of the New Equity Investors and other stockholders in sales of all the outstanding shares of New Holdings stock. The Company will seek the agreement of the current stockholders of FFL and warrantholders of Holdings to become party to the 1995 Stockholders Agreement, which would grant to such holders certain rights in replacement of two existing stockholders agreements among FFL and its stockholders entered into in 1987 and 1991, respectively, and an agreement among Holdings and its warrantholders executed in 1992. YUCAIPA WARRANT Upon closing of the Merger, New Holdings has agreed to issue to Yucaipa a warrant to purchase up to 8,000,000 shares of New Holdings common stock. The initial exercise price of such warrant will be set such that the warrant will have no value unless and until the value of New Holdings' equity appreciates to $1.220 billion. Such warrant will be exercisable on a cashless basis at the election of Yucaipa in the event New Holdings completes an initial public offering of equity securities meeting certain criteria, or in connection with certain sale transactions involving New Holdings, in either case effected on or prior to the fifth anniversary of the Closing Date. The expiration date of such warrant, and the deadline for such triggering transactions, may be extended from the fifth to the seventh anniversary of the Closing Date if New Holdings meets certain financial performance goals prior to such fifth anniversary. The cashless exercise provisions of such warrant allow the holder to exercise it without the payment of cash consideration, provided that New Holdings will withhold from the shares otherwise issuable upon such exercise a number of shares having a fair market value as of the exercise date equal to the exercise price. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RALPHS In connection with the acquisition of a majority of RSI's common stock in February 1992, EJDC agreed to guarantee RGC's obligations as a self-insurer of worker's compensation liabilities in the State of California (the "EJDC Guaranty"). In consideration of the EJDC Guaranty, RGC unconditionally agreed to reimburse EJDC for any payments made under the EJDC Guaranty and for the cost of insurance up to $200,000 to cover liabilities incurred pursuant to the EJDC Guaranty. Further, RGC agreed to pay EJDC a guarantee fee of $33,500 for each month the EJDC Guaranty was in effect ($402,000 was paid in Fiscal 1994). Concurrently with the completion of the Merger, the EJDC Guaranty will be terminated, and RGC will cease to pay any guarantee fee to EJDC or to reimburse it for the cost of insurance. However, RGC will continue to be obligated to reimburse EJDC for any payments which EJDC could in the future be required to make under the EJDC Guaranty in respect of prior claims. Moreover, FFL has undertaken for the benefit of EJDC to maintain, until the fifth anniversary of the closing of the Merger, bank letters of credit, insurance or other security for the workers' compensation claims for which EJDC could have liability under the EJDC Guaranty. In connection with the bankruptcy reorganization of Federated and its affiliates, Federated agreed to pay certain potential tax liabilities relating to RGC as a member of the affiliated group of companies comprising Federated and its subsidiaries. In consideration thereof, RSI and RGC agreed to pay Federated a total of $10 million, payable $1 million on each of February 3, 1992, 1993, 1994, 1995 and 1996 and $5 million on 86 98 February 3, 1997. The five $1 million installments are to be paid by RGC and the $5 million payment is the joint obligation of RSI and RGC. In the event Federated is required to pay certain tax liabilities, RSI and RGC have agreed to reimburse Federated up to an additional $10 million, subject to certain adjustments. This additional obligation, if any, is the joint and several obligation of RSI and RGC. Pursuant to the terms of the Merger Agreement, the $5 million payment and the potential $10 million payment will be paid in cash. See Note 1 of Notes to Ralphs Consolidated Financial Statements. In addition, EJDC and the other current holders of Common Stock of RSI are parties to an agreement providing for various aspects of corporate governance (the "Ralphs Registration Rights and Governance Agreement") relating to Ralphs. Pursuant to the Ralphs Registration Rights and Governance Agreement, RGC is obligated to provide RSI, by dividend, pursuant to a services agreement or otherwise, with funds sufficient to enable RSI to perform its duties as the holding company of RGC's stock and to perform its obligations set forth in the Ralphs Registration Rights and Governance Agreement. The Ralphs Registration Rights and Governance Agreement will be cancelled concurrently with the closing of the Merger. FOOD 4 LESS Yucaipa provides certain management and financial services to Food 4 Less and its subsidiaries pursuant to a consulting agreement. The services of Ronald Burkle, Mark Resnik and Patrick Graham, acting in their capacities as directors and officers, and the services of other Yucaipa personnel are provided to Food 4 Less pursuant to this agreement. All of such individuals are partners of Yucaipa. Yucaipa's consulting agreement provides for annual management fees currently equal to $2 million plus an additional amount based on Food 4 Less' performance. Upon completion of the Merger, the consulting agreement will be amended to provide for an annual management fee payable by the Company to Yucaipa in the amount of $4 million, with no additional amounts payable based on performance. In addition, the Company may retain Yucaipa in an advisory capacity in connection with certain acquisitions or sale transactions, in which case the Company will pay Yucaipa an advisory fee. The agreement has a five-year term, which will be automatically renewed on each anniversary of the Merger for a five-year term unless ninety days' notice is given by either party. The agreement may be terminated at any time by the Company, provided that Yucaipa will be entitled to full monthly payments under the agreement for the remaining term thereof, unless the Company terminates for cause pursuant to the terms of the agreement. Yucaipa may terminate the agreement if the Company fails to make a payment due thereunder, or if there occurs a change of control (as defined in the agreement) of the Company, and upon any such termination Yucaipa will be entitled to full payments for the remainder of the five-year period commencing on the closing of the Merger. Pursuant to the agreement, Food 4 Less paid Yucaipa a total of $2.4 million, $3.8 million and $2 million in management and advisory fees for the fiscal years ended June 25, 1994, June 26, 1993 and June 27, 1992 respectively. The Yucaipa consulting agreement also provides that upon closing of the Merger, Yucaipa will be entitled to receive an advisory fee from the Company in the amount of $19 million, plus reimbursement of expenses in connection with the Merger and the related transactions. New Holdings will issue $15 million initial accreted value of New Discount Debentures to Yucaipa in satisfaction of a portion of such fee and the Company will pay the remaining $4 million of such fee in cash. Upon closing of the Merger, Yucaipa anticipates that it in turn will pay a cash fee of approximately $3.5 million to Soros Fund Management in consideration for advisory services which Soros Fund Management has rendered since 1991. The Company has no responsibility for such payment by Yucaipa. Additionally, upon closing of the Merger, Yucaipa will receive a warrant to purchase 8,000,000 shares of New Holdings common stock exercisable upon the conditions described under "Description of Capital Stock -- The Yucaipa Warrant." In consideration for its commitment to purchase Series A Preferred Stock of New Holdings, Apollo will receive a fee of $5 million from New Holdings upon the closing of the Merger. New Holdings will issue $2.5 million initial accreted value of New Discount Debentures to Apollo in satisfaction of a portion of such fee, and New Holdings will pay the remaining $2.5 million of such fee in cash. See "Description of Capital Stock -- New Equity Investment." In connection with the execution of the Merger Agreement, Yucaipa entered into the Put Agreement with EJDC, pursuant to which EJDC will be entitled to put up to $10 million aggregate principal amount of 87 99 Seller Debentures to Yucaipa on the Closing Date. The Yucaipa consulting agreement will provide that the Company will reimburse Yucaipa for any loss and expenses incurred by Yucaipa upon the resale of such Seller Debentures to any unaffiliated third party. Yucaipa has advised the Company that it intends to resell the Seller Debentures on the Closing Date or as soon thereafter as practicable. The agreement will also require Yucaipa to contribute any profit realized upon the resale of such Seller Debentures within such period to the capital of the Company. Pursuant to the New Discount Debenture Placement, New Holdings has committed to issue $100 million initial accreted value of New Discount Debentures, which will be acquired by a partnership comprised of FFL Investors L.L.C. (an affiliate of George Soros), Yucaipa RGC L.L.C. (an affiliate of Yucaipa whose members include Ronald Burkle, Mark Resnik and Patrick Graham)("Yucaipa LLC"), RGC Investment Co. (a corporation controlled by certain Yucaipa partners) ("RGCIC"), BTIP, an affiliate of CS First Boston, an affiliate of DLJ, Apollo, EJDC and the other selling stockholders of RSI. New Discount Debentures having an initial accreted value of $59 million will be issued directly to the partnership by New Holdings for cash consideration contributed to the partnership by (i) FFL Investors L.L.C., which will invest $40 million in cash proceeds received from Soros' affiliate as a result of the secondary sale of New Holdings common stock, (ii) BTIP, which will invest $5 million in cash, (iii) an affiliate of CS First Boston, which will invest $2.5 million in cash, (iv) an affiliate of DLJ, which will invest $2.5 million in cash, (v) EJDC, which will invest $4 million of its consulting fee payable by the Company upon closing of the Merger and (vi) RGCIC, which will invest $5 million in cash borrowed from the Company. New Holdings will issue additional New Discount Debentures having an initial accreted value of (a) $15 million to Yucaipa LLC in satisfaction of advisory fees otherwise payable to Yucaipa by the Company in connection with the Merger and the Financing, (b) $5 million to BT Securities in satisfaction of other fees payable to BT Securities by the Company in connection with the Financing, (c) $2.5 million to Apollo in satisfaction of a portion of commitment fees otherwise payable to Apollo by New Holdings in connection with the New Equity Investment and (d) $18.5 million to RSI stockholders as Merger consideration all of which New Discount Debentures shall be contributed to the partnership, whereupon the partnership will hold all $100 million initial accreted value of New Discount Debentures issued by New Holdings. New Holdings will grant to the partnership certain registration rights with respect to the New Discount Debentures. Pursuant to such registration rights agreement, New Holdings will file with the Commission a shelf registration statement which will permit resales of the New Discount Debentures by the partnership commencing 60 days following closing of the Merger. New Holdings will be obligated to use its best efforts to cause such shelf registration statement to remain effective for up to three years. If New Holdings fails to comply with its obligations to keep such shelf registration statement effective, New Holdings will be obligated to pay certain liquidated damages. New Holdings and its subsidiaries will agree not to effect any public distribution of securities similar to the New Discount Debentures until the New Discount Debentures are resold by the partnership (or until the third anniversary of the Closing Date, if later). New Holdings believes that the partnership actively would seek to dispose of its entire interest in the New Discount Debentures promptly upon expiration of the 60 day holdback period following closing of the Merger. New Holdings will agree to use its best efforts to assist the partnership in such disposition, and to pay all expenses, including underwriting discounts and brokers' or dealers' commissions and mark-ups (subject to certain limitations), incident thereto. The $5 million cash investment to be made in the partnership by RGCIC, as described above, will be borrowed from the Company by RGCIC, and such borrowings will bear interest at the applicable Federal rate (as defined under the Internal Revenue Code). RGCIC will be obligated to repay such borrowings with any distributions received from the partnership in connection with resales of the New Discount Debentures. Such repayments will be applied first to the principal balance of the borrowings and then to accrued interest. To the extent that such distributions are not sufficient to repay such borrowings, any remaining indebtedness of RGCIC (including all accrued interest) will be forgiven by the Company and the Company's obligation to pay the Ralphs deferred EAR liability will be correspondingly forgiven. Upon receipt of any principal amounts repaid under such borrowings, the Company will be obligated to pay such amounts over to former holders of RGC's EARs redeemed upon closing of the Merger. The aggregate consideration payable to redeem the 88 100 EARs includes, in addition to the foregoing deferred cash payment of up to $5 million, $17.8 million in cash payable at closing and $10 million in Reinvestment Options. See "Executive Compensation -- Equity Appreciation Rights Plan." FFL files a consolidated federal income tax return, under which the federal income tax liability of FFL and its subsidiaries (which since 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). 89 101 THE OFFERS AND SOLICITATION BACKGROUND AND PURPOSES OF THE OFFERS AND SOLICITATION The Offers and the Solicitation, together with the other financing and solicitation transactions described under "The Merger and the Financing," are part of the transactions required to consummate the merger of Food 4 Less with and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned subsidiary of RSI, will merge into RSI and RSI will change its name to Ralphs Grocery Company. As a result of the Merger, the New Notes and any Old RGC Notes not tendered pursuant to the Offers, the F4L Senior Notes, the F4L Senior Subordinated Notes and the indebtedness incurred pursuant to the New Credit Facility will be the obligations of the Company. In connection with the consummation of the Merger, Food 4 Less is making the Offers and the F4L Exchange Offers to (i) extend the maturities of the existing long-term debt securities of Food 4 Less and RGC by exchanging such securities for new longer-term securities and (ii) establish uniform covenants in the New Notes and the New F4L Notes in order to simplify the capital structure of the Company. The Offers afford Old RGC Noteholders an opportunity to elect to participate in the long-term capitalization of the Company or receive a cash premium with respect to their Old RGC Notes. Food 4 Less is also seeking Consents to the Proposed Amendments in the Solicitation. The primary purpose of the Proposed Amendments is to permit the consummation of the Merger and to eliminate substantially all of the restrictive covenants in the Old RGC Indentures. See "The Proposed Amendments." If adopted by the holders of not less than a majority in aggregate principal amount of each of the outstanding Old RGC 9% Notes and Old RGC 10 1/4% Notes held by persons other than RGC and its affiliates, the Proposed Amendments will become effective immediately prior to the consummation of the Merger, upon Food 4 Less' acceptance of properly tendered Old RGC Notes for exchange or purchase pursuant to the Offers. TERMS OF THE OFFERS Upon the terms and subject to the conditions set forth herein and in the accompanying applicable Letter of Transmittal, Food 4 Less is hereby offering (A) to holders of the Old RGC 9% Notes (i) to exchange for each $1,000 principal amount of Old RGC 9% Notes exchanged, $1,000 principal amount of New Senior Subordinated Notes plus $20.00 in cash, and (ii) to purchase for $1,010.00 per $1,000 principal amount of Old RGC 9% Notes, any or all of the Old RGC 9% Notes and (B) to holders of the Old RGC 10 1/4% Notes (i) to exchange for each $1,000 principal amount of Old RGC 10 1/4% Notes exchanged, $1,000 principal amount of New Senior Subordinated Notes plus $20.00 in cash, and (ii) to purchase for $1,010.00 per $1,000 principal amount of Old RGC 10 1/4% Notes, any or all of the Old RGC 10 1/4% Notes, in each case plus accrued and unpaid interest to the date of exchange or purchase. Noteholders may also elect to tender a portion of their Old RGC Notes for cash and a portion for New Notes. The offers by Food 4 Less to exchange or purchase Old RGC 9% Notes and Old RGC 10 1/4% Notes are referred to herein as the "9% Offer" and the "10 1/4% Offer," respectively, and are referred to herein individually as the applicable "Offer," as the case may be, and collectively as the "Offers." Each Offer constitutes a separate offer by Food 4 Less. Food 4 Less reserves the right to extend, delay, accept, amend or terminate either or both Offers and any extension, delay, acceptance, amendment, termination or expiration of an Offer shall apply only to such Offer to which such extension, delay, acceptance, amendment, termination or expiration relates. Satisfaction of the conditions to the Offers shall be determined separately with respect to each Offer. Consummation of each Offer is subject to consummation of each other Offer. All references herein to the Offers shall be deemed to include the Solicitation. Holders of Old RGC Notes may choose to tender Old RGC Notes in the applicable Offer in exchange for New Notes, for purchase for cash, or a combination of both. In order to tender Old RGC Notes for New Notes, tendering holders must complete the Letter of Transmittal and designate the aggregate principal amount of Old RGC Notes to be tendered in exchange for New Notes in the table entitled "Description of Old RGC Notes" under the column "Aggregate Principal Amount Tendered in Exchange for New Notes." In order to tender Old RGC Notes for purchase in cash, tendering holders must complete the Letter of 90 102 Transmittal and designate the aggregate principal amount of Old RGC Notes to be tendered for purchase in cash in the table entitled "Description of Old RGC Notes" under the column "Aggregate Principal Amount Tendered for Purchase in Cash." In order to tender Old RGC Notes for a combination of both New Notes and cash, tendering holders must complete the Letter of Transmittal and designate the aggregate principal amount of Old RGC Notes to be tendered in exchange for New Notes and the aggregate principal amount of Old RGC Notes to be tendered for purchase in cash in the table entitled "Description of Old RGC Notes" under the respective columns. See "-- Procedures for Tendering and Consenting." Nominees or other record holders of Old RGC Notes that hold Old RGC Notes for more than one beneficial owner are entitled to make multiple elections pursuant to the Letter of Transmittal that reflect the election of each of the beneficial owners for whom they are tendering Old RGC Notes. In order to make such multiple elections, nominees or other record holders should properly complete the table under the box entitled "Election on Behalf of Multiple Beneficial Owners." See "-- Procedures for Tendering and Consenting." Holders of Old RGC Notes who desire to tender Old RGC Notes in an Offer will be required to consent to the Proposed Amendments. See "-- The Consent Solicitation," "-- Conditions," "The Proposed Amendments" and "Comparison of Old RGC Notes and New Notes" set forth in Appendix A hereto. THE TENDER OF OLD RGC NOTES BY THE HOLDER THEREOF PURSUANT TO THE APPLICABLE OFFER WILL CONSTITUTE THE CONSENT OF SUCH TENDERING HOLDER TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH OLD RGC NOTES. Old RGC Notes may be tendered and will be accepted only in denominations of $1,000 principal amount and integral multiples thereof. Holders must tender all of their Old RGC 9% Notes or Old RGC 10 1/4% Notes, as the case may be, if any are tendered pursuant to the applicable Offer. Food 4 Less shall be deemed to have accepted validly tendered Old RGC Notes in the Offers and validly delivered Consents in the Solicitation when, as and if Food 4 Less has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Old RGC Notes for the purposes of receiving the New Notes and the Exchange Payment or the Cash Consideration from the Company. In the event Food 4 Less increases the consideration offered for the Old RGC Notes in an Offer, such increased consideration will be paid with regard to all Old RGC Notes accepted in such Offer, including those accepted before the announcement of such increase. The New Notes will be delivered (and payments in cash of accrued and unpaid interest thereon) and the Exchange Payment and the Cash Consideration will be paid for Old RGC Notes accepted in the Offers promptly after acceptance on the applicable Expiration Date. As of May 1, 1995, (i) $150 million aggregate principal amount of the Old RGC 9% Notes was outstanding and (ii) $300 million aggregate principal amount of the Old RGC 10 1/4% Notes was outstanding. Concurrently with the Offers and the Solicitation, Food 4 Less is offering up to $295 million principal amount of New F4L Senior Notes pursuant to the Senior Note Public Offering and is offering up to $200 million principal amount of New Notes pursuant to the Subordinated Note Public Offering. Food 4 Less does not expect to commence the Public Offerings until such time as the Minimum Exchange has been satisfied and the Requisite Consents have been received. Following the pricing of the Subordinated Note Public Offering, Food 4 Less intends to further extend the Expiration Date to a date that is ten Business Days following the pricing of the Public Offerings. CONSUMMATION OF EACH OFFER IS CONDITIONED ON, AMONG OTHER THINGS, THE CONSUMMATION OF THE PUBLIC OFFERINGS. There can be no assurance that such condition or the other conditions to the Offers will be satisfied. See "-- Conditions." As a result of the Merger, the New Notes will become the obligations of the Company. Although it has no obligation to do so, the Company reserves the right in the future to seek to acquire Old RGC Notes not tendered in the Offers or the Change of Control Offer by means of open market purchases, privately negotiated acquisitions, subsequent exchange or tender offers, redemptions or otherwise, at prices or on terms which may be higher or lower or more or less favorable than those in either Offer, or the Change of Control Offer. The terms of any such purchases or offers could differ from the terms of either Offer, or the Change of Control Offer. 91 103 Holders of Old RGC Notes who tender in the Offers will not be required to pay brokerage commissions or fees or, subject to the instructions in the Consent and Letter of Transmittal, transfer taxes with respect to the tender of Old RGC Notes pursuant to the Offers. Food 4 Less will pay all charges and expenses, other than certain applicable taxes, in connection with the Offers. See "-- Fees and Expenses." No appraisal rights are available to Old RGC Noteholders in connection with the Offers. THE CONSENT SOLICITATION Concurrently with the Offers, Food 4 Less is soliciting Consents in the Solicitation from holders of each of the Old RGC 9% Notes and the Old RGC 10 1/4% Notes with respect to the Proposed Amendments to the Old RGC Indentures. See "Description of the Old RGC Notes and Proposed Amendments." The Offers are subject to, among other things, the condition that the Requisite Consents (i.e., Consents of holders representing at least a majority in aggregate principal amount of each of the outstanding Old RGC 9% Notes and Old RGC 10 1/4% Notes held by persons other than RGC and its affiliates) shall have been received and not revoked on or prior to the Expiration Date. HOLDERS OF OLD RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. The Proposed Amendments will only become operative upon consummation of the Offers. The primary purpose of the Proposed Amendments is to permit the Merger and to eliminate substantially all of the restrictive covenants in the Old RGC Indentures. The Proposed Amendments for each of the Old RGC 9% Notes and the Old RGC 10 1/4% Notes require the consent of holders of at least a majority in aggregate principal amount of each of the Old RGC 9% Notes and the Old RGC 10 1/4% Notes, in each case not owned by RGC or its affiliates. In addition, in order for any of the Proposed Amendments to become effective, a Supplemental Indenture amending each of the Old RGC Note Indentures must be executed by the Company and the applicable Old Trustee. See "The Proposed Amendments" and "Comparison of Old RGC Notes and New Notes" set forth in Appendix A hereto. Upon receipt of the Requisite Consents from holders of Old RGC 9% Notes or holders of Old RGC 10 1/4% Notes, Food 4 Less will certify in writing to the Old RGC 9% Note Trustee or the Old RGC 10 1/4% Note Trustee (together, the "Old Trustees"), as the case may be, that the Requisite Consents to the adoption of the Proposed Amendments have been received with respect to such issue of Old RGC Notes. Upon receipt of such certification, all Consents to the Proposed Amendments theretofore received with respect to such issue of Old RGC Notes will be irrevocable. Except as set forth under "-- Guaranteed Delivery Procedure," Consents from tendering holders of Old RGC Notes will not be counted towards determining whether Food 4 Less has received the Requisite Consents unless Food 4 Less is prepared to accept the tender of Old RGC Notes to which such Consents relate. In addition, Consents with respect to any Old RGC Notes will not be counted if the tender of such holders' Old RGC Notes is defective, unless Food 4 Less waives such defect. After receipt by the Old RGC 9% Note Trustee or the Old RGC 10 1/4% Note Trustee of, among other things, certification by Food 4 Less that the Requisite Consents with respect to the Old RGC 9% Notes or the Old RGC 10 1/4% Notes, as the case may be, have been received, Food 4 Less and the applicable Old Trustee will execute a supplemental indenture to evidence the adoption of the Proposed Amendments relating to the applicable indenture under which such Old RGC Notes were issued (each a "Supplemental Indenture"). Upon the acceptance by Food 4 Less of the Requisite Consents from holders of Old RGC 9% Notes or Old RGC 10 1/4% Notes and the execution of the applicable Supplemental Indenture, such Supplemental Indenture will immediately become effective. Although the Proposed Amendments relating to an issue of Old RGC Notes will become effective upon certification that the Requisite Consents from holders of the applicable Old RGC Notes have been received, such Proposed Amendments will not be operative until Food 4 Less has accepted for purchase or exchange all Old RGC Notes validly tendered and not withdrawn. The Company will not be obligated pursuant to the Offers to issue the New Notes and pay the Exchange Payment and/or pay the Cash Consideration unless, among other things, the Requisite Consents to the adoption of the Proposed Amendments have been received from both the Old RGC 9% Noteholders and the Old RGC 10 1/4% Noteholders. See " -- Conditions." 92 104 If the Proposed Amendments become effective, (i) the Exchange Agent, as soon as practicable, will transmit a copy of the applicable Supplemental Indenture to all registered holders of Old RGC Notes which remain outstanding, and (ii) non-tendering holders will hold their Old RGC Notes under the applicable Old RGC Note Indenture as amended by the Proposed Amendments. Consents given by holders of Old RGC Notes tendered but rejected by Food 4 Less pursuant to an Offer will not be counted for the purpose of determining whether the Requisite Consents have been obtained. Only a registered holder of Old RGC Notes (the "Registered Holder") can effectively deliver a Consent to the Proposed Amendments. Pursuant to the terms of the Old RGC Indentures, subsequent transfers of Old RGC Notes on the applicable security register for such Old RGC Notes will not have the effect of revoking any Consent theretofore given by the Registered Holder of such Old RGC Notes, and such Consents will remain valid unless revoked by the transferee holder in accordance with the procedures described under the heading "-- Withdrawal of Tenders and Revocation of Consents." EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS Each Offer and the Solicitation have been extended until and will expire at 12:00 Midnight, New York City time, on May 25, 1995 (the "Expiration Date"), unless further extended by Food 4 Less. Food 4 Less reserves the right to further extend each Offer or the Solicitation, at its discretion, in which event the term "Expiration Date" shall mean the latest time and date at which such Offer or the Solicitation, as the case may be, as so further extended by Food 4 Less, shall expire. Food 4 Less does not expect to commence the Public Offerings until such time as the Minimum Exchange has been satisfied and Requisite Consents have been received. Following the pricing of the Subordinated Note Public Offering, Food 4 Less intends to further extend the Expiration Date to a date that is ten Business Days following the pricing of the Public Offerings. Food 4 Less shall notify the Exchange Agent of any extension by oral or written notice and shall make a public announcement thereof, each prior to 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date. Such announcement may state that Food 4 Less is extending such Offer or the Solicitation, as the case may be, for a specified period or on a daily basis. Food 4 Less also expressly reserves the right, at any time or from time to time, to extend the period of time during which an Offer or the Solicitation, as the case may be, is open. There can be no assurance that Food 4 Less will exercise its right to extend any Offer or the Solicitation. During any extension of an Offer, all Old RGC Notes previously tendered pursuant thereto and not withdrawn will remain subject to such Offer and may be accepted for exchange or purchase by Food 4 Less at the expiration of such Offer, subject to the right, if any, of a tendering holder to withdraw its Old RGC Notes. See "-- Withdrawal of Tenders and Revocation of Consents." Each of the Company and Food 4 Less, as the case may be, also expressly reserves the right, subject to applicable law and the terms of the Offers and to the extent not inconsistent with the terms of the Merger, the Other Debt Financing Transactions, the Bank Financing or the New Equity Investment, (i) to delay the acceptance for exchange and purchase of any Old RGC Notes or, regardless of whether such Old RGC Notes were theretofore accepted for exchange or purchase, to delay the exchange and purchase of any Old RGC Notes pursuant to an Offer and to terminate such Offer and not accept for exchange or purchase any Old RGC Notes not theretofore accepted, upon the failure of any of the conditions to such Offer specified herein to be satisfied, by giving oral or written notice of such delay or termination to the Exchange Agent and (ii) at any time, or from time to time, to amend any of the Offers in any respect. Except as otherwise provided herein, withdrawal rights with respect to Old RGC Notes tendered pursuant to an Offer will not be extended or reinstated as a result of an extension or amendment of such Offer. See "-- Withdrawal of Tenders and Revocation of Consents." The reservation by Food 4 Less of the right to delay acceptance for exchange and/or purchase of Old RGC Notes is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires that Food 4 Less (or the Company as successor by Merger) pay the consideration offered or return the Old RGC Notes deposited by or on behalf of holders thereof promptly after the termination or withdrawal of an Offer. 93 105 Any extension, delay, termination or amendment of an Offer will be followed as promptly as practicable by a public announcement thereof. Without limiting the manner in which Food 4 Less may choose to make a public announcement of any extension, delay, termination or amendment of an Offer, Food 4 Less shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by issuing a release to the Dow Jones News Service, except in the case of an announcement of an extension of an Offer, in which case Food 4 Less shall have no obligation to publish, advertise or otherwise communicate such announcement other than by issuing a notice of such extension by press release or other public announcement, which notice shall be issued no later than 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date. If Food 4 Less shall decide to decrease the amount of Old RGC Notes being sought in an Offer, or to increase or decrease the consideration offered to holders of Old RGC Notes, and if, at the time that notice of such increase or decrease is first published, sent or given to holders of Old RGC Notes in the manner specified above, such Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth Business Day, from and including the date that such notice is first so published, sent or given, then such Offer will be extended for such purposes until the expiration of such period of ten Business Days. As used in this Amended and Restated Prospectus and Solicitation Statement, "Business Day" has the meaning set forth in Rule 14d-1 (and applicable to Regulation 14E) under the Exchange Act. If Food 4 Less makes a material change in the terms of the Offers or the information concerning the Offers, or waives any condition of the Offers that results in a material change to the circumstances of an Offer, then Food 4 Less will disseminate additional Offer materials to the extent required under the Exchange Act and will extend such Offer to the extent required in order to permit holders of Old RGC Notes adequate time to consider such materials. The minimum period during which a tender offer must remain open following material changes in the terms of an Offer or information concerning an Offer, other than a change in price or percentage of securities sought, will depend upon the specific facts and circumstances, including the relative materiality of the terms or information. CONDITIONS Food 4 Less will not be required to accept any Old RGC Notes for exchange or purchase, and may terminate or amend the 9% Offer or the 10 1/4% Offer, as provided herein, before the acceptance of any Old RGC Notes, if either of the Offers have not been consummated. In addition, notwithstanding any other provision of the Offers or the Solicitation, Food 4 Less shall not be required to accept any Old RGC Notes for exchange or payment or accept any Consents, and may terminate, extend or amend an Offer or the Solicitation and may postpone, subject to Rule 14e-1 under the Exchange Act, the acceptance of Old RGC Notes so tendered and Consents so delivered, whether or not any other Old RGC Notes or Consents have theretofore been accepted for exchange or payment pursuant to the applicable Offer, if, on or prior to the Expiration Date, any of the following conditions exist: (i) the Minimum Exchange shall not have been satisfied; (ii) the Requisite Consents shall not have been validly delivered (or shall have been revoked); (iii) all conditions precedent to the Merger shall not have been satisfied or waived, in Food 4 Less' sole discretion; (iv) any of the Other Debt Financing Transactions (including the Public Offerings) shall not have been consummated; (v) either the Bank Financing or the New Equity Investment shall not have been consummated; (vi) either of the Supplemental Indentures containing the Proposed Amendments shall not have been executed; (vii) there shall have been any action taken or threatened, or any statute, rule, regulation, judgment, order, stay, decree or injunction proposed, sought, promulgated, enacted, entered, enforced or deemed applicable to an Offer by or before any local, state, federal or foreign government or governmental regulatory or administrative agency or authority or by any court or tribunal, domestic or foreign, which 94 106 (a) challenges or seeks to restrain or prohibit the making or consummation of an Offer or the tender of Old RGC Notes pursuant to the Offers, (b) in the sole judgment of Food 4 Less, might directly or indirectly prohibit, prevent, restrict or delay consummation of an Offer or otherwise relates in any manner to an Offer, (c) seeks to make illegal the acceptance of Old RGC Notes for purchase or exchange pursuant to an Offer, (d) makes the Solicitation illegal, (e) might, in the sole judgment of Food 4 Less, adversely affect the financing of an Offer, the Merger, the Other Debt Financing Transactions, the New Credit Facility or the New Equity Investment or the transactions contemplated thereby, or (f) in the sole judgment of Food 4 Less, could materially adversely affect the business, condition (financial or otherwise), income, operations, properties, assets, liabilities or prospects of Food 4 Less (or the Company, after giving effect to the Merger) and its subsidiaries, taken as a whole, or materially impair the contemplated benefits of the Offers and the Solicitation to Food 4 Less (or the Company, after giving effect to the Merger); (viii) there shall have occurred or be likely to occur any event affecting the business or financial affairs of Food 4 Less (or the Company, after giving effect to the Merger) that, in the sole judgment of Food 4 Less, (a) would or might prohibit, prevent, restrict or delay consummation of an Offer, (b) will, or is reasonably likely to, materially impair the contemplated benefits to Food 4 Less (or the Company, after giving effect to the Merger) of the Offers and the Solicitation or otherwise result in the consummation of an Offer not being in the best interests of Food 4 Less or (c) might be material to holders of Old RGC Notes in deciding whether to accept an Offer or the Solicitation; (ix) there shall have occurred: (a) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange or in the over-the-counter market (whether or not mandatory); (b) any significant adverse change in the price of either of the Old RGC 9% Notes or the Old RGC 10 1/4% Notes; (c) a material impairment in the trading market for debt securities generally; (d) a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States (whether or not mandatory); (e) a declaration of a national emergency or commencement of a war, armed hostilities or other national or international crisis directly or indirectly involving the United States; (f) any limitation (whether or not mandatory) by any governmental or regulatory authority on, or any other event that in the sole judgment of Food 4 Less might affect, the nature or extension of credit by banks or other financial institutions; (g) any significant change in United States currency exchange rates or a suspension of, or limitation on, the markets therefor (whether or not mandatory); (h) any significant adverse change in United States securities or financial markets; or (i) in the case of any of the foregoing existing at the time of the commencement of the Offers, in the sole judgment of Food 4 Less, a material acceleration, escalation or worsening thereof; (x) either of the Old Trustees shall have objected in any respect to, or taken any action that could, in the sole judgment of Food 4 Less, adversely affect the consummation of an Offer or the Solicitation or Food 4 Less's ability to obtain the Consents or to effect any of the Proposed Amendments, or shall have taken any action that challenges the validity or effectiveness of the procedures used by Food 4 Less in soliciting the Consents (including the form thereof) or in the making of an Offer or the acceptance for exchange or purchase of any of the Old RGC Notes; or (xi) the Registration Statement has not been declared effective or a stop order has been issued in connection therewith. The foregoing conditions are for the sole benefit of Food 4 Less and may be asserted by Food 4 Less in its sole discretion regardless of the circumstances giving rise to any such condition (including any action or inaction by Food 4 Less) and may be waived by Food 4 Less, in whole or in part, at any time and from time to time in its sole discretion. If any of the foregoing events shall have occurred, Food 4 Less may, subject to applicable law, (i) terminate the applicable Offer or the Solicitation and return all Old RGC Notes tendered pursuant to such Offer or the Solicitation to the tendering holders, (ii) extend the applicable Offer or the Solicitation and retain all tendered Old RGC Notes until the extended Expiration Date, (iii) amend the terms of the applicable Offer or the Solicitation or modify the consideration to be paid by Food 4 Less (or the Company as successor by merger) pursuant to such Offer or the Solicitation or (iv) waive the unsatisfied 95 107 condition or conditions with respect to such Offer or the Solicitation and accept all validly tendered Old RGC Notes. See "-- Expiration Date; Extensions; Termination; Amendments" and "-- Procedures for Tendering and Consenting." The failure by Food 4 Less at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by Food 4 Less concerning the events described in this section shall be final and binding upon all persons. PROCEDURES FOR TENDERING AND CONSENTING The tender by a holder of Old RGC Notes pursuant to one of the procedures set forth below will constitute an agreement between such holder and Food 4 Less in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Old RGC Notes may be tendered and will be accepted only in denominations of $1,000 principal amount and integral multiples thereof. To be tendered effectively pursuant to the Offers, (i) the properly completed Letter of Transmittal, including a valid and unrevoked Consent (or facsimile(s) thereof), duly executed by the registered holder thereof with any required signature guarantee(s), together with the certificates for tendered Old RGC Notes in proper form for transfer, or any book-entry transfer into the Exchange Agent's account at DTC, MSTC or PDTC (each as defined) of Old RGC Notes tendered electronically, and any other documents required by the Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth below prior to 12:00 Midnight, New York City time, on the Expiration Date, or (ii) the tendering holder must comply with the guaranteed delivery procedures set forth under the heading "--Guaranteed Delivery Procedure." THE WHITE CONSENT AND LETTER OF TRANSMITTAL SHALL BE USED TO TENDER ALL OLD RGC NOTES. LETTERS OF TRANSMITTAL AND OLD RGC NOTES SHOULD BE SENT TO THE EXCHANGE AGENT AND NOT TO FOOD 4 LESS, RGC OR THE DEALER MANAGERS NOR TO THE APPLICABLE TRUSTEE UNDER THE INDENTURE RELATING TO THE OLD RGC 9% NOTES OR THE OLD RGC 10 1/4% NOTES. A HOLDER OF OLD RGC NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE OFFER WITH RESPECT TO ANY OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES, AS THE CASE MAY BE. Holders of Old RGC Notes will not be able to validly tender in the Offers unless they consent to the Proposed Amendments. Tendering holders who sign the Letter of Transmittal shall be deemed to have consented to the Proposed Amendments. All signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Old RGC Notes tendered or withdrawn, as the case may be, pursuant thereto are tendered (i) by a registered holder of Old RGC Notes (which term, for purposes of the Letter of Transmittal, shall include any participant in DTC, MSTC or PDTC whose name appears on a security position listing as the owner of Old RGC Notes) who has not completed the box entitled "Special Issuance and Payment Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If Old RGC Notes are registered in the name of a person other than the signer of a Letter of Transmittal or a notice of withdrawal, as the case may be, or if payment is to be made or certificates for unexchanged Old RGC Notes are to be issued or returned to a person other than the registered holder, then the Old RGC Notes must be endorsed by the registered holder, or be accompanied by a written instrument or instruments of transfer or exchange in form satisfactory to Food 4 Less duly executed by the registered holder, with such signatures guaranteed by an Eligible Institution. In the event that signatures on a Letter of Transmittal (or other document) are required to be guaranteed, such guarantee must be by a firm that is a member of a registered national securities exchange or a member of the National 96 108 Association of Securities Dealers, Inc. (the "NASD") or by a commercial bank or trust company having an office in the United States (each of the foregoing being an "Eligible Institution"). THE METHOD OF DELIVERY OF OLD RGC NOTES AND OTHER DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS OTHERWISE PROVIDED PURSUANT TO "-- GUARANTEED DELIVERY," DELIVERY WILL BE DEEMED MADE WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. Instead of effecting delivery by mail it is recommended that tendering Old RGC Noteholders use an overnight or hand delivery service. If such delivery is by mail, it is recommended that holders use registered mail, properly insured, with return receipt requested. In all cases, sufficient time should be allowed to ensure delivery to the Exchange Agent prior to 12:00 Midnight, New York City time, on the Expiration Date. Tendering holders should indicate in the applicable box in the Letter of Transmittal the name and address to which payments (including accrued and unpaid interest in cash on the Old RGC Notes and the Exchange Payment or Cash Consideration), certificates evidencing New Notes and/or certificates evidencing Old RGC Notes for amounts not accepted for exchange or purchase (each, as appropriate) are to be issued or sent, if different from the name and address of the person signing the Letter of Transmittal. In the case of issuance or payment in a different name, the employer identification or social security number of the person named must also be indicated and a substitute Form W-9 for such recipient must be completed. If no such instructions are given, such payments (including accrued and unpaid interest in cash on the Old RGC Notes and the Exchange Payment or Cash Consideration), New Notes or Old RGC Notes not accepted for exchange or purchase, as the case may be, will be made or returned to the registered holder of Old RGC Notes tendered. Holders of Old RGC Notes who are not registered holders of, and who seek to tender, Old RGC Notes should (i) obtain a properly completed Letter of Transmittal for such Old RGC Notes from the registered holder with signatures guaranteed by an Eligible Institution and obtain and include with such Letter of Transmittal Old RGC Notes properly endorsed for transfer by the registered holder thereof or accompanied by a written instrument or instruments of transfer or exchange from the registered holder with signatures on the endorsement or written instrument or instruments of transfer or exchange guaranteed by an Eligible Institution or (ii) effect a record transfer of such Old RGC Notes and comply with the requirements applicable to registered holders for tendering Old RGC Notes prior to 12:00 Midnight, New York City time, on the Expiration Date. Any Old RGC Notes properly tendered prior to 12:00 Midnight, New York City time, on the Expiration Date accompanied by a properly completed Letter of Transmittal for such Old RGC Notes will be transferred of record by the registrar either prior to or as of the Expiration Date at the discretion of Food 4 Less. Food 4 Less has no obligation to transfer any Old RGC Notes from the name of the registered holder thereof if Food 4 Less does not accept for exchange and payment any of such Old RGC Notes. Issuance of New Notes and the payment of the Exchange Payment and/or payment of the Cash Consideration (each, as appropriate) will be made only against deposit of the tendered Old RGC Notes. Under the federal income tax laws, the Exchange Agent will be required to withhold and will remit to the United States Treasury 31% of the amount of any cash payments made to certain holders of Old RGC Notes pursuant to the Offers and the Solicitation, and 31% of the interest payments due to certain holders of New Notes. In order to avoid such backup withholding, each holder of Old RGC Notes electing to tender Old RGC Notes pursuant to an Offer, and, if applicable, each other payee, must provide the Exchange Agent with such holder's or payee's correct taxpayer identification number and certify that such holder or payee is not subject to such backup withholding by completing the Substitute Form W-9 accompanying the Letter of Transmittal. In general, if a holder or payee is an individual, the taxpayer identification number is the Social Security number of such individual. If the Exchange Agent is not provided with the correct taxpayer identification number, the holder or payee may be subject to a $50 penalty imposed by the Internal Revenue Service. Certain holders or payees (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Exchange Agent that a foreign individual qualifies as an exempt recipient, such holder or payee must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one 97 109 and how to complete the Substitute Form W-9 if Old RGC Notes are held in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause Old RGC Notes tendered pursuant to the Offers to be deemed invalidly tendered, but may require the Exchange Agent to withhold 31% of the amount of any payments made. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is furnished to the Internal Revenue Service. All questions as to the form of all documents and the validity (including the time of receipt), eligibility, acceptance and withdrawal of tendered Old RGC Notes will be determined by Food 4 Less, in its sole discretion, which determination shall be final and binding. Food 4 Less expressly reserves the absolute right to reject any and all tenders not in proper form and to determine whether the acceptance for exchange or purchase by it of such tenders would be unlawful. Food 4 Less also reserves the absolute right, subject to applicable law, to waive or amend any of the conditions to an Offer or the Solicitation or to waive any defect or irregularity in the tender of any of the Old RGC Notes. None of Food 4 Less, the Company, the Exchange Agent, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. No tender of Old RGC Notes will be deemed to have been validly made until all defects and irregularities with respect to such Old RGC Notes have been cured or waived. Any Old RGC Notes received by the Exchange Agent that are not properly tendered and as to which irregularities have not been cured or waived will be returned by the Exchange Agent to the appropriate tendering holder as soon as practicable. Food 4 Less' interpretation of the terms and conditions of the Offers and the Solicitation (including the Letter of Transmittal and the Instructions thereto) will be final and binding on all parties. The Exchange Agent will seek to establish accounts with respect to the Old RGC Notes at The Depository Trust Company ("DTC"), the Midwest Securities Transfer Company ("MSTC"), and the Philadelphia Depository Trust Company ("PDTC" and, together with DTC and MSTC, collectively referred to herein as the "Book-Entry Transfer Facilities") for the purpose of the Offers within two New York Stock Exchange Inc. ("NYSE") trading days. Any financial institution that is a participant in any of the Book-Entry Transfer Facilities' systems may make book-entry delivery of Old RGC Notes by causing DTC, MSTC or PDTC to transfer such Old RGC Notes into the Exchange Agent's account in accordance with such Book-Entry Transfer Facility's procedure for such transfer. However, although delivery of Old RGC Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, MSTC or PDTC, the Letter of Transmittal (or facsimile thereof), together with any required signature guarantees and any other required documents, must, in any case, be transmitted to, and received or confirmed by, the Exchange Agent at one of its addresses set forth on the back cover of this Amended and Restated Prospectus and Solicitation Statement prior to 12:00 Midnight, New York City time, on the Expiration Date, except as otherwise provided below under the heading "Guarantee Delivery Procedure." Old RGC Notes will not be deemed surrendered for exchange or purchase until such documents are received by the Exchange Agent and delivery of such documents to a Book-Entry Transfer Facility will not constitute valid delivery to the Exchange Agent. FOOD 4 LESS UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL MAKE ARRANGEMENTS FOR EXECUTION OF LETTERS OF TRANSMITTAL TO ACCOMMODATE BENEFICIAL OWNERS THAT DESIRE TO TENDER OLD RGC NOTES IN THE OFFERS. HOWEVER, FOOD 4 LESS UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL NOT ARRANGE FOR THE EXECUTION OF LETTERS OF TRANSMITTAL WITH RESPECT TO THE SOLICITATION, UNLESS THE OLD RGC NOTES ARE ALSO TENDERED IN THE OFFERS. HOLDERS MAY CONTACT THE EXCHANGE AGENT AT ANY OF THE ADDRESSES SET FORTH ON THE BACK COVER PAGE HEREOF FOR INFORMATION REGARDING WITHDRAWAL OF OLD RGC NOTES FROM A BOOK-ENTRY TRANSFER FACILITY. GUARANTEED DELIVERY PROCEDURE If a registered holder of Old RGC Notes desires to tender such Old RGC Notes and consent to the Proposed Amendments, and the Old RGC Notes are not immediately available, or if time will not permit such holder's Old RGC Notes or any other required documents to be delivered to the Exchange Agent prior to 12:00 Midnight, New York City time, on the Expiration Date, then such Old RGC Notes may nevertheless be 98 110 tendered and Consents may be effected if all of the following guaranteed delivery procedure conditions are met: (i) the tender and Consent is made by or through an Eligible Institution; (ii) prior to 12:00 Midnight, New York City time, on the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or hand delivery) substantially in the form provided by Food 4 Less, that contains a signature guaranteed by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery, unless such tender is for the account of an Eligible Institution (in which case no signature guarantee shall be required), and sets forth the name and address of the holder of Old RGC Notes and the principal amount of Old RGC Notes tendered for exchange or purchase or both, states that the tender is being made thereby and guarantees that, within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, together with the Old RGC Notes and any required signature guarantees and any other documents required by such Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (iii) all tendered Old RGC Notes, or a confirmation of a book-entry transfer of such Old RGC Notes into the Exchange Agent's applicable account at a Book-Entry Transfer Facility as described above, as well as the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and all other documents required by such Letter of Transmittal, shall be received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. THE ORANGE NOTICE OF GUARANTEED DELIVERY SHALL BE USED IN CONNECTION WITH TENDERS OF ALL OLD RGC NOTES. Notwithstanding any other provision hereof, the exchange and/or purchase of Old RGC Notes pursuant to the Offers will in all cases be made only after timely receipt by the Exchange Agent of certificates for such Old RGC Notes and the Letter of Transmittal (or facsimile thereof) in respect thereof, properly completed and duly executed, together with any required signature guarantees and any other documents required by such Letter of Transmittal. ACCEPTANCE OF OLD RGC NOTES FOR EXCHANGE OR PURCHASE; DELIVERY OF NEW NOTES AND PAYMENT OF THE EXCHANGE PAYMENT OR CASH CONSIDERATION Upon the terms and subject to the conditions of the Offers and the Solicitation, Food 4 Less will accept all Old RGC Notes validly tendered prior to 12:00 Midnight, New York City time, on the Expiration Date and not properly withdrawn. The acceptance for exchange or purchase of Old RGC Notes validly tendered and not validly withdrawn and the delivery of New Notes and the payment of the Exchange Payment or Cash Consideration (and any accrued and unpaid interest on the Old RGC Notes) will be made as promptly as practicable after the Expiration Date. Subject to rules promulgated pursuant to the Exchange Act, Food 4 Less, expressly reserves the right to delay acceptance of any of the Old RGC Notes or to terminate an Offer or the Solicitation and not accept for exchange or purchase any Old RGC Notes not theretofore accepted if any of the conditions set forth under the heading "-- Conditions" shall not have been satisfied or waived by Food 4 Less. The Company will deliver New Notes and make payments in cash (including accrued and unpaid interest on the Old RGC Notes and the Exchange Payment or Cash Consideration) in exchange for Old RGC Notes pursuant to the Offers promptly following acceptance of the Old RGC Notes. In all cases, exchange for Old RGC Notes accepted for exchange or payment for Old RGC Notes accepted for purchase will be made only after timely receipt by the Exchange Agent of Old RGC Notes (or confirmation of book-entry transfer thereof) and a properly completed and validly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other documents required thereby. New Notes will be issued in denominations of $1,000 principal amount and integral multiples thereof. 99 111 For purposes of the Offers and the Solicitation, Food 4 Less shall be deemed to have accepted validly tendered and not properly withdrawn Old RGC Notes when, as and if Food 4 Less gives oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Old RGC Notes for the purposes of receiving cash and/or New Notes from the Company and transmitting the cash and New Notes to the tendering holders. Under no circumstances will any additional amount be paid by Food 4 Less, the Company, or the Exchange Agent by reason of any delay in making such payment or delivery. All questions as to the validity, form, eligibility (including the time of receipt), acceptance and withdrawal of tendered Old RGC Notes will be resolved by Food 4 Less, whose determination will be final and binding. Food 4 Less reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which would, in the opinion of counsel for Food 4 Less, be unlawful. Food 4 Less also reserves the right to waive any irregularities or conditions of tender as to particular Old RGC Notes. Food 4 Less' interpretation of the terms and conditions of the Offers and the Solicitation (including the instructions in the Letter of Transmittal) will be final and binding. Unless waived, any irregularities or defects in connection with tenders of Old RGC Notes must be cured within such time as Food 4 Less determines. Neither Food 4 Less, the Company nor the Exchange Agent shall be under any duty to give notification of irregularities or defects in such tenders or shall incur any liability for failure to give such notification. Tenders of Old RGC Notes will not be deemed to have been made until such irregularities have been cured or waived. If, for any reason whatsoever, acceptance for exchange or purchase of any Old RGC Notes tendered pursuant to the Offers is delayed, or Food 4 Less is unable to accept for exchange or purchase Old RGC Notes tendered pursuant to the Offers, then, without prejudice to Food 4 Less' and the Company's rights set forth herein, the Exchange Agent may nevertheless, on behalf of Food 4 Less and subject to rules promulgated pursuant to the Exchange Act, retain tendered Old RGC Notes, and such Old RGC Notes may not be withdrawn except to the extent that the tendering holder of such Old RGC Notes is entitled to withdrawal rights as described herein. See "-- Withdrawal of Tenders and Revocation of Consents." If any tendered Old RGC Notes are not accepted for exchange or purchase because of an invalid tender, the occurrence or non-occurrence of certain other events set forth herein or otherwise, then such unaccepted Old RGC Notes will be returned, at Food 4 Less' expense, to the tendering holder thereof as promptly as practicable after the Expiration Date or the termination of the applicable Offer therefor. No alternative, conditional or contingent tenders will be accepted. A tendering holder, by execution of a Letter of Transmittal, or facsimile thereof, waives all rights to receive notice of acceptance of such holder's Old RGC Notes for purchase or exchange. WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS Tenders of Old RGC Notes pursuant to an Offer may be withdrawn and Consents may be revoked at any time until the "Consent Date" which shall be such time as the Requisite Consents (Consents of holders representing at least a majority in aggregate principal amount of the outstanding Old RGC 9% Notes or Old RGC 10 1/4% Notes, as the case may be, held by persons other than RGC and its affiliates) have been delivered by Food 4 Less to the applicable Old Trustee and the Supplemental Indenture for such issue has been executed. Thereafter, such tenders may be withdrawn and Consents may be revoked if the Offer with respect to such issue of Old RGC Notes is terminated without any Old RGC Notes being accepted thereunder. Tendering holders will receive in cash accrued and unpaid interest on Old RGC Notes accepted for exchange or purchase up to, but not including, the date of such exchange or purchase. Interest on the New Notes will accrue from, and including, the date of such exchange, which will be the date of issuance of the New Notes. A different Consent Date may be established with respect to the Old RGC 9% Notes and the Old RGC 10 1/4% Notes. The withdrawal of Old RGC Notes prior to the time set forth above in accordance with the procedures set forth hereunder will effect a revocation of the related Consent. Any valid revocation of Consents will automatically render the prior tender of the Old RGC Notes to which such Consents relate defective and Food 4 Less will have the right, which it may waive, to reject such tender as invalid and ineffective. 100 112 Any holder of Old RGC Notes who has tendered Old RGC Notes or who succeeds to the record ownership of Old RGC Notes in respect of which such tenders or Consents previously have been given may withdraw such Old RGC Notes or revoke such Consents prior to the applicable Consent Date by delivery of a written notice of withdrawal or revocation, subject to the limitations described herein. To be effective, a written telegraphic, telex or facsimile transmission (or delivered by hand or by mail) notice of withdrawal of a tender or revocation of a Consent must (i) be timely received by the Exchange Agent at one of its addresses set forth on the back cover hereof or prior to the applicable time provided herein with respect to the applicable class of Old RGC Notes, (ii) specify the name of the person having tendered the Old RGC Notes to be withdrawn or as to which Consents are revoked, the principal amount of such Old RGC Notes to be withdrawn and, if certificates for Old RGC Notes have been tendered, the name of the registered holder(s) of such Old RGC Notes as set forth in such certificates, if different from that of the person who tendered such Old RGC Notes, (iii) identify the Old RGC Notes to be withdrawn or to which the notice of revocation relates and (iv)(a) be signed by the holder in the same manner as the original signature on the Letter of Transmittal or Notice of Guaranteed Delivery (as the case may be) by which such Old RGC Notes were tendered (including any required signature guarantees) or (b) be accompanied by evidence satisfactory to Food 4 Less and the Exchange Agent that the holder withdrawing such tender or revoking such Consents has succeeded to beneficial ownership of such Old RGC Notes. If certificates representing Old RGC Notes to be withdrawn or Consents to be revoked have been delivered or otherwise identified to the Exchange Agent, then the name of the registered holder and the serial numbers of the particular certificate evidencing the Old RGC Notes to be withdrawn or Consents to be revoked and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, except in the case of Old RGC Notes tendered by an Eligible Institution (in which case no signature guarantee shall be required), must also be so furnished to the Exchange Agent as aforesaid prior to the physical release of the certificates for the withdrawn Old RGC Notes. If Old RGC Notes have been tendered or if Consents have been delivered pursuant to the procedures for book-entry transfer as set forth herein, any notice of withdrawal or revocation of Consent must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Old RGC Notes. Food 4 Less reserves the right to contest the validity of any revocation. A purported notice of revocation which is not received by the Exchange Agent in a timely fashion will not be effective to revoke a Consent previously given. Any permitted withdrawals of tenders of Old RGC Notes and revocation of Consents may not be rescinded, and any Old RGC Notes properly withdrawn will thereafter be deemed not validly tendered and any Consents revoked will be deemed not validly delivered for purposes of an Offer; provided, however, that withdrawn Old RGC Notes may be retendered and revoked Consents may be redelivered by again following one of the appropriate procedures described herein at any time prior to 12:00 Midnight, New York City time, on the Expiration Date. If Food 4 Less extends an Offer, is delayed in its acceptance for exchange and/or purchase of Old RGC Notes or is unable to exchange and/or purchase Old RGC Notes pursuant to an Offer, for any reason, then, without prejudice to Food 4 Less' rights under such Offer, the Exchange Agent may, subject to applicable law, retain tendered Old RGC Notes on behalf of Food 4 Less, and such Old RGC Notes may not be withdrawn (subject to Rule 14e-1 under the Exchange Act, which requires that Food 4 Less or the Company, as the case may be, deliver the consideration offered or return the Old RGC Notes deposited by or on behalf of the Old RGC Noteholders promptly after the termination or withdrawal of an Offer), except to the extent that tendering holders are entitled to withdrawal rights as described herein. All questions as to the validity, form and eligibility (including the time of receipt) of notices of withdrawal or revocations of Consents will be determined by Food 4 Less, whose determination will be final and binding on all parties. None of Food 4 Less, the Exchange Agent, the Dealer Managers or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or revocation of Consent or incur any liability for failure to give any such notification. 101 113 LOST OR MISSING CERTIFICATES If a holder of Old RGC Notes desires to tender an Old RGC Note pursuant to an Offer, but the Old RGC Note has been mutilated, lost, stolen or destroyed, such holder should write to or telephone the Old Trustee under the Old RGC Notes Indentures, at the address listed below, concerning the procedures for obtaining replacement certificates for such Old RGC Notes, arranging for indemnification or any other matter that requires handling by such Old Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036-1532 Attention: Corporate Trust Department (212) 852-1000 DEALER MANAGERS Subject to the terms and conditions set forth in the Dealer Manager Agreement (the "Dealer Manager Agreement") dated January 25, 1995 (as amended), among FFL, Food 4 Less, Holdings and the Subsidiary Guarantors, (together, the "Issuers") and BT Securities, CS First Boston and DLJ as dealer managers and solicitation agents (the "Dealer Managers"), the Issuers have engaged BT Securities, CS First Boston and DLJ to act as Dealer Managers in connection with the Offers, the Solicitation, the F4L Exchange Offer and the Holdings Offer to Purchase. The Issuers will pay the Dealer Managers, as compensation for their services as Dealer Managers, a fee equal to (i) 1.0% of the aggregate principal amount of Old RGC Notes and Old F4L Notes accepted for exchange or purchase in the Offers and the F4L Exchange Offers; (ii) 0.5% of the aggregate accreted value of Discount Notes accepted for purchase in the Holdings Offer to Purchase; (iii) 0.5% of the aggregate principal amount of Old F4L Notes and Old RGC Notes in respect of which a consent is accepted in the Solicitation and the F4L Exchange Offers (other than Old RGC Notes and Old F4L Notes accepted for exchange or purchase, as the case may be, in the F4L Exchange Offers and the Offers) and (iv) 0.5% of the aggregate accreted value of Discount Notes in respect of which a consent is accepted in the Holdings Offer to Purchase (other than Discount Notes accepted for purchase in the Holdings Offer to Purchase). In addition, the Issuers have agreed to reimburse each of the Dealer Managers for all of its respective reasonable out-of-pocket expenses, including the reasonable fees and reasonable expenses of their legal counsel, incurred in connection with the Offers, the Solicitation, the F4L Exchange Offers and the Holdings Offer to Purchase. The Issuers have agreed to indemnify each of the Dealer Managers against certain liabilities in connection with the Offers, Solicitation, the F4L Exchange Offer and the Holdings Offer to Purchase including liabilities under the federal securities laws, and will contribute to payments the Dealer Managers may be required to make in respect thereof. Bankers Trust, an affiliate of BT Securities has been a co-agent and a lender under the existing credit agreements of each of RGC and Food 4 Less and will be administrative agent and a lender under the New Credit Facility. See "Description of the New Credit Facility." BT Securities has provided services to Food 4 Less in connection with the Financing and in consideration therefor Food 4 Less will pay to BT Securities a fee of $5 million upon closing of the Merger. Such fee will be satisfied through the issuance by New Holdings to BT Securities of $5 million initial accreted value of New Discount Debentures. Such New Discount Debentures will be contributed to the partnership which will acquire all of the New Discount Debentures. DLJ has provided financial advisory services to Food 4 Less in connection with the Merger and will receive customary fees for such services. The Dealer Managers will also serve as underwriters for the Public Offerings and will receive customary fees in connection with such services. In addition, affiliates of the Dealer Managers are investing in the capital stock of New Holdings pursuant to the New Equity Investment. After giving effect to the Merger, BTIP will own in the aggregate approximately 900,000 shares of Series A Preferred Stock and approximately 3,100,000 shares of Series B Preferred Stock, affiliates of CS First Boston will own approximately 1,000,000 shares of Series A Preferred Stock and affiliates of DLJ will own approximately 1,000,000 shares of Series A Preferred Stock. Affiliates of BTIP additionally own 509,812 shares of FFL Common Stock which they had previously acquired and which 102 114 will be converted to New Holdings capital stock following the FFL Merger and the Reincorporation Merger. See "Principal Stockholders" and "Description of Capital Stock." Affiliates of each of BT Securities, CS First Boston and DLJ are also investing $5 million, $2.5 million and $2.5 million, respectively, in the partnership that will purchase the New Discount Debentures. See "Certain Relationships and Related Transactions -- Food 4 Less and Holdings." Each of the Dealer Managers has from time to time provided investment banking and financial advisory services to one or more of Food 4 Less, Holdings and RGC and/or their respective affiliates and may continue to do so in the future. The Dealer Managers have received customary fees for such services. No fees or commission have been or will be paid to any broker, dealer or other person, other than the Dealer Managers, in connection with the Offers, the Solicitation, the F4L Exchange Offers and the Holdings Offer to Purchase. EXCHANGE AGENT Bankers Trust has been appointed as Exchange Agent for the Offers and the Solicitation. Questions and requests for assistance, and all correspondence in connection with the Offers or the Solicitation, or requests for additional Letters of Transmittal and any other required documents, may be directed to the Exchange Agent at one of its addresses and telephone numbers set forth on the back cover of this Amended and Restated Prospectus and Solicitation Statement. INFORMATION AGENT D. F. King & Co., Inc. is serving as Information Agent in connection with the Offers and the Solicitation. The Information Agent will assist with the mailing of this Amended and Restated Prospectus and Solicitation Statement and related materials to holders of Old RGC Notes, respond to inquiries of and provide information to holders of Old RGC Notes in connection with the Offers and the Solicitation and provide other similar advisory services as Food 4 Less may request from time to time. Requests for additional copies of this Amended and Restated Prospectus and Solicitation Statement, Letters of Transmittal and any other required documents should be directed to the Dealer Managers or to the Information Agent at one of its addresses and telephone numbers set forth on the back cover page of this Amended and Restated Prospectus and Solicitation Statement. FEES AND EXPENSES In addition to the fees and expenses payable to the Dealer Managers, Food 4 Less will pay the Exchange Agent and the Information Agent reasonable and customary fees for their services (and will reimburse them for their reasonable out-of-pocket expenses in connection therewith), will pay the reasonable expenses of holders in delivering their Old RGC Notes to the Exchange Agent and will pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Amended and Restated Prospectus and Solicitation Statement and related documents to the beneficial owners of the Old RGC Notes and in handling or forwarding tenders for exchange and payment. In addition, Food 4 Less will indemnify the Exchange Agent and the Information Agent against certain liabilities in connection with their services, including liabilities under the federal securities laws. Food 4 Less will pay all transfer taxes, if any, applicable to the tender of Old RGC Notes pursuant to the Offers. If, however, New Notes or Old RGC Notes for principal amounts not accepted for tender, or both, are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old RGC Notes, or if tendered Old RGC Notes are to be registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange or purchase of Old RGC Notes pursuant to an Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such tax or exemption therefrom is not submitted, then the amount of such transfer tax will be deducted from the Exchange Payment or Cash Consideration otherwise payable to such tendering holder. Any remaining amount will be billed directly to such tendering holder. 103 115 The total cash expenditures for printing, accounting and legal fees and the fees and expenses of the Exchange Agent, the Information Agent and the trustees under the old and new indentures to be incurred by Food 4 Less in connection with the Offers, the F4L Exchange Offers and the Holdings Consent Solicitation are estimated to be approximately $9 million. MISCELLANEOUS The Offers are not subject to Section 13(e) of, or Rules 13e-3 or 13e-4 or Regulation 14D promulgated under, the Exchange Act. The Offers are being made in compliance with Regulation 14E under the Exchange Act. Other than with respect to the Exchange Agent, the Information Agent and the Dealer Managers, neither Food 4 Less nor any of its affiliates has engaged, or made any arrangements for, and has no contract, arrangement or understanding with, any broker, dealer, agent or other person regarding the exchange or purchase of Old RGC Notes hereunder, and no person has been authorized by Food 4 Less or any of its affiliates to provide any information or to make any representations in connection with the Offers and the Solicitation, other than those expressly set forth in this Amended and Restated Prospectus and Solicitation Statement, and, if so provided or made, such other information or representations must not be relied upon as having been authorized by Food 4 Less or any of its affiliates. The delivery of this Amended and Restated Prospectus and Solicitation Statement shall not, under any circumstances, create any implication that the information set forth herein is correct as of any time subsequent to the date hereof. 104 116 DESCRIPTION OF THE NEW NOTES GENERAL The New Notes will be issued under an Indenture (the "New Note Indenture") to be dated as of June 1, 1995, by and among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as Trustee (the "New Note Trustee"). The following summary of certain provisions of the New Notes and the New Note Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the New Notes and the New Note Indenture, including the definitions of certain terms therein and those terms made a part of the New Note Indenture by reference to the TIA. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." A copy of the form of the New Note Indenture may be obtained from Food 4 Less. The New Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the New Note Trustee will act as Paying Agent and Registrar for the New Notes. The New Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be the New Note Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the New Notes (the "Holders"). The Company will pay principal (and premium, if any) on the New Notes at the New Note Trustee's corporate office located in New York, New York. At the Company's option, interest may be paid at the New Note Trustee's corporate trust office or by check mailed to the registered address of the relevant Holders. As used below in this "Description of the New Notes," the "Company" means Ralphs Supermarkets, Inc. as survivor of the Merger (and renamed Ralphs Grocery Company), but not any of its subsidiaries. PRINCIPAL, MATURITY AND INTEREST The New Notes will mature on June 1, 2005. The up to $450 million principal amount of New Notes offered for exchange hereby will be part of an issue of up to $650 million aggregate principal amount of New Notes, up to $200 million of which will be issued pursuant to the Subordinated Note Public Offering. The Subordinated Note Public Offering is expected to price ten business days preceding the final Expiration Date of the Offers. See "The F4L Exchange Offers and the Public Offerings -- The Public Offerings." The New Notes offered pursuant to the Offers will bear interest at a fixed rate per annum equal to the greater of (a) 11.00% and (b) the Applicable Treasury Rate (as hereinafter defined) plus 400 basis points (4.00 percentage points); provided, however, that in no event will the New Notes offered for exchange hereby bear interest at a rate per annum that is less than the interest rate on the New Notes offered in the Subordinated Note Public Offering. The "Applicable Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the average life to stated maturity of the New Notes; provided that if the average life to stated maturity of the New Notes is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of the year) from the weekly average yields of the United States Treasury securities for which such yields are given. Interest on the New Notes will be payable semi-annually on each June 1 and December 1, commencing on December 1, 1995, to the Holders of record on the immediately preceding May 15 and November 15, respectively. Interest on the New Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 105 117 OPTIONAL REDEMPTION The New Notes will be redeemable, at the option of the Company, in whole at any time or in part, from time to time, on and after June 1, 2000 at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on June 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon to the date of redemption:
YEAR PERCENTAGE ------------------------------------------ ---------- 2000...................................... 104.125% 2001...................................... 102.750% 2002...................................... 101.375% 2003 and thereafter....................... 100.000%
In the event the interest rate on the New Notes is greater than 11.00%, the above redemption prices will be correspondingly adjusted. In addition, on or prior to June 1, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the New Notes originally issued, at a redemption price equal to 111.00% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1996 and 108.25% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. In the event the interest rate on the New Notes is greater than 11.00%, the above redemption prices will be correspondingly adjusted. In order to effect the foregoing redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. The documents evidencing Senior Indebtedness will restrict the Company's ability to optionally redeem New Notes. NOTICES AND SELECTION In the event of a redemption of less than all of the New Notes, such New Notes will be selected for redemption by the New Note Trustee pro rata, by lot or by any other method that the New Note Trustee considers fair and appropriate and, if such New Notes are listed on any securities exchange, by a method that complies with the requirements of such exchange; provided, however, that any redemption of the New Notes pursuant to the provisions relating to a Public Equity Offering shall be made on a pro rata basis unless such method is otherwise legally prohibited. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of New Notes to be redeemed at such Holder's registered address. On and after the redemption date, interest will cease to accrue on New Notes or portions thereof called for redemption (unless the Company shall default in the payment of the redemption price or accrued interest). New Notes that are redeemed by the Company or that are purchased by the Company pursuant to a Net Proceeds Offer as described under "-- Certain Covenants -- Limitation on Asset Sales" below or pursuant to a Change of Control Offer as described under "-- Change of Control" below or that are otherwise acquired by the Company will be surrendered to the New Note Trustee for cancellation. SUBORDINATION The payment of the Obligations on the New Notes will be subordinated in right of payment, as set forth in the New Note Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness, whether outstanding on the Issue Date or thereafter incurred, including, with respect to Designated Senior Indebtedness, any interest accruing subsequent to a bankruptcy or other similar proceeding whether or not such interest is an allowed claim enforceable against the Company in a bankruptcy case under Title 11 of the United States Code. Upon any distribution of assets of the Company of any kind or character, whether in cash, property or securities upon any dissolution, winding up, total or partial liquidation or reorganization of the Company 106 118 (including, without limitation, in bankruptcy, insolvency, or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of the Company's assets and liabilities), the holders of Senior Indebtedness shall first be entitled to receive payment in full in cash or Cash Equivalents of all amounts payable under Senior Indebtedness (including, with respect to Designated Senior Indebtedness, any interest accruing after the commencement of any such proceeding at the rate specified in the applicable Senior Indebtedness whether or not such interest is an allowed claim enforceable against the Company in any such proceeding) before the Holders will be entitled to receive any payment with respect to the New Notes (excluding Permitted Subordinated Reorganization Securities), and until all Obligations with respect to Senior Indebtedness are paid in full in cash or Cash Equivalents, any distribution to which the Holders would be entitled (excluding Permitted Subordinated Reorganization Securities) shall be made to the holders of Senior Indebtedness. No direct or indirect payment (other than payments previously made pursuant to the provisions described under "-- Defeasance of Indenture" below) by or on behalf of the Company of Obligations on the New Notes whether pursuant to the terms of the New Notes or upon acceleration or otherwise shall be made if, at the time of such payment, there exists a default in the payment of all or any portion of principal of, premium, if any, or interest on any Designated Senior Indebtedness or any other Senior Indebtedness which, at the time of determination, is equal to or greater than $50 million in aggregate principal amount ("Significant Senior Indebtedness") (and the New Note Trustee has received written notice thereof), and such default shall not have been cured or waived by or on behalf of the holders of such Designated Senior Indebtedness or Significant Senior Indebtedness, as the case may be, or shall have ceased to exist, until such default shall have been cured or waived or shall have ceased to exist or such Designated Senior Indebtedness or Significant Senior Indebtedness, as the case may be, shall have been discharged or paid in full in cash or Cash Equivalents, after which the Company shall resume making any and all required payments in respect of the New Notes, including any missed payments. In addition, during the continuance of any other event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated, upon the earliest to occur of (a) receipt by the New Note Trustee of written notice from the holders of a majority of the outstanding principal amount of the Designated Senior Indebtedness or their representative, or (b) if such event of default results from the acceleration of the New Notes, the date of such acceleration, no such payment (other than payments previously made pursuant to the provisions described under "-- Defeasance of Indenture" below) may be made by the Company upon or in respect of the New Notes for a period ("Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 179 days thereafter (unless (x) such Payment Blockage Period shall be terminated by written notice to the New Note Trustee from the holders of a majority of the outstanding principal amount of such Designated Senior Indebtedness or their representative who delivered such notice or (y) such default is cured or waived or ceases to exist or such Designated Senior Indebtedness is discharged or paid in full in cash or Cash Equivalents), after which the Company shall resume making any and all required payments in respect of the New Notes, including any missed payments. Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 179 days from the date on which such Payment Blockage Period was commenced. Not more than one Payment Blockage Period may be commenced with respect to the New Notes during any period of 365 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the holders of such Designated Senior Indebtedness or their representative whether or not within a period of 365 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. If the Company fails to make any payment on the New Notes when due or within any applicable grace period, whether or not on account of the payment blockage provision referred to above, such failure would constitute an Event of Default under the New Note Indenture and would enable the Holders of New Notes to accelerate the maturity thereof. See "-- Events of Default." 107 119 By reason of such subordination, in the event of the insolvency of the Company, Holders of the New Notes may recover less, ratably, than holders of Senior Indebtedness. As of January 7, 1995, on a pro forma basis after giving effect to the Merger, the aggregate amount of Senior Indebtedness outstanding (excluding Company guarantees of certain Guarantor Senior Indebtedness) would have been approximately $1,512.7 million, the aggregate amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would have been approximately $16.5 million, and the Company would have had $169.4 million available to be borrowed under the New Revolving Facility. GUARANTEES Each Subsidiary Guarantor will unconditionally guarantee, jointly and severally, the Company's obligations under the New Notes on a senior subordinated unsecured basis (the "Guarantees"). The Indebtedness represented by each Guarantee (including the payment of Obligations on the New Notes) will be subordinated on the same basis to Guarantor Senior Indebtedness as the New Notes are subordinated to Senior Indebtedness. See "-- Subordination". Upon (i) the release by the lenders under the Term Loans, related documents and future refinancings thereof of all guarantees of a Subsidiary Guarantor and all Liens on the property and assets of such Subsidiary Guarantor relating to such Indebtedness, or (ii) the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially all of its assets) to an entity which is not a subsidiary of the Company, which is otherwise in compliance with the New Note Indenture, such Subsidiary Guarantor shall be deemed released from all its obligations under its Guarantee; provided, however, that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, such Indebtedness of the Company shall also terminate upon such release, sale or transfer. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. The New Note Indenture will further provide that a Subsidiary Guarantor may consolidate with or merge into or sell its assets to a corporation other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor, but subject to the provisions described in the immediately preceding paragraph), provided that (a) if the surviving corporation is not the Subsidiary Guarantor, the surviving corporation agrees to assume such Subsidiary Guarantor's obligations under its Guarantee and all its obligations under the New Note Indenture and (b) such transaction does not (i) violate any covenants set forth in the New Note Indenture or (ii) result in a Default or Event of Default under the New Note Indenture immediately thereafter that is continuing. The obligations of each Subsidiary Guarantor under its Guarantee are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (other than liabilities of such Subsidiary Guarantor under Subordinated Indebtedness) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to its contribution obligations under the New Note Indenture, result in the obligations of such Subsidiary Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor. CHANGE OF CONTROL The New Note Indenture will provide that, upon the occurrence of a Change of Control, each Holder will have the right to require the repurchase of such Holder's New Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. 108 120 The New Note Indenture will provide that within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder of New Notes, with a copy to the New Note Trustee, which notice shall govern the terms of the Change of Control Offer. The New Note Indenture shall require that notice of an event giving rise to a Change of Control shall be given on the same date and in the same manner to all Holders. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a New Note purchased pursuant to a Change of Control Offer will be required to surrender the New Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the New Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date. Each Change of Control Offer is required to remain open for at least 20 Business Days or such longer period as may be required by law. The New Note Indenture will further provide that, notwithstanding the foregoing, prior to the mailing of the notice of a Change of Control Offer referred to above, within 30 days following a Change of Control the Company shall either (a) repay in full and terminate all commitments under Indebtedness under the Credit Agreement to the extent the terms thereof require repayment upon a Change of Control (or offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and repay the Indebtedness owed to each lender which has accepted such offer), or (b) obtain the requisite consents under the Credit Agreement, the terms of which require repayment upon a Change of Control, to permit the repurchase of the New Notes as provided above. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase New Notes pursuant to the provisions described above. The Company's failure to comply with the covenants described in this paragraph shall constitute an Event of Default under the New Note Indenture. In addition, the New Note Indenture will provide that prior to purchasing New Notes tendered in a Change of Control Offer, the Company shall purchase all F4L Senior Notes (or permitted refinancings thereof) which it is required to purchase by reason of such Change of Control pursuant to the provisions of the indenture under which such F4L Senior Notes are issued, as in effect on the Issue Date (the "F4L Senior Note Indenture"). The Company must comply with Rule 14e-1 under the Exchange Act and any other applicable provisions of the federal securities laws in connection with a Change of Control Offer. CERTAIN COVENANTS The New Note Indenture will contain, among other things, the following covenants: Limitation on Restricted Payments. The New Note Indenture will provide that the Company shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) the Company could not incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" below or (c) the aggregate amount expended for all Restricted Payments, including such proposed Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment as determined in good faith by the Board of Directors of the Company), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income is a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and on or prior to the date of the proposed Restricted Payment (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the Company from any person (other than a Subsidiary of the Company) from the issuance and sale (including upon exchange or conversion for other securities of the Company) subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary, until and to the extent such 109 121 borrowing is repaid), plus (iii) 100% of the aggregate net cash proceeds received by the Company as capital contributions to the Company after the Issue Date, plus (iv) $25 million. The New Note Indenture will provide that if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of the Company or the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of the Company with an Average Life equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid, (4) any payments by the Company or any Subsidiary, or any dividend by the Company or any Subsidiary to New Holdings the proceeds of which are used by New Holdings to make payments, required to be made due to the exercise of statutory dissenters', appraisal or similar rights by holders of common stock of FFL in connection with the FFL Merger and (5) Permitted Payments; provided, however, that the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (iii), (iv), (vii) and (ix) of the definition of the term "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and no amounts expended pursuant to clause (3) above or pursuant to clause (i), (v), (vi), (viii) or (x) of the definition of the term "Permitted Payments" shall be so counted; provided further that to the extent any payments made pursuant to clause (vii) of the definition of the term "Permitted Payments" are deducted for purposes of computing the Consolidated Net Income of the Company, such payments shall not be counted for purposes of computing amounts expended as Restricted Payments pursuant to subclause (c) in the immediately preceding paragraph. Limitation on Incurrences of Additional Indebtedness. The New Note Indenture will provide that the Company shall not, and shall not permit any of its Subsidiaries, directly or indirectly, to incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the New Notes or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of the Company would be greater than 2.0 to 1.0; provided further a Subsidiary may incur Acquired Indebtedness to the extent such Indebtedness could have been incurred by the Company pursuant to the immediately preceding proviso. Limitation on Liens. The New Note Indenture will provide that the Company shall not and shall not permit any Subsidiary to create, incur, assume or suffer to exist any Liens upon any of their respective assets unless the New Notes are equally and ratably secured by the Liens covering such assets, except for (i) Liens on assets of the Company securing Senior Indebtedness and Liens on assets of a Subsidiary Guarantor which, at the time of incurrence, secure Guarantor Senior Indebtedness, (ii) existing and future Liens securing Indebtedness and other obligations of the Company and its Subsidiaries under the Credit Agreement and related documents or any refinancing or replacement thereof in whole or in part permitted under the New Note Indenture, (iii) Permitted Liens, (iv) Liens securing Acquired Indebtedness; provided that such Liens (x) are not incurred in connection with, or in contemplation of the acquisition of the property or assets acquired and (y) do not extend to or cover any property or assets of the Company or any Subsidiary other than the property or assets so acquired, (v) Liens to secure Capitalized Lease Obligations and certain other Indebtedness that is otherwise permitted under the New Note Indenture; provided that (A) any such Lien is created solely for the purpose of securing such other Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, the purchase (whether through stock or asset purchase, merger or otherwise) or construction) or improvement of the property subject thereto 110 122 (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 Note Trustee under the New Note Indenture and any substantially equivalent Lien granted to any trustee or similar institution under any indenture for Indebtedness permitted to be incurred under the New Note Indenture; and (viii) any replacement, extension or renewal, in whole or in part, of any Lien described in this or the foregoing clauses including in connection with any refinancing of the Indebtedness, in whole or in part, secured by any such Lien; provided that to the extent any such clause limits the amount secured or the assets subject to such Liens, no extension or renewal shall increase the amount or the assets subject to such Liens, except to the extent that the Liens associated with such additional assets are otherwise permitted hereunder. Limitation on Asset Sales. The New Note Indenture will provide that neither the Company nor any of its Subsidiaries shall consummate an Asset Sale unless (a) the Company or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold and (b) upon consummation of an Asset Sale, the Company will within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (A) a Related Business Investment, (B) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale or (C) an investment in properties and assets that will be used in the business of the Company and its Subsidiaries existing on the Issue Date or in businesses reasonably related thereto; (ii) apply or cause to be applied such Net Cash Proceeds to the permanent repayment of Pari Passu Indebtedness or Senior Indebtedness; provided, however, that the repayment of any revolving loan (under the Credit Agreement or otherwise) shall result in a permanent reduction in the commitment thereunder; (iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of New Notes tendered to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued interest to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets or equipment which are acquired or constructed by the Company or a Subsidiary subsequent to the Issue Date, provided that such sale and substantially concurrent lease-back occurs within 270 days following such acquisition or the completion of such construction, as the case may be. Pending the utilization of any Net Cash Proceeds in the manner (and within the time period) described above, the Company may use any such Net Cash Proceeds to repay revolving loans (under the Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. Each Net Proceeds Offer will be mailed to record Holders of New Notes as shown on the register of Holders not less than 325 nor more than 365 days after the relevant Asset Sale, with a copy to the New Note Trustee, shall specify the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed) and shall otherwise comply with the procedures set forth in the New Note Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their New Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender New Notes in an amount exceeding the Net Proceeds Offer, New Notes of tendering Holders will be repurchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of New Notes pursuant to a Net Proceeds Offer. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The New Note Indenture will provide that the Company shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with 111 123 respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Credit Agreement and related documents as in effect on the Issue Date, as any such payment restriction may apply to any present or future Subsidiary, (ii) the New Note Indenture and any agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenants described under "-- Limitation on Incurrences of Additional Indebtedness" and "-- Limitation on Liens" above that limit the right of the debtor to dispose of the assets securing such Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; and (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole than those provided for in such Indebtedness being refinanced, refunded, extended or renewed and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect on the Issue Date. Guarantees of Certain Indebtedness. The New Note Indenture will provide that the Company shall not permit any of its Subsidiaries to (a) incur, guarantee or secure through the granting of Liens the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof or (b) pledge any intercompany notes representing obligations of any of its Subsidiaries, to secure the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof, in each case unless such Subsidiary, the Company and the New Note Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Guarantee. Limitation on Transactions with Affiliates. The New Note Indenture will provide that neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities (other than equity securities which do not constitute Disqualified Capital Stock) from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of the Company or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under the following paragraph and (y) Affiliate Transactions in the ordinary course of business, that are fair to the Company or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (other than the requirement set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business), (B) with respect to Affiliate Transactions involving aggregate payments in excess of $5 million and less than $15 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (other than the requirement set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business) and that such Affiliate Transaction has received the approval of a majority of the disinterested members of the Board of Directors of the Company or the Subsidiary, as the case may be, or, in the absence of 112 124 any such approval by the disinterested members of the Board of Directors of the Company or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and that such Independent Financial Advisor has provided written confirmation of such determination to the Board of Directors and (C) with respect to Affiliate Transactions involving aggregate payments in excess of $15 million, the Company or such Subsidiary, as the case may be, shall have delivered to the New Note Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. The provisions of the foregoing paragraph shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of the covenant described under "-- Limitation on Restricted Payments" above, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among the Company and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by the New Note Indenture, (v) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders of the New Notes in any material respect, (vi) the existence of, or the performance by the Company or any of its Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or New Holdings) is a party as of the Issue Date and any similar agreements which it (or New Holdings) may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the New Notes in any material respect, (vii) transactions permitted by, and complying with, the provisions of the covenant described under "-- Limitation on Mergers and Certain Other Transactions" below, and (viii) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the New Note Indenture which are fair to the Company, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Limitations on Preferred Stock of Subsidiaries. The New Note Indenture will provide that the Company will not permit any of its Subsidiaries to issue any Preferred Stock (other than to the Company or to a wholly-owned Subsidiary) or permit any person (other than the Company or a wholly-owned Subsidiary) to own any Preferred Stock of any Subsidiary. Limitation on Mergers and Certain Other Transactions. The New Note Indenture will provide that the Company, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case, (1) either the Company shall be the continuing person, or the person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (the Company or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of the Company under the New Note Indenture and the New Notes; (2) immediately after and 113 125 giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) the Surviving Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above; (3) immediately before and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing; and (4) each Subsidiary Guarantor, unless it is the other party to the transaction, shall have by supplemental indenture confirmed that its Guarantee of the obligations of the Company under the New Notes and the New Note Indenture shall apply, without alteration or amendment as such Guarantee applies on the date it was granted under the New Note Indenture to the obligations of the Company under the New Note Indenture and the New Notes to the obligations of the Company or such Person, as the case may be, under the New Note Indenture and the New Notes, after the consummation of such transaction. Notwithstanding the foregoing, the consummation of the Merger on the Issue Date need only comply with clauses (1) and (3) of the foregoing paragraph. The New Note Indenture will provide that upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company or any adoption of a Plan of Liquidation by the Company in accordance with the foregoing, the surviving person formed by such consolidation or into which the Company is merged or to which such transfer is made (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the New Note Indenture with the same effect as if such surviving person had been named as the Company therein; provided, however, that solely for purposes of computing amounts described in subclause (c) of the first paragraph of the covenant described under "-- Limitation on Restricted Payments" above, any such surviving person shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Limitation on Other Senior Subordinated Indebtedness. The New Note Indenture will provide that neither the Company nor any Subsidiary Guarantor will, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinate in right of payment to any Indebtedness of the Company or such Subsidiary Guarantor, as the case may be, unless such Indebtedness is either (a) pari passu in right of payment with the New Notes or the Guarantee of such Subsidiary Guarantor, as the case may be, or (b) subordinate in right of payment to the New Notes or the Guarantee of such Subsidiary Guarantor, as the case may be, in the same manner and at least to the same extent as the New Notes are subordinate to Senior Indebtedness or as such Guarantee is subordinated to Guarantor Senior Indebtedness of such Subsidiary Guarantor, as the case may be. EVENTS OF DEFAULT The following events constitute "Events of Default" under the New Note Indenture: (i) failure to make any interest payment on the New Notes when due and the continuance of such default for a period of 30 days; (ii) failure to pay principal of, or premium, if any, on the New Notes when due, whether at maturity, upon acceleration, redemption, required repurchase or otherwise; (iii) failure to comply with any other agreement contained in the New Notes or the New Note Indenture, if such failure continues unremedied for 30 days after written notice given by the New Note Trustee or the Holders of at least 25% in principal amount of the New Notes then outstanding (except in the case of a default with respect to the covenants described under 114 126 "-- Certain Covenants -- Limitation on Restricted Payments," "-- Certain Covenants -- Limitations on Asset Sales," "-- Change of Control," and "-- Certain Covenants -- Limitations on Mergers and Certain Other Transactions," which shall constitute Events of Default with notice but without passage of time); (iv) a default under any Indebtedness of the Company or its Subsidiaries, whether such Indebtedness now exists or shall hereinafter be created, if both (A) such default either (1) results from the failure to pay any such Indebtedness at its stated final maturity or (2) relates to an obligation other than the obligation to pay such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, aggregate $20 million or more at any one time outstanding; (v) any final judgment or order for payment of money in excess of $20 million shall be entered against the Company or any Significant Subsidiary and shall not be discharged for a period of 60 days after such judgment becomes final and nonappealable; (vi) either the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (d) makes a general assignment for the benefit of its creditors; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary, in an involuntary case or proceeding; (b) appoints a Custodian of the Company or any Significant Subsidiary, or for all or any substantial part of their respective properties; or (c) orders the liquidation of the Company or any Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 days; (viii) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of the Company and its Subsidiaries; or (ix) any of the Guarantees shall be declared or adjudged invalid in a final judgment or order issued by any court of governmental authority. In the event of a declaration of acceleration because an Event of Default set forth in clause (iv) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured, within 90 days of such maturity or declaration of acceleration, as the case may be. If an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency, receivership or reorganization of the Company or a Subsidiary Guarantor) occurs and is continuing, the New Note Trustee or the Holders of at least 25% in principal amount of the then outstanding New Notes may declare due and payable all unpaid principal and interest accrued and unpaid on the then outstanding New Notes by notice in writing to the Company, the administrative agent under the Credit Agreement and the New Note Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become due and payable upon the first to occur of an acceleration under the Credit Agreement, or five business days after receipt by the Company and the administrative agent under the Credit Agreement of such Acceleration Notice. If an Event of Default resulting from certain events of bankruptcy, insolvency, receivership or reorganization of the Company or a Subsidiary Guarantor that is a Significant Subsidiary shall occur, all unpaid principal of and accrued interest on all then outstanding New Notes shall be immediately due and payable without any declaration or other act on the part of the New Note Trustee or any of the Holders. After a declaration of acceleration, subject to certain conditions, the Holders of a majority in principal amount of the then outstanding New Notes, by notice to the New Note Trustee, may rescind such declaration if all existing Events of Default are remedied. In certain cases the Holders of a majority in principal amount of outstanding New Notes may waive a past default under the New Note Indenture and its consequences, except a default in the payment of or interest on any of the New Notes. 115 127 The New Note Indenture provides that if a Default or Event of Default occurs and is continuing thereunder and if it is known to the New Note Trustee, the New Note Trustee shall mail to each Holder of New Notes notice of the Default or Event of Default within 90 days after such Default or Event of Default occurs; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of or interest on any New Note, including the failure to make payment on a Change of Control Payment Date pursuant to a Change of Control Offer or payment when due pursuant to a Net Proceeds Offer the New Note Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders. The New Note Indenture provides that no Holder of New Notes may pursue any remedy thereunder unless the New Note Trustee (i) shall have failed to act for a period of 60 days after receiving written notice of a continuing Event of Default by such Holder and a request to act by Holders of at least 25% in principal amount of New Notes and (ii) has received indemnification satisfactory to it; provided, however, that such provision does not affect the right of any Holder to sue for enforcement of any overdue payment of New Notes. The New Note Indenture provides that two officers of the Company are required to certify to the New Note Trustee within 120 days after the end of each fiscal year of the Company whether or not they know of any Default that occurred during such fiscal year and, if applicable, describe such Default and the status thereof. DEFEASANCE OF INDENTURE The Company may, at its option and at any time, elect to have the obligations of the Company discharged with respect to the outstanding New Notes. Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the New Notes except for (i) the rights of Holders of New Notes to receive payments in respect of the principal of, premium, if any, and interest on such New Notes when such payments are due solely from the funds held by the New Note Trustee in the trust referred to below; (ii) the Company's obligations to issue temporary New Notes, register the transfer or exchange of New Notes, replace mutilated, destroyed, lost or stolen New Notes and maintain an office or agency for payments in respect of the New Notes and money for security payments held in trust in respect of the New Notes; (iii) the rights, powers, trusts, duties and immunities of the New Note Trustee and the Company's obligations in connection therewith; and (iv) the Legal Defeasance provisions of the New Note Indenture. In addition, the Company may, at its option and at any time elect to have the obligations of the Company released with respect to certain covenants described above under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the New Notes. In order to exercise either Legal Defeasance or Covenant Defeasance with respect to the New Notes, (i) the Company must have irrevocably deposited with the New Note Trustee, in trust, for the benefit of the Holders of the New Notes, cash in U.S. dollars, U.S. Government Obligations (as defined in the New Note Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding New Notes to redemption or maturity provided that the New Note Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the New Notes on the Maturity Date or such redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the New Note Trustee an opinion of counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of New Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the New Note Trustee an opinion of counsel stating that the Holders of New Notes will not recognize income, gain or loss for federal income tax 116 128 purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as clauses (vi) and (vii) under the first paragraph under "-- Events of Default" above are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not cause the New Note Trustee to have a conflicting interest with respect to the New Notes; (iv) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the New Note Indenture or any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound (and in that connection, the New Note Trustee shall have received a certificate from the Agent under the Credit Agreement to that effect with respect to such Credit Agreement if then in effect); (vii) the Company shall have delivered to the New Note Trustee an opinion of counsel to the effect that after the 91st day following the deposit (A) the trust funds will not be subject to any rights of holders of Senior Indebtedness or Guarantor Senior Indebtedness, including, without limitation, those arising under the New Note Indenture and (B) the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (viii) the Company shall have delivered to the New Note Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the New Notes over other creditors of the Company or any Subsidiary Guarantor or with the intent of defeating, hindering, delaying or defrauding creditors of the Company, any Subsidiary Guarantor or others; and (ix) the Company shall have delivered to the New Note Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or Covenant Defeasance, have been complied with. SATISFACTION AND DISCHARGE The New Note Indenture will be discharged and will cease to be of further effect as to all outstanding New Notes when either (a) all New Notes theretofore authenticated and delivered (except lost, stolen or destroyed New Notes which have been replaced or paid and New Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the New Note Trustee for cancellation; or (b)(i) all New Notes not theretofore delivered to the New Note Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and the Company has irrevocably deposited or caused to be deposited with the New Note Trustee as trust funds in trust for the purpose an amount of money sufficient to pay and discharge the entire indebtedness on the New Notes not theretofore delivered to the New Note Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (ii)no Default or Event of Default with respect to the New Note Indenture or the New Notes shall have occurred and be continuing on the date os such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (iii) the Company has paid all sums payable by it under the New Note Indenture; and (iv) the Company has delivered irrevocable instructions to the New Note Trustee to apply the deposited money toward the payment of the New Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the New Note Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. MODIFICATION OF THE NEW NOTE INDENTURE The New Note Indenture and the New Notes may be amended or supplemented (and compliance with any provision thereof may be waived) by the Company, the Subsidiary Guarantors, the New Note Trustee and the Holders of not less than a majority in aggregate principal amount of New Notes then outstanding, except that (i) without the consent of each Holder of New Notes affected, no such amendment, supplement or waiver may (1) change the principal amount of the New Notes the Holders of which must consent to an amendment, supplement or waiver of any provision of the New Note Indenture, the New Notes or the Guarantees, (2) reduce the rate or extend the time for payment of interest on any New Notes, (3) reduce the principal amount of any New Notes, (4) change the Maturity Date of any New Notes or alter the redemption 117 129 provisions in the New Note Indenture or the New Notes in a manner adverse to any Holder, (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on or redemption payment with respect to any New Notes, (6) make the principal of, or interest on, any New Notes payable with anything or in any manner other than as provided for in the New Note Indenture, the New Notes and the Guarantees or (7) modify the subordination provisions of the New Note Indenture (including the related definitions) so as to adversely affect the ranking of any New Note or Guarantee; provided, however, that it is understood that any amendment the purpose of which is to permit the incurrence of additional Indebtedness under the New Note Indenture shall not be construed as adversely affecting the ranking of any New Note or Guarantee, (ii) without the consent of Holders of not less than 75% in aggregate principal amount of New Notes then outstanding, no such amendment, supplement or waiver may change the Change of Control Payment Date or the purchase price in connection with any repurchase of New Notes pursuant to the covenant described under "-- Change of Control" above in a manner adverse to any Holder or waive a Default or Event of Default resulting from a failure to comply with the covenant described under "-- Change of Control" above and (iii) without the consent of Holders of not less than two thirds in aggregate principal amount of New Notes then outstanding, no such amendment, supplement or waiver may release any Subsidiary Guarantor from any of its obligations under its Guarantee or the New Note Indenture other than in accordance with the terms of such Guarantee and the New Note Indenture. In addition, the New Note Indenture, the New Notes and the related Guarantees may be amended by the Company, the Subsidiary Guarantors and the New Note Trustee (a) to cure any ambiguity, defect or inconsistency therein; provided that such amendment or supplement does not adversely affect the rights of any Holder thereof or (b) to make any other change that does not adversely affect the rights of any Holder thereunder in any material respect. THE NEW NOTE TRUSTEE The New Note Indenture will provide that the Holders of a majority in principal amount of the outstanding New Notes may remove the New Note Trustee and appoint a successor trustee with the Company's consent, by so notifying the trustee to be so removed and the Company. In addition, the Holders of a majority in principal amount of the outstanding New Notes have the right, subject to certain limitations, to direct the time, method and place of conducting any proceeding for any remedy available to the New Note Trustee or of exercising any trust or power conferred on the New Note Trustee. The New Note Indenture will provide that, in case a Default or an Event of Default has occurred and is continuing, the New Note Trustee shall exercise such of the rights and powers vested in it by the New Note Indenture, and use the same degree of care and skill in the exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Subject to the latter provision, the New Note Trustee is under no obligation to exercise any of its rights or powers under the New Note Indenture at the request, order or direction of any of the Holders of the New Notes, unless they shall have offered to the New Note Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred thereby. If the Company fails to pay such amounts of principal of, premium, if any, or interest on, the New Notes as shall have become due and payable upon demand as specified in the New Note Indenture, the New Note Trustee, at the request of the Holders of a majority in aggregate principal amount of New Notes at the time outstanding, and upon being offered such reasonable indemnity as it may be required against the costs, expenses and liabilities incurred by it, except as a result of its negligence or bad faith, shall institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and collect in the manner provided by law the monies adjudged or decreed to be payable. The New Note Indenture contains limitations on the rights of the New Note Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to be realized on certain property received by it in respect of any such claims, securities or otherwise. The New Note Trustee is permitted to engage in other transactions; however, if the New Note Trustee acquires any "conflicting interest," it must eliminate such conflict or resign. 118 130 REPORTS The New Note Indenture will provide that the Company will deliver to the New Note Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual report and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The New Note Indenture will further provide that, notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the New Note Trustee and Holders of the New Notes with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA sec. 314(a). CERTAIN DEFINITIONS "Acquired Indebtedness" means (i) with respect to any person that becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) after the Issue Date, Indebtedness of, such person or any of its Subsidiaries existing at the time such person becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) and which was not incurred in connection with, or in contemplation of, such person becoming a Subsidiary of the Company (or being merged into the Company or any of its Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries, any Indebtedness assumed by the Company or any of its Subsidiaries in connection with the acquisition of any assets from another person (other than the Company or any of its Subsidiaries), and which was not incurred by such other person in connection with, or in contemplation of, such acquisition. "Adjusted Net Assets" means, with respect to a Subsidiary Guarantor at any date, the lesser of the amount by which (x) the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Subordinated Indebtedness)), but excluding liabilities under the Guarantee of such Subsidiary Guarantor at such date and (y) the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Subordinated Indebtedness) and after giving effect to any collection from any Subsidiary of such Subsidiary Guarantor in respect of the obligations of such Subsidiary under its Guarantee), excluding debt in respect of the Guarantee of such Subsidiary Guarantor as they become absolute and matured. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the New Note Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of the Company or any of its Subsidiaries. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise) made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than the Company or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of related sales, transfers or other dispositions (i) involving only Excluded Assets; (ii) resulting in Net Proceeds to the Company and the 119 131 Subsidiaries of $500,000 or less; (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company with a Lien on such assets, which Lien is permitted under the New Note Indenture, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law; (iv) involving only Cash Equivalents or inventory in the ordinary course of business or obsolete equipment in the ordinary course of business consistent with past practices of the Company; (v) involving only the lease or sub-lease of any real or personal property in the ordinary course of business; or (vi) the proceeds of such Asset Sale which are not applied as contemplated in "-- Certain Covenants -- Limitation on Asset Sales" and which, together with all other such Asset Sale Proceeds, do not exceed $20 million. "Average Life" means, as of any date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payments of such debt security multiplied by the amount of each such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any person, the Board of Directors of such person or of a subsidiary of such person or any duly authorized committee of that Board. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Capital Stock" means, with respect to any person, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii), (v) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500 million, and (c) has the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc. and (vi) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of New Holdings or the Company such that, as a result of such acquisition, such person, entity or 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, 120 132 at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of the Company's Board of Directors. "Commission" means the Securities and Exchange Commission. "Common Stock" means, with respect to any person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of, such person's common stock, whether outstanding at the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received by, such person or a subsidiary of such person not subject to any Payment Restriction; and (c)(i) the net income (or loss) of any other person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of such person or any of its subsidiaries and any gains on pension reversions received by such person or any of its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any of its subsidiaries of any securities of such person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C) any other restructuring reserves or charges (provided, however, that any cash payments actually made with respect to the liabilities for which such restructuring reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case, incurred by the Company or any of its Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by the Company and its Subsidiaries resulting from earthquakes and (ix) with respect to the Company, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded; provided further that solely for the purpose of computing amounts described in subclause (c) of the first paragraph of the covenant described under "-- Limitation on Restricted Payments" above, "Consolidated Net Income" of the Company for any period shall be reduced by the aggregate amount of dividends paid by the Company or a Subsidiary to New Holdings pursuant to clauses (v) and (vi) of the definition of "Permitted Payments" during such period. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Consulting Agreement" means that certain Consulting Agreement dated as of the Issue Date, between Food 4 Less, New Holdings and The Yucaipa Companies (as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date). "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among Food 4 Less, certain of its subsidiaries, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings and commitments then outstanding or permitted to be outstanding under such Credit 121 133 Agreement or any such prior agreement as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). The term "Credit Agreement" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. The Company shall promptly notify the New Note Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Designated Senior Indebtedness" means (i) in the event any Indebtedness is outstanding under the Credit Agreement, all Senior Indebtedness under the Credit Agreement and (ii) if no Indebtedness is outstanding under the Credit Agreement, any other issue of Senior Indebtedness which (a) at the time of the determination is equal to or greater than $50 million in aggregate principal amount and (b) is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company. For purposes of this definition, the term "Credit Agreement" shall not include any agreement governing Indebtedness incurred to refund, replace or refinance borrowings or commitments under the Credit Agreement other than any such agreements incurred to refund, replace or refinance the entirety of the borrowings and commitments then outstanding or permitted to be outstanding thereunder. "Discount Notes" means the 15.25% Senior Discount Notes due 2004 of New Holdings issued pursuant to the Discount Note Indenture, as the same may be modified or amended from time to time and future refinancings thereof. "Discount Note Indenture" means the indenture dated as of December 15, 1992 under which the 15.25% Senior Discount Notes due 2004 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof. "Disqualified Capital Stock" means, with respect to any person, any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security, into which it is convertible, puttable or exchangeable is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder thereof, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (i) redeemable or repurchasable solely at the option of such person or (ii) issued to employees of the Company or its Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credits) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period (excluding any such items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period) in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring 122 134 reserve or charge referred to in clause (v) above (and were not otherwise deducted in the computation of Consolidated Net Income of such person for such period). "Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated by the Commission thereunder. "Excluded Assets" means assets of the Company required to be disposed of by applicable regulatory authorities in connection with the Merger. "Existing Indebtedness" means the following indebtedness of the Company to the extent outstanding on the Issue Date after giving effect to the Merger: (a) the % Senior Notes due 2004 issued pursuant to an indenture dated as of the Issue Date; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (c) the % Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of the Issue Date; (d) the 9% Senior Subordinated Notes due 2003 issued pursuant to an indenture dated as of March 30, 1993; (e) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to an indenture dated as of July 29, 1992; (f) the 13.75% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of the Issue Date, and (g) the 13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated as of June 15, 1991. "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of the Company, any original issue discount on the applicable New Notes but excluding amortization of debt issuance costs) and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period but excluding the amortization of debt issuance costs), (ii) dividend requirements on Preferred Stock of such person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock)) declared or paid or required to be declared or paid during such period (except to the extent accrued in a prior period) and excluding items eliminated in consolidation and (iii) dividends declared or paid or scheduled or required to be declared or paid to New Holdings which are permitted to be paid pursuant to clauses (v) and (vi) of the definition of "Permitted Payments". For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such person (as evidenced by a Board Resolution) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clauses (ii) and (iii) above, dividend requirements shall be increased to an amount representing the pre-tax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "FFL" means Food 4 Less, Inc., a Delaware corporation, and its successors, including, without limitation, Holdings following the FFL Merger and New Holdings following the Reincorporation Merger. "FFL Merger" means the merger, prior to the Merger and the Reincorporation Merger, of FFL and Holdings. 123 135 "Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, Ralphs Supermarkets, Inc. (to be renamed Ralphs Grocery Company following the Merger). "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "Guarantor Senior Indebtedness" means, with respect to any Subsidiary Guarantor, the principal of, premium, if any, and interest on any Indebtedness of such Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of such Subsidiary Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of such Subsidiary Guarantor from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal of and interest on, and all fees, indemnities and expenses payable under the Credit Agreement. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Guarantee of such Subsidiary Guarantor, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of such Subsidiary Guarantor, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Subsidiary Guarantor, (d) Indebtedness which is represented by Disqualified Capital Stock, (e) obligations for goods, materials or services purchased in the ordinary course of business or obligations consisting of trade payables, (f) Indebtedness of or amounts owed by such Subsidiary Guarantor for compensation to employees or for services rendered to such Subsidiary Guarantor, (g) any liability for federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (h) Indebtedness of such Subsidiary Guarantor representing a guarantee of Subordinated Indebtedness or Pari Passu Indebtedness of the Company or any other Subsidiary Guarantor, (i) Indebtedness of such Subsidiary Guarantor to a Subsidiary of the Company and (j) that portion of any Indebtedness which is incurred by such Subsidiary Guarantor in violation of the New Note Indenture. "Holdings" means Food 4 Less Holdings, Inc., a California corporation, and its successors including, without limitation, New Holdings following the Reincorporation Merger. "Indebtedness" means with respect to any person, without duplication, (i) all liabilities, contingent or otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person; (iii) reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the 124 136 "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes of the New Note Indenture, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of the Company, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Independent Financial Advisor" means a reputable accounting, appraisal or nationally recognized investment banking or consulting firm that is, in the reasonable judgment of the Board of Directors of the Company, qualified to perform the tasks for which such firm has been engaged and disinterested and independent with respect to the Company and its Affiliates. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances or to permit the purchase of Qualified Capital Stock of the Company and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of original issuance of the New Notes under the New Note Indenture. "Letter of Credit Obligations" means Indebtedness of the Company or any of its Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of the definition of the term "Permitted Indebtedness" above, the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien under the New Note Indenture. "Maturity Date" means June 1, 2005. "Merger" means (i) the merger of Food 4 Less Supermarkets, Inc. into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of Ralphs Grocery Company into 125 137 Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated September 14, 1994, by and among Holdings, FFL, Food 4 Less, RSI and the stockholders of RSI, as such agreement is in effect on the Issue Date. "Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in the form of cash or Cash Equivalents. "Net Proceeds" means (a) in the case of any Asset Sale or any issuance and sale by any person of Qualified Capital Stock, the aggregate net proceeds received by such person after payment of expenses, taxes, commissions and the like incurred in connection therewith (and, in the case of any Asset Sale, net of the amount of cash applied to repay Indebtedness secured by the asset involved in such Asset Sale), whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt as determined with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution) and (b) in the case of any conversion or exchange of any outstanding Indebtedness or Disqualified Capital Stock of such person for or into shares of Qualified Capital Stock of the Company, the sum of (i) the fair market value of the proceeds received by the Company in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the Holder to the Company upon such conversion or exchange. "New Discount Debenture Indenture" means the indenture dated as of the Issue Date under which the 13 5/8% Senior Discount Debentures due 2005 of New Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof. "New Discount Debentures" means the 13 5/8% Senior Discount Debentures due 2005 of New Holdings issued pursuant to the New Discount Debenture Indenture, as the same may be modified or amended from time to time and future refinancings thereof. "New Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and its successors. "Obligations" means all obligations of every nature whether for principal reimbursements, interest, fees, expenses, indemnities or otherwise, and whether primary, secondary, direct, indirect, contingent, fixed or otherwise (including obligations of performance) under the documentation governing any Indebtedness. "Operating Coverage Ratio" means, with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT" for the Pro Forma Period shall be calculated, in the case of the Company, after giving effect on a pro forma basis to the Merger as if it had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by the Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred 126 138 or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Pari Passu Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in right of payment to the New Notes or the Guarantee of such Subsidiary Guarantor, as the case may be. "Payment Restriction" means, with respect to a subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person or (c) transfer any of its properties or assets to such person or any other subsidiary of such persons, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and The Yucaipa Companies, or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of the Company or any of its subsidiaries or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its Subsidiaries pursuant to (i) the Term Loans in an aggregate principal amount at any time outstanding not to exceed $750 million or such lesser amount as may be actually funded under the Term Loans on or within 91 days following the Issue Date (with any such amounts funded after the Issue Date to be used to finance the repurchase of up to $224.5 million aggregate principal amount of Old RGC Notes pursuant to the "change of control purchase offer" provision set forth in section 1014 of the Old RGC Indentures, plus related fees and expenses) less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above subsequent to the Issue Date, and (ii) the revolving credit facility under the Credit Agreement (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above, (b) Indebtedness of the Company or a Subsidiary Guarantor owed to and held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred by the Company or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of the Company and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the first anniversary of the Merger) and (ii) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon this clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of the Company and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the third anniversary of the Merger); (d) Indebtedness incurred by the Company or any Subsidiary in connection with capital expenditures in an 127 139 aggregate principal amount not exceeding $150 million, provided that such capital expenditures relate solely to the integration of the operations of RSI, Food 4 Less and their respective subsidiaries as described in this Amended and Restated Prospectus and Solicitation Statement; (e) Indebtedness of the Company incurred under certain Foreign Exchange Agreements and Interest Swap Obligations; (f) guarantees incurred in the ordinary course of business by the Company or a Subsidiary, of Indebtedness of any other person in aggregate not to exceed $25 million at any time outstanding; (g) guarantees by the Company or a Subsidiary Guarantor of Indebtedness incurred by a wholly-owned Subsidiary Guarantor so long as the incurrence of such Indebtedness incurred by such wholly-owned Subsidiary Guarantor is permitted under the terms of the New Note Indenture; (h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (j) Existing Indebtedness and other Indebtedness outstanding on the Issue Date (after giving effect to the Merger); (k) Indebtedness arising from guarantees of Indebtedness of the Company or any Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary in the ordinary course of business; and (m) additional Indebtedness of the Company and the Subsidiary Guarantors in an amount not to exceed $200 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale made pursuant to the provisions of the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with the provisions of the covenant described under "-- Certain Covenants -- Limitation on Transactions with Affiliates", (vi) Investments by Subsidiary Guarantors in other Subsidiary Guarantors and Investments by Subsidiaries which are not Subsidiary Guarantors in other Subsidiaries which are not Subsidiary Guarantors and (vii) additional Investments in an aggregate amount not exceeding $15 million. "Permitted Liens" means (i) Liens for taxes, assessments and governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business, deposits made to obtain the release of such Liens, and with respect to amounts not yet delinquent for a period of more than 60 days or being contested in good faith by an appropriate process of law, and for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (iii) Liens incurred or pledges or deposits made in the ordinary course of business to secure obligations under workers' compensation, unemployment insurance and other types of social security or similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, zoning or other restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any of its Subsidiaries incurred in the ordinary course of business; (vi) Liens upon specific items of inventory or other goods and proceeds of any person securing such person's obligations in respect of bankers' acceptances issued or created for the account of such person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business; (vii) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (viii) Liens in favor of customs and revenue authorities 128 140 arising as a matter of law to secure payment of nondelinquent customs duties in connection with the importation of goods; (ix) judgment and attachment Liens not giving rise to a Default or Event of Default; (x) leases or subleases granted to others not interfering in any material respect with the business of the Company or any Subsidiary; (xi) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Swap Obligations and Foreign Exchange Agreements and forward contracts, option futures contracts, futures options or similar agreements or arrangements designed to protect the Company or any Subsidiary from fluctuations in the price of commodities; (xii) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or its Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (xiii) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Subsidiary in the ordinary course of business in accordance with past practices; (xiv) any interest or title of a lessor in the property subject to any lease, whether characterized as capitalized or operating other than any such interest or title resulting from or arising out of a default by the Company or any Subsidiary of its obligations under such lease; (xv) Liens arising from filing UCC financing statements for precautionary purposes in connection with true leases of personal property that are otherwise permitted under the New Note Indenture and under which the Company or any Subsidiary is lessee; (xvi) Liens on assets of the Company securing Indebtedness which would constitute Senior Indebtedness but for the provisions of clause (c) in the third sentence of the definition of Senior Indebtedness and Liens on assets of a Subsidiary Guarantor securing Indebtedness which would constitute Guarantor Senior Indebtedness but for the provisions of clause (c) in the third sentence of the definition of Guarantor Senior Indebtedness; and (xvii) additional Liens securing Indebtedness at any one time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the aggregate Consolidated Net Income of the Company earned subsequent to the Issue Date and on or prior to such time. "Permitted Payments" means (i) any payment by the Company or any Subsidiary, or any dividend by the Company or any Subsidiary to New Holdings the proceeds of which are utilized by New Holdings to make payments, to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar services, or for reimbursement of losses, costs and expenses pursuant to the Consulting Agreement, (ii) any payment by the Company or any Subsidiary pursuant to the Amended and Restated Tax Sharing Agreement, dated as of June 17, 1991, between Food 4 Less and certain Subsidiaries, as such Tax Sharing Agreement may be amended from time to time, so long as the payment thereunder by the Company and its Subsidiaries shall not exceed the amount of taxes the Company would be required to pay if it were the filing person for all applicable taxes, (iii) any payment by the Company or any Subsidiary pursuant to the Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4 Less and Holdings, as in effect on the Issue Date, (iv) any payment by the Company or any Subsidiary, or any dividend by the Company or any Subsidiary to New Holdings the proceeds of which are used by New Holdings to make payments, (a) in connection with repurchases of outstanding shares of the Company's or New Holdings' Common Stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by New Holdings, the Company or any of its Subsidiaries to participants or former participants in employee benefit plans upon termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period), (v) from and after June 30, 1998, payments of cash dividends or loans to New Holdings in an amount sufficient to enable New Holdings to make payments of interest required to be made in respect of the Discount Notes in an amount not to exceed the amount payable thereunder in accordance with the terms thereof in effect on the Issue Date, (vi) from and after June 1, 2000, payments of cash dividends to New Holdings in an amount sufficient to enable New Holdings to make payments of interest required to be made in respect of the Seller Debentures and the New Discount Debentures in an amount not to exceed the amount payable thereunder in accordance with the terms thereof in effect on the Issue Date, (vii) dividends or other payments to New Holdings sufficient to enable New Holdings to perform accounting, legal, corporate reporting and 129 141 administrative functions in the ordinary course of business or to pay required fees and expenses in connection with the Merger, the FFL Merger, the Reincorporation Merger and the registration under applicable laws and regulations of its debt or equity securities, (viii) dividends or other distributions by the Company to New Holdings on the Issue Date of shares of New Holdings common stock owned by the Company, (ix) dividends by the Company to New Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (a) neither the Company nor any of the Subsidiaries is required, or may be required, pursuant to the documents governing any outstanding Indebtedness of the Company or any of the Subsidiaries to utilize such Net Cash Proceeds to repay (or offer to repay) such Indebtedness (or has complied with all such requirements), (b) such Net Cash Proceeds have not been utilized to repay outstanding Indebtedness of the Company or any of the Subsidiaries and (c) New Holdings is required pursuant to the documents governing any outstanding Indebtedness of New Holdings to utilize such Net Cash Proceeds to repay (or offer to repay) such Indebtedness and (x) the loan by the Company on the Issue Date to RGC Investment Co. of no more than $5 million. "Permitted Subordinated Reorganization Securities" means securities of the Company issued in a plan of reorganization in a case under the Bankruptcy Law relating to the Company which constitutes either (y) Capital Stock (other than Disqualified Capital Stock with the reference to "Maturity Date" in the definition of such term modified to relate to the final stated maturity of any debt securities issued in such plan of reorganization to the holders of Designated Senior Indebtedness ("Senior Reorganization Securities")) and (z) debt securities of the Company which are (i) unsecured, (ii) have no scheduled mandatory amortization thereon prior to the final stated maturity of the Senior Reorganization Securities and (iii) are subordinated in right of payment to the Senior Reorganization Securities to at least the same extent as the Securities are subordinated to Designated Senior Indebtedness. "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of the Company, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person and (v) any investment fund or investment entity that is a subsidiary of such person or a Permitted Transferee of such person. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such person, over shares of Capital Stock of any other class of such person. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of the New Note Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act of 1933, as amended, as interpreted by the Company's chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Public Equity Offering" means an underwritten public offering of Common Stock of the Company or New Holdings pursuant to a registration statement filed with the Commission in accordance with the Securities Act which public equity offering results in gross proceeds to the Company or New Holdings, as the case may be, of not less than $20 million; provided, however, that in the case of a Public Equity Offering by New Holdings, New Holdings contributes to the capital of the Company net cash proceeds in an amount sufficient to redeem New Notes called for redemption in accordance with the terms thereof. 130 142 "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (c), (d), (h) and (j), of the definition thereof) incurred in accordance with the New Note Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Reincorporation Merger" means the merger, prior to the Merger, of Holdings with and into New Holdings. "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment, in each case reasonably related to the business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Restricted Debt Prepayment" means any purchase, redemption, defeasance (including, but not limited to, in substance or legal defeasance) or other acquisition or retirement for value, directly or indirectly, by the Company or a Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment of principal or sinking fund payment, as the case may be, in respect of Subordinated Indebtedness. "Restricted Payment" means any (i) Stock Payment, (ii) Investment (other than a Permitted Investment) or (iii) Restricted Debt Prepayment. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of New Holdings issued pursuant to the Seller Debenture Indenture, including any additional 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 issued as interest thereof, in each case, as such Seller Debentures may be modified or amended from time to time and future refinancings thereof. "Seller Debenture Indenture" means the indenture dated as of the Issue Date under which the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of New Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof. 131 143 "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the New Notes. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include (x) the principal of, premium, if any, and interest on all obligations of every nature of the Company from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal of and interest on, all fees and expenses payable under the Credit Agreement, and (y) interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (vi) or (vii) under "-- Events of Default" relating to the Company, whether or not the claim for such interest is allowed under any applicable Bankruptcy Law. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the New Notes, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of the Company, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company, (d) Indebtedness which is represented by Disqualified Capital Stock, (e) obligations for goods, materials or services purchased in the ordinary course of business or obligations consisting of trade payables, (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services rendered to the Company, (g) any liability for federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the Company, and (i) that portion of any Indebtedness which is incurred by the Company in violation of the New Note Indenture. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each subsidiary of the Company that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act of 1933, as amended, and the Exchange Act (as such regulation is in effect on the Issue Date) or (b) material to the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. "Stock Payment" means, with respect to any person, (a) the declaration or payment by such person, either in cash or in property, of any dividend on (except, in the case of the Company, dividends payable solely in Qualified Capital Stock of the Company), or the making by such person or any of its subsidiaries of any other distribution in respect of, such person's Qualified Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), or (b) the redemption, repurchase, retirement or other acquisition for value by such person or any of its subsidiaries, directly or indirectly, of such person's Qualified Capital Stock (and, in the case of a Subsidiary, Qualified Capital Stock of the Company) or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), other than, in the case of the Company, through the issuance in exchange therefor solely of Qualified Capital Stock of the Company; provided, however, that in the case of a Subsidiary, the term "Stock Payment" shall not include any such payment with respect to its Capital Stock or warrants, rights or options to purchase or acquire shares of any class of its Capital Stock that are owned solely by the Company or a wholly-owned Subsidiary. "Subordinated Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which is subordinated in right of payment to the New Notes or the Guarantee of such Subsidiary Guarantor, as the case may be. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than fifty percent of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person 132 144 and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of the Company. "Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less GM, Inc. and Food 4 Less of Southern California, Inc., (ii) upon consummation of the Merger, Crawford Stores, Inc., (iii) each of the Company's Subsidiaries which becomes a guarantor of the New Notes in compliance with the provisions set forth under "-- Certain Covenants -- Guarantees of Certain Indebtedness," and (iv) each of the Company's Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the New Note Indenture. "Term Loans" means the term loan facility under the Credit Agreement and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings outstanding under such facility or under any prior refunding, replacement or refinancing thereof (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). "Yearly Period" means each fiscal year of the Company; provided that the first Yearly Period shall begin on the Issue Date and shall end on January 28, 1996. "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership, or any successor thereto which is an affiliate of Ronald W. Burkle or his Permitted Transferees and which has been established for the sole purpose of changing the form of The Yucaipa Companies from that of a partnership to that of a limited liability company or any other form of entity which is not materially adverse to the rights of the Holders under the New Note Indenture. MARKET PRICES OF THE OLD RGC NOTES In general, there has been limited trading of the Old RGC Notes and such trading has taken place primarily in the over-the-counter market. Prices and trading volumes of the Old RGC Notes in the over-the-counter market are not reported and can be difficult to monitor. Quotations for securities that are not widely traded, such as the Old RGC Notes, may differ from actual trading prices and should be viewed as approximations. Holders of Old RGC Notes are urged to contact their brokers with respect to current information regarding the Old RGC Notes that they hold. THE PROPOSED AMENDMENTS The 10 1/4% Senior Subordinated Notes due 2002 of RGC were issued under an indenture dated as of July 29, 1992 (the "Old RGC 10 1/4% Indenture") between RGC and United States Trust Company of New York, as trustee (the "Old RGC Note Trustee"). The 9% Senior Subordinated Notes due 2003 of RGC were issued under an indenture dated as of March 30, 1993 between RGC and the Old RGC Note Trustee (the "Old RGC 9% Indenture," and, together with the Old RGC 10 1/4% Indenture, the "Old RGC Indentures"). The terms of the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture are substantially identical and are described in the "Comparison of Old RGC Notes and New Notes" set forth in Appendix A hereto. In connection with the consummation of the Merger, Food 4 Less is soliciting Consents from the Old RGC Noteholders to the Proposed Amendments and is making the Exchange Offers to (i) extend the maturities of the existing long-term debt securities of RGC and Food 4 Less by exchanging such securities for new longer-term securities and (ii) establish uniform covenants in the New Notes and the New F4L Notes in order to simplify the capital structure of the Company. The primary purpose of the Proposed Amendments is to permit the Merger and to eliminate substantially all of the restrictive covenants in the Old RGC Indentures. Upon receipt of the Requisite Consents, a supplemental indenture to each of the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture will be executed between RGC and the Old RGC Note Trustee (the "RGC Supplemental Indentures"). Following the consummation of the Merger, the obligations of RGC under the Old RGC Indentures and the RGC Supplemental Indenture will be assumed by the Company. The Proposed Amendments would make the following changes to the Old RGC Indentures: 133 145 1. Eliminate the covenant entitled "Limitation on Indebtedness". 2. Eliminate the covenant entitled "Limitation on Restricted Payments". 3. Eliminate the covenant entitled "Limitation on Transactions with Affiliates". 4. Eliminate the covenant entitled "Limitation on Liens Securing Subordinated Indebtedness". 5. Eliminate the covenant entitled "Restrictions on Preferred Stock of Subsidiaries". 6. Eliminate the covenant entitled "Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries". 7. Amend the provisions regarding when RGC may consolidate or merge, which limits the ability of RGC to consolidate or merge with, or sell all or substantially all of its assets to, any other person or entity unless certain conditions are satisfied, to eliminate the subsection thereof which requires that immediately after any such merger, consolidation or asset sale on a pro forma basis RGC or the surviving entity, as the case may be, has a Consolidated Interest Coverage Ratio (as defined) for its four most recently completed fiscal quarters of at least 1.8 to 1.0. 8. The definitions relating solely to such eliminated covenants will be eliminated. The RGC Supplemental Indentures will provide that the New Credit Facility constitutes a refinancing of the 1992 Credit Facility. The remaining sections of the Old RGC Indentures will not be changed by the Proposed Amendments. Copies of the Old RGC Indentures and the form of the RGC Supplemental Indentures are available from Food 4 Less upon request. For a description of the covenants being amended or eliminated, see "Comparison of Old RGC Notes and New Notes" set forth in Appendix A. 134 146 THE F4L EXCHANGE OFFERS AND THE PUBLIC OFFERINGS Concurrently with the Offers, Food 4 Less is (A) offering up to $200 million principal amount of New Notes pursuant to the Subordinated Note Public Offering (which will be part of the same issue as the New Notes offered for exchange pursuant to the Exchange Offers), (B) offering up to $295 million principal amount of New F4L Senior Notes pursuant to the Senior Note Public Offering, (C) offering to holders of its Old F4L Senior Notes and its Old F4L Senior Subordinated Notes the opportunity to (i) exchange such Old F4L Senior Notes for New F4L Senior Notes (which will be part of the same issue as the New F4L Senior Notes issued pursuant to the Senior Note Public Offering) plus $5.00 in cash for each $1,000 principal amount of Old F4L Senior Notes exchanged and (ii) exchange such Old F4L Senior Subordinated Notes for New F4L Senior Subordinated Notes, plus $20.00 in cash for each $1,000 principal amount of Old F4L Senior Subordinated Notes exchanged and (D) soliciting consents from holders of the Old F4L Notes to certain amendments to the Old F4L Indentures. The consummation of the Public Offerings, the F4L Exchange Offers and the Offers will occur simultaneously. It is a condition to the consummation of the Public Offerings that the Offers and the F4L Exchange Offers be successfully consummated. See "-- The F4L Exchange Offers -- The New F4L Senior Notes" for a description of the securities to be offered pursuant to the Senior Note Public Offering and to tendering holders of Old F4L Senior Notes. THE F4L EXCHANGE OFFERS The obligation of Food 4 Less to accept for exchange any validly tendered Old F4L Note is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) satisfaction of a minimum tender amount (i.e., at least 80% of the aggregate principal amount of the outstanding Old F4L Notes being validly tendered and not withdrawn pursuant to the F4L Exchange Offers prior to the date of expiration); (ii) the receipt of the requisite consents to certain amendments to the indentures governing the Old F4L Notes (i.e., consents from Old F4L Noteholders representing at least a majority in aggregate principal amount of each issue of Old F4L Notes held by persons other than Food 4 Less and its affiliates) on or prior to the date of expiration; (iii) the satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the Merger; (iv) the prior or contemporaneous consummation of the Offers and the Solicitation hereunder, the Public Offerings, the Holdings Offer to Purchase and the New Discount Debenture Placement; and (v) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment. Noteholders participating in the F4L Exchange Offers will be required to consent to certain amendments to the indentures governing the Old F4L Notes. Such proposed amendments will modify certain terms of such indentures to permit the Merger and will eliminate substantially all of the restrictive covenants in the Old F4L Indentures. The Old F4L Senior Subordinated Notes. The Old F4L Senior Subordinated Notes were issued in June 1991, are limited in aggregate principal amount to $145 million and will mature on June 15, 2001. The Old F4L Senior Subordinated Notes are unsecured general obligations of Food 4 Less, are subordinated to the prior payment when due of all Senior Indebtedness (as defined in the indenture (the "Old F4L Senior Subordinated Note Indenture") governing the Old F4L Senior Subordinated Notes) and are guaranteed on a senior subordinated basis by Food 4 Less' wholly-owned subsidiaries. The Old F4L Senior Subordinated Notes bear interest at a rate equal to 13.75% per annum and interest is payable semi-annually on June 15 and December 15 of each year. On or after June 15, 1996, the Old F4L Senior Subordinated Notes may be redeemed in whole or from time to time in part, at the option of Food 4 Less, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, 135 147 together with accrued interest to the redemption date, if redeemed during the 12 months commencing on June 15 in the years set forth below:
YEAR REDEMPTION PRICE ------ ---------------- 1996................................. 106.111% 1997................................. 104.583% 1998................................. 103.056% 1999................................. 101.528%
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. In the event of a Change of Control (as defined in the Old F4L Senior Subordinated Note Indenture), the Old F4L Senior Subordinated Notes may be redeemed on or after June 15, 1994 and prior to June 15, 1996, at the option of Food 4 Less, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12 months commencing on June 15 in the years set forth below:
YEAR REDEMPTION PRICE ------ ---------------- 1994................................. 109.167% 1995................................. 107.639%
Food 4 Less is required to make a mandatory sinking fund payment on June 15, 2000, sufficient to retire 50% of the Old F4L Senior Subordinated Notes, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the redemption date. Food 4 Less may, at its option, receive credit against such sinking fund payment for 100% of the principal amount of any Old F4L Senior Subordinated Notes previously acquired by Food 4 Less in the open market and surrendered to the Trustee under the Old F4L Senior Subordinated Note Indenture for cancellation or redeemed at the option of Food 4 Less and which were not previously used as a credit against any other required payment pursuant to the Old F4L Senior Subordinated Note Indenture. Food 4 Less intends to credit exchanges of Old F4L Senior Subordinated Notes accepted pursuant to the F4L Exchange Offers against its sinking fund obligations. The Old F4L Senior Subordinated Notes are subject to certain covenants as provided in the Old F4L Senior Subordinated Note Indenture. These covenants impose certain limitations on the ability of Food 4 Less to, among other things, incur indebtedness, pay dividends or make certain other restricted payments, enter into certain transactions with affiliates, merge or consolidate with any other person, or sell, lease, transfer or otherwise dispose of substantially all of the properties or assets of Food 4 Less. In addition, upon the occurrence of a Change of Control, each holder has the right to require the repurchase of such holder's Old F4L Senior Subordinated Notes at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. The Old F4L Senior Subordinated Note Indenture also requires Food 4 Less to offer to repurchase a specified portion of the Old F4L Senior Subordinated Notes if its net worth does not equal or exceed a specified minimum net worth at the end of any two consecutive fiscal quarters. Under the Old F4L Senior Subordinated Note Indenture, certain events constitute an event of default, including (i) the failure to make any principal and interest payment on the Old F4L Senior Subordinated Notes when due; (ii) the failure to comply with any other agreement contained in the Old F4L Senior Subordinated Note Indenture or the Old F4L Senior Subordinated Notes; (iii) a default under certain indebtedness; (iv) certain final judgments or orders for payments of money; and (v) certain events occurring under bankruptcy laws. Upon the consummation of the F4L Exchange Offers, a supplemental indenture to the Old F4L Senior Subordinated Note Indenture will become effective, reflecting the proposed amendments to the Old F4L Senior Subordinated Note Indenture. Such supplemental indenture will eliminate substantially all of the restrictive covenants in the Old F4L Senior Subordinated Note Indenture, including covenants with respect to maintenance of net worth, the limitation on restricted payments, limitation on incurrences of additional 136 148 indebtedness, limitation on liens, limitation on disposition of assets, limitation on payment restrictions affecting subsidiaries, limitation on transactions with affiliates, limitation on change of control and the covenant requiring additional subsidiary guarantees under certain circumstances. In addition, such supplemental indenture will modify the covenant which limits the ability of Food 4 Less to consolidate or merge with, or sell all or substantially all of its assets to, any other person or entity unless certain conditions are satisfied by eliminating the subsections thereof which require that immediately after giving effect to such transaction and the incurrence of any indebtedness in connection therewith, Food 4 Less or the surviving entity, as the case may be, has a Net Worth (as defined) or Operating Coverage Ratio (as defined) that meets the standards set forth therein. The New F4L Senior Subordinated Notes. The New F4L Senior Subordinated Notes will be issued upon consummation of the F4L Exchange Offers to tendering holders of Old F4L Senior Subordinated Notes. The New F4L Senior Subordinated Notes will bear interest at a rate of 13.75% per annum and interest will be payable on each June 1 and December 1, beginning December 1, 1995. The New F4L Senior Subordinated Notes will mature on June 1, 2005. On or after June 15, 1996, the New F4L Senior Subordinated Notes may be redeemed in whole at any time or in part from time to time, at the option of the Company, at a redemption price equal to the applicable percentage of the principal amount thereof set below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12 months commencing on June 15 of the years set forth below:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 1996................................. 106.111% 1997................................. 104.583% 1998................................. 103.056% 1999................................. 101.528%
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. Upon a Change of Control (as defined), each holder of the New F4L Senior Subordinated Notes has the right to require the Company to repurchase such holder's New F4L Senior Subordinated Notes at a price equal to 101% of their principal amount, plus accrued interest, if any, to the date of repurchase. The aggregate principal amount of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes will be limited to $145 million at any one time outstanding. The covenants in the indenture governing the New F4L Senior Subordinated Notes will be substantially similar to the covenants in the New Notes Indenture. The Old F4L Senior Notes. The Old F4L Senior Notes were issued in April 1992, are limited in aggregate principal amount to $175 million and will mature on April 15, 2000. The Old F4L Senior Notes are unsecured general obligations of Food 4 Less and are guaranteed on a senior basis by Food 4 Less' wholly-owned subsidiaries. The Old F4L Senior Notes bear interest at a rate equal to 10.45% per annum and interest is payable semi-annually on April 15 and October 15 of each year. The Old F4L Senior Notes are redeemable, at the option of Food 4 Less, in whole at any time or in part from time to time, on and after April 15, 1996 at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on April 15 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 1996................................. 104.48% 1997................................. 102.99% 1998................................. 101.49% 1999 and thereafter.................. 100.00%
137 149 In the event of a Change of Control (as defined in the indenture (the "Old F4L Senior Note Indenture") governing the Old F4L Senior Notes), each holder has the right to require the repurchase of such holder's Old F4L Senior Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. Food 4 Less is required to make a mandatory sinking fund payment of $87.5 million on April 15, 1999, sufficient to retire 50% of the Old F4L Senior Notes originally issued, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the date of redemption. Food 4 Less may, at its option, receive credit against such sinking fund payment for 100% of the principal amount of any Old F4L Senior Note previously acquired by Food 4 Less and surrendered to the Trustee under the Old F4L Senior Note Indenture for cancellation or redeemed at the option of Food 4 Less and which, in each case, were not previously used for or as a credit against any other required payment pursuant to the Old F4L Senior Note Indenture. Food 4 Less intends to credit exchanges of Old F4L Senior Notes accepted pursuant to the F4L Exchange Offers against its sinking fund obligations. The Old F4L Senior Notes are subject to certain covenants as provided in the Old F4L Senior Note Indenture. These covenants impose certain limitations on the ability of Food 4 Less to, among other things, incur indebtedness, pay dividends or make certain other restricted payments, enter into certain transactions with affiliates, incur liens, guarantee indebtedness or merge or consolidate with any other person, or sell, lease, transfer or otherwise dispose of substantially all of the properties or assets of Food 4 Less. The Old F4L Senior Note Indenture also requires Food 4 Less to offer to repurchase a specified portion of the Old F4L Senior Notes if its net worth does not equal or exceed a specified minimum net worth at the end of any two consecutive fiscal quarters. Under the Old F4L Senior Note Indenture, certain events constitute an event of default. These events are as follows: (i) the failure to make any principal and interest payment on the Old F4L Senior Notes when due; (ii) the failure to comply with any other agreement contained in the Old F4L Senior Note Indenture or the Old F4L Senior Notes; (iii) a default under certain indebtedness; (iv) certain final judgments or orders for payments of money; and (v) certain events occurring under bankruptcy laws. Upon consummation of the F4L Exchange Offers, a supplemental indenture to the Old F4L Senior Note Indenture will become effective, reflecting the proposed amendments to the Old F4L Senior Note Indenture. Such supplemental indenture will eliminate substantially all of the restrictive covenants in the Old F4L Senior Note Indenture, including covenants with respect to the maintenance of net worth, the limitation on change of control, the limitation on restricted payments, the limitation on incurrences of additional indebtedness, the limitation on liens, the limitation on disposition of assets, the limitation on payment restrictions affecting subsidiaries and the limitation on transactions with affiliates and the covenant requiring additional subsidiary guarantees under certain circumstances. In addition, the supplemental indenture will modify the covenant which limits the ability of Food 4 Less to consolidate or merge with, or sell all or substantially all of its assets to, any other person or entity unless certain conditions are satisfied, to eliminate the subsections thereof which require that immediately after giving effect to such transaction and the incurrence of any indebtedness in connection therewith, Food 4 Less or the surviving entity, as the case may be, has a Net Worth (as defined) or Operating Coverage Ratio (as defined) that meets the standards set forth therein. The New F4L Senior Notes. The New F4L Senior Notes will be issued upon consummation of the F4L Exchange Offers to tendering holders of Old F4L Senior Notes and will be part of the same issue as the New F4L Senior Notes issued pursuant to the Senior Note Public Offering. The New F4L Senior Notes will bear interest at a fixed rate per annum equal to the greater of (a) 10.45% and (b) the F4L Applicable Treasury Rate (as defined) plus 350 basis points (3.50 percentage points); provided, however, that in any event the New F4L Senior Notes will bear interest at a rate per annum no less than the rate on the New F4L Senior Notes offered in the Senior Note Public Offering. The "F4L Applicable Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the average life to stated maturity of the New F4L Senior Notes; provided that if the average life to stated maturity of the New F4L Senior Notes is not equal to the constant 138 150 maturity of the United States Treasury security for which a weekly average yield is given, the F4L Applicable Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of the year) from the weekly average yields of the United States Treasury securities for which such yields are given. Interest will be payable on the New F4L Senior Notes on each June 1 and December 1, beginning December 1, 1995. The New F4L Senior Notes will mature on June 1, 2004. On or after June 1, 2000, the New F4L Senior Notes may be redeemed in whole at any time or in part from time to time, at the option of the Company, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12 months commencing on June 1 of the years set forth below:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 2000................................. 103.9188% 2001................................. 102.6125% 2002................................. 101.3063% 2003 and thereafter.................. 100.0000%
In the event that the interest rate on the New F4L Senior Notes is greater than 10.45%, the above redemption prices will be correspondingly adjusted. In addition, on or prior to June 1, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the New F4L Senior Notes originally issued, at a redemption price equal to 110.45% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1995, 109.1438% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1996 and 107.8375% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1997, in each case plus accrued and unpaid interest to the redemption date. In the event that the interest rate on the New F4L Senior Notes is greater than 10.45%, the above redemption prices will be correspondingly adjusted. In order to effect the foregoing redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. Upon a Change of Control (as defined), each holder of the New F4L Senior Notes has the right to require the Company to repurchase such holder's New F4L Senior Notes at a price equal to 101% of their principal amount, plus accrued interest, if any, to the date of repurchase. The aggregate principal amount of Old F4L Senior Notes and New F4L Senior Notes will be limited to $470 million at any one time outstanding. THE PUBLIC OFFERINGS Concurrently with the Offers, Food 4 Less is (i) offering up to $295 million principal amount of New F4L Senior Notes pursuant to the Senior Note Public Offering and (ii) offering up to $200 million principal amount of New Notes pursuant to the Subordinated Note Public Offering. The New F4L Senior Notes offered pursuant to the Senior Note Public Offering will be part of the same issue as the New F4L Senior Notes offered for exchange pursuant to the F4L Exchange Offers and the New Notes offered pursuant to the Subordinated Note Public Offering will be part of the same issue as the New Notes offered for exchange pursuant to the Offers. Food 4 Less does not expect to commence the Public Offerings until such time as the Minimum Exchange has been satisfied and Requisite Consents have been received. The consummation of the Public Offerings, the Offers, the F4L Exchange Offers and the Holdings Offer to Purchase will occur simultaneously. It is a condition to the consummation of the Public Offerings that the F4L Exchange Offers and the Offers be successfully consummated. See "The Merger and the Financing -- Sources and Uses." 139 151 DESCRIPTION OF THE NEW CREDIT FACILITY In connection with the Merger, Food 4 Less will enter into the New Credit Facility with a syndicate of financial institutions for whom Bankers Trust will act as agent. All of Food 4 Less' obligations under the New Credit Facility will be assumed by the Company immediately following the Merger. Food 4 Less has accepted a commitment letter (the "Commitment Letter") from Bankers Trust pursuant to which Bankers Trust has agreed, subject to certain conditions, to provide the Company up to a maximum aggregate amount of $1,075 million of financing under the New Credit Facility. The following is a summary of the anticipated material terms and conditions of the New Credit Facility. This summary does not purport to be a complete description of the New Credit Facility and is subject to the detailed provisions of the loan agreement (the "Loan Agreement") and various related documents to be entered into in connection with the New Credit Facility. A draft copy of the Loan Agreement will be available upon request from Food 4 Less. GENERAL The New Credit Facility will provide for (i) term loans in the aggregate amount of $750 million, comprised of the $375 million Tranche A Loan, the $125 million Tranche B Loan, the $125 million Tranche C Loan, and the $125 million Tranche D Loan; and (ii) the $325 million New Revolving Facility under which working capital loans may be made and commercial or standby letters of credit in the maximum aggregate amount of up to $150 million may be issued, under which approximately $92.6 million of letters of credit are expected to be issued upon the closing of the Merger. The Tranche A Loan may not be fully funded at the Closing Date. The New Credit Facility will provide that the portion of the Tranche A Loan not funded at the Closing Date in an amount not to exceed $225 million will be available for a period of 91 days following the Closing Date to finance the Change of Control Offer. In addition, if the total principal amount of the Old RGC Notes exchanged for New Notes exceeds $225 million the Commitment Letter requires that there be a reduction, in an amount equal to such excess, in one or any combination of (i) the principal amount of proceeds from the Senior Note Public Offering, (ii) the principal amount of proceeds from the Subordinated Note Public Offering or (iii) the principal amount available under the Tranche A Loan. Proceeds of the New Term Loans and loans under the Revolving Credit Facility on the Closing Date, together with proceeds from the New Discount Debenture Placement, the New Equity Investment and the Public Offering, will be used to fund the cash requirements for the acquisition of RSI, refinance existing bank indebtedness of Ralphs and Food 4 Less, purchase the Discount Notes, Old RGC 9% Notes and Old RGC 10 1/4% Notes, repay a portion of other indebtedness, pay holders of the Ralphs EARs and pay various fees, expenses and other costs associated with the Merger and the Financing. The New Revolving Facility will be available to provide for the working capital requirements and general corporate purposes of the Company and to issue commercial and standby letters of credit to support workers' compensation contingencies and for other corporate purposes. INTEREST RATE; FEES Borrowings under (i) the New Revolving Facility and the Tranche A Loan will bear interest at a rate equal to the Base Rate (as defined in the Loan Agreement) plus 1.50% per annum or the reserve adjusted Euro-Dollar Rate (as defined in the Loan Agreement) plus 2.75% per annum; (ii) the Tranche B Loan will bear interest at the Base Rate plus 2.00% per annum or the reserve adjusted Euro-Dollar Rate plus 3.25% per annum; (iii) the Tranche C Loan will bear interest at the Base Rate plus 2.50% per annum or the reserve adjusted Euro-Dollar Rate plus 3.75% per annum; and (iv) the Tranche D Loan will bear interest at the Base Rate plus 2.75% per annum or the reserve adjusted Euro-Dollar Rate plus 4.00% per annum, in each case as selected by the Company. Applicable interest rates on Tranche A Loan and the New Revolving Facility and the fees payable under the New Revolving Facility on letters of credit, will be reduced by up to 0.50% per annum after the New Term Loans have been reduced by amounts to be agreed upon by the Company and Bankers Trust and if the Company meets certain financial tests. Up to $30 million of the New Revolving Facility will be available as a swingline facility and loans outstanding under the swingline facility shall bear interest at the Base Rate plus 1.00% per annum (subject to adjustment as described in the preceding sentence). After the occurrence of a default under the New Credit Facility, interest will accrue at the rate equal to the rate on loans bearing interest at the rate determined by reference to the Base Rate plus an additional 2.00% per annum. The Company will pay the issuing bank a fee of 0.25% on each standby letter of 140 152 credit and each commercial letter of credit and will pay the lenders under the New Credit Facility a fee equal to the margin on Eurodollar Rate loans under the Revolving Credit Facility (the "Eurodollar Margin") for standby letters of credit and a fee equal to the Eurodollar Margin minus 1% for commercial letters of credit. Each of these fees will be calculated based on the amount available to be drawn under a letter of credit. In addition, the Company will pay a commitment fee of 0.50% per annum on the undrawn amount of the Tranche A Loans from the closing of the Merger until the drawing or termination thereof and on the unused portions of the New Revolving Facility and for purposes of calculating this fee, loans under the swingline facility shall not be deemed to be outstanding. The New Credit Facility will require the Company to enter into hedging agreements to limit its exposure to increases in interest rates for a period of not less than two years. The New Credit Facility may be prepaid in whole or in part without premium or penalty. AMORTIZATION; PREPAYMENTS The Tranche A Loan will mature six years after the closing of the Merger and will be subject to amortization, commencing in the fifteenth month after the closing of the Merger on a quarterly basis in aggregate annual amounts of $45 million in the second year, $75 million in the third year, $80 million in the fourth year, $85 million in the fifth year, and $90 million in the sixth year. The Tranche B Loan will mature seven years after the closing of the Merger and will be subject to amortization on a quarterly basis in aggregate annual amounts of $1.25 million for the first six years and $117.5 million in the seventh year. The Tranche C Loan will mature eight years after the closing of the Merger and will be subject to amortization on a quarterly basis in aggregate annual amounts of $1.25 million for the first seven years and $116.25 million in the eighth year. The Tranche D Loan will mature nine years after the closing of the Merger and will be subject to amortization on a quarterly basis in aggregate annual amounts of $1.25 million for the first eight years and $115 million in the ninth year. The New Revolving Facility will mature on the same date as the Tranche A Loan. The Company will be required to reduce loans outstanding under the New Revolving Facility to $75 million or less for a period of not less than 30 consecutive days during each consecutive 12-month period. The Company will be required to make certain prepayments, subject to certain exceptions, on the New Credit Facility with 75% of Consolidated Excess Cash Flow (as defined in the Loan Agreement) and with the proceeds from certain asset sales, issuances of debt and equity securities and any pension plan reversion. Such prepayments will be allocated pro rata between the Tranche A Loans, Tranche B Loans, Tranche C Loans and the Tranche D Loans and to scheduled amortization payments of the Tranche A Loans, the Tranche B Loans, Tranche C Loans, and the Tranche D Loans pro rata. Mandatory prepayments on the Tranche B Loans, the Tranche C Loans and the Tranche D Loans will be used to make an offer to repay such loans and to the extent not accepted 50% of such amount will be applied to reduce Tranche A Loans on a pro rata basis and the remaining 50% may be retained by the Company. GUARANTEES AND COLLATERAL New Holdings and all active subsidiaries of the Company (including the Subsidiary Guarantors) will guarantee the Company's obligations under the New Credit Facility. The Company's obligations and the guarantees of its subsidiaries will be secured by substantially all personal property of the Company and its subsidiaries, including a pledge of the stock of all subsidiaries of the Company (with the exception of the stock of Bell Markets, Inc., which has been pledged to secure notes payable to the former owners thereof, so long and only so long as such stock is subject to the liens of such former owners). New Holdings' guarantee will be secured by a pledge of the stock of the Company. The Company's obligations will also be secured by first priority liens on certain unencumbered real property fee interests of the Company and its subsidiaries and the Company and its subsidiaries will use their reasonable economic efforts to provide the lenders with a first priority lien on certain unencumbered leasehold interests of the Company and its subsidiaries. COVENANTS The obligation of the lenders under the New Credit Facility to advance funds is subject to the satisfaction of certain conditions customary in agreements of this type. In addition, the Company will be subject to certain customary affirmative and negative covenants contained in the New Credit Facility, including, without limitation, covenants that restrict, subject to specified exceptions, (i) the incurrence of additional indebted- 141 153 ness and other obligations, (ii) a merger or acquisition, (iii) asset sales, (iv) the granting of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in transactions with affiliates, or (vii) cash capital expenditures. Certain of these covenants may be more restrictive than those in favor of holders of the New Notes as described herein and as set forth in the New Note Indenture. In addition, the New Credit Facility will require that the Company maintain certain specified financial covenants, including a minimum fixed charge coverage, a minimum EBITDA, a maximum ratio of total debt to EBITDA and a minimum net worth. EVENTS OF DEFAULT The New Credit Facility also provides for customary events of default. The occurrence of any of such events of default could result in acceleration of the Company's obligations under the New Credit Facility and foreclosure on the collateral securing such obligations, which could have material adverse results to holders of the New Notes. DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS THE NEW DISCOUNT DEBENTURES The New Discount Debentures will be issued in the New Discount Debenture Placement upon consummation of the Merger. The New Discount Debentures will be issued in an aggregate principal amount of $193,295,080 at maturity and will mature on July 1, 2005. The New Discount Debentures will be senior unsecured obligations of New Holdings and will be senior in right of payment to all subordinated indebtedness of New Holdings, including the Seller Debentures. Until June 1, 2000, no interest will accrue on the New Discount Debentures, but the Accreted Value (as defined in the indenture governing the New Discount Debentures (the "New Debenture Indenture")) will accrete at a rate of 13 5/8% (representing the amortization of the original issue discount) from the date of original issuance until June 1, 2000, on a semi-annual bond equivalent basis using a 360 day year comprised of twelve 30-day months, such that the Accreted Value shall be equal to the full principal amount of the New Discount Debentures on June 1, 2000. The initial Accreted Value per $1,000 principal amount of New Discount Debentures will be $517.33 (representing the original purchase price). Beginning on June 1, 2000, cash interest on the New Discount Debentures will accrue at a rate of 13 5/8% per annum and will be payable semi-annually in arrears on each June 1 and December 1 of each year, commencing December 1, 2000, to the holders of record on the immediately preceding May 15 and November 15. On or after June 1, 2000, the New Discount Debentures may be redeemed, at the option of New Holdings, in whole at any time or in part from time to time, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, plus accrued and unpaid interest, to the redemption date, if redeemed during the twelve-month period commencing on June 1 in the years set forth below:
YEAR REDEMPTION PRICE ------------------------------------------ ---------------- 2000...................................... 106.8125% 2001...................................... 105.1094% 2002...................................... 103.4063% 2003...................................... 101.7031% 2004 and thereafter....................... 100.0000%
Notwithstanding the foregoing, prior to June 1, 1998, New Holdings may use the net proceeds of an Initial Public Offering (as defined in the New Debenture Indenture) of New Holdings or the Company (or of FFL under certain circumstances) to redeem up to 35% of the New Discount Debentures at a redemption price equal to 110% of the Accreted Value thereof on the date of redemption. In the event of a Change of Control (as defined in the New Debenture Indenture), each holder has the right to require the repurchase of such holder's New Discount Debentures at a purchase price equal to 101% of 142 154 the Accreted Value thereof on the Change of Control Payment Date (as defined in the New Debenture Indenture) (if such date is prior to June 1, 2000) or 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Change of Control Payment Date (if such date is on or after June 1, 2000). The New Debenture Indenture will contain covenants that, among other things, limit the ability of New Holdings to enter into certain mergers or consolidations or incur certain liens or of New Holdings or its subsidiaries to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined in the New Debenture Indenture), or engage in certain transactions with affiliates. Under certain circumstances, New Holdings will be required to make an offer to purchase New Discount Debentures at a price equal to 100% of the Accreted Value thereof on the date of purchase, if such date is prior to June 1, 2000 or 100% of the principal amount thereof, plus accrued interest to the date of purchase, if such date is on or after June 1, 2000, with the proceeds of certain Asset Sales (as defined in the New Debenture Indenture). The New Debenture Indenture will contain certain customary events of defaults, which will include the failure to pay interest and principal, the failure to comply with certain covenants in the New Discount Debentures or the New Debenture Indenture, a default under certain indebtedness, the imposition of certain final judgments or warrants of attachment and certain events occurring under bankruptcy laws. Pursuant to the terms of a registration rights agreement to be entered into by New Holdings, New Holdings will be obligated to file a shelf registration statement with the Commission with respect to the New Discount Debentures, to have such shelf registration statement declared effective prior to or at the closing of the Merger, to use its best efforts to cause such shelf registration statement to remain effective for up to three years, and to pay the expenses related thereto, including underwriting discounts and brokers' or dealers' commissions and markups (subject to certain limitations). If New Holdings fails to comply with its obligations to keep such shelf registration statement effective, New Holdings will be obligated to pay certain liquidated damages. Under the registration rights agreement, the holder of the New Discount Debentures will be entitled to commence resales of the New Discount Debentures 60 days following closing of the Merger. New Holdings and its subsidiaries will agree not to effect any public distribution of securities similar to the New Discount Debentures until the New Discount Debentures are resold by the partnership (or until the third anniversary of the Closing Date, if later). New Holdings believes that the holders of the New Discount Debentures actively would seek to dispose of its entire interest in the New Discount Debentures promptly upon expiration of the 60 day holdback period following closing of the Merger. THE SELLER DEBENTURES The Seller Debentures will be issued to the stockholders of RSI upon consummation of the Merger. The Seller Debentures will be issued in an aggregate principal amount of $131.5 million and will mature on June 1, 2007. The Seller Debentures will be general unsecured obligations of New Holdings and will be subordinated to the prior payment when due of all Senior Indebtedness (as defined in the indenture governing the Seller Debentures (the "Debenture Indenture")), including the New Discount Debentures and any Discount Notes that remain outstanding following consummation of the Merger. The Seller Debentures will bear interest at a rate equal to 13 5/8% per annum. Interest will accrue on the Seller Debentures beginning from the date of issuance or from the most recent date to which interest has been paid and will be payable semi-annually in arrears on each interest payment date. New Holdings will have the option, in its sole discretion, to issue additional securities ("Secondary Securities") in lieu of a cash payment of any or all of the interest due for the period prior to the interest payment date five years after the date of issuance of the Seller Debentures. 143 155 On or after June 1, 2000, the Seller Debentures may be redeemed, at the option of New Holdings, in whole at any time or in part from time to time, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the twelve-month period commencing on June 1 in the years set forth below:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 2000................................. 106.8125% 2001................................. 105.1094% 2002................................. 103.4063% 2003................................. 101.7031% 2004 and thereafter.................. 100.0000%
Notwithstanding the foregoing, prior to June 1, 1998, New Holdings may use the net proceeds of an Initial Public Offering (as defined in the Debenture Indenture) of New Holdings or Food 4 Less to redeem up to 35% of the Seller Debentures at a redemption price equal to 110% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption. In the event of a Change of Control (as defined in the Debenture Indenture), each holder has the right to require the repurchase of such holder's Seller Debentures at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. The Debenture Indenture will contain certain covenants that, among other things, limit the ability of New Holdings to enter into certain mergers or consolidations or incur certain liens or of New Holdings or its subsidiaries to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined in the Debenture Indenture), or engage in certain transactions with affiliates. Under certain circumstances, New Holdings will be required to make an offer to purchase Seller Debentures at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date with the proceeds of certain Asset Sales (as defined in the Debenture Indenture). The Debenture Indenture will contain certain customary events of default, which will include the failure to pay interest and principal, the failure to comply with certain covenants in the Seller Debentures or the Debenture Indenture, a default under certain indebtedness, the imposition of certain final judgments or warrants of attachment and certain events occurring under bankruptcy laws. Pursuant to the terms of the Merger Agreement and a registration rights agreement to be executed concurrently with the closing of the Merger, New Holdings is obligated to file a shelf registration statement with the Commission with respect to the Seller Debentures, use its best efforts to cause such shelf registration statement to become effective and remain effective for up to three years, and pay the expenses related thereto. The effectiveness of such shelf registration statement is a condition to the consummation of the Merger. If New Holdings fails to comply with its obligations to keep such shelf registration statement effective, Holdings will be obligated to pay certain liquidated damages. THE DISCOUNT NOTES Concurrently with the Offers and the F4L Exchange Offers, Holdings is (A) offering to holders of the Discount Notes to purchase such Discount Notes for $785.00 in cash, plus accrued cash interest thereon at a rate of 15.25% per annum from and after March 15, 1995 until the Closing Date for every $1,000 principal amount (at maturity) of Discount Notes (which, as of May 1, 1995 had an accreted value of $680.26 per $1,000) accepted for purchase and (B) soliciting consents from holders of the Discount Notes to certain amendments to the Discount Note Indenture. The obligation of Holdings to accept for exchange any validly tendered Discount Note is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) the receipt of the requisite consents to certain amendments to the Discount Note Indenture (i.e., consents from Discount Noteholders representing at least a majority in aggregate principal amount of Discount Notes held by persons other than Holdings and its affiliates) on or prior to the date of expiration, (ii) the satisfaction or waiver, in Holdings' sole discretion, of all conditions precedent to the RSI Merger, (iii) the prior or contemporaneous 144 156 successful completion of the Public Offerings, the F4L Exchange Offers, the RGC Offers and the New Discount Debenture Placement, and (iv) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment. The Discount Notes were issued in December 1992, are limited in aggregate principal amount (at maturity) to $103.6 million and will mature on December 15, 2004. The Discount Notes are unsecured general obligations of Holdings (and will become obligations of New Holdings by operation of the Reincorporation Merger). Cash interest does not accrue on the Discount Notes prior to December 15, 1997. Thereafter, cash interest on the Discount Notes will accrue at the rate of 15.25% per annum, and will be payable in cash semiannually in arrears on each June 15 and December 15, commencing on June 15, 1998. The Discount Notes were issued at a substantial discount from their principal amount and the purchase discount accretes at a rate of 15.25% per annum compounded semi-annually on each June 15 and December 15 through (but excluding) December 15, 1997. The Discount Notes are redeemable, at the option of Holdings, in whole at any time or in part from time to time, on or after December 15, 1997 at the following redemption prices (expressed as percentages of the accreted value) if redeemed during the twelve-month period commencing on December 15 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 1997................................. 107.630% 1998................................. 106.100% 1999................................. 104.575% 2000................................. 103.050% 2001................................. 101.525% 2002 and thereafter.................. 100.000%
Notwithstanding the foregoing, prior to December 15, 1997, Holdings may use the net proceeds of an Initial Public Offering (as defined in the Discount Note Indenture) of Holdings or Food 4 Less to redeem up to 25% of the Discount Notes at redemption prices equal to the sum of (i) the applicable percentage of the accreted value plus (ii) the Proportionate Share (as defined in the Discount Note Indenture) of the Discount Notes, if any to the date of redemption if redeemed during the twelve-month period beginning December 15 of the year set forth below:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 1992................................. 120.000% 1993................................. 117.525% 1994................................. 115.050% 1995................................. 112.575% 1996................................. 110.100%
In the event of a Change of Control (as defined in the Discount Note Indenture), each holder has the right to require the repurchase of such holder's Discount Notes at a purchase price equal to 101% of the accreted value, plus either, (i) if the date of the purchase is prior to December 15, 1997, the Proportionate Share, if any, with respect to the Discount Notes to the date of purchase and (ii) if the date of the purchase is on or after December 15, 1997, the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Holdings will make a mandatory sinking fund payment on December 15, 2003, sufficient to retire 50% of the Discount Notes, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the redemption date. Holdings may, at its option, receive credit against such sinking fund payment for 100% of the principal amount of any Discount Notes previously acquired or redeemed by Holdings and surrendered to the trustee under the Discount Note Indenture for cancellation and which were not previously used as a credit against any other required payment pursuant to the Discount Note Indenture. 145 157 New Holdings intends to credit Discount Notes purchased pursuant to the Holdings Offer to Purchase against its sinking fund obligations. The Discount Note Indenture contains certain covenants that, among other things, limit the ability of Holdings to enter into certain mergers or consolidations or incur certain liens or of Holdings or its subsidiaries to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined in the Debenture Indenture), or engage in certain transactions with affiliates. Under certain circumstances, Holdings will be required to make an offer to purchase Discount Notes at a price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date, with the proceeds of certain Asset Sales (as defined in the Debenture Indenture). The Discount Note Indenture contains certain customary events of default, including the failure to pay interest and principal, the failure to comply with certain covenants in the Discount Notes or the Discount Note Indenture, a default under certain indebtedness, the imposition of certain final judgments or warrants of attachment and certain events occurring under bankruptcy laws. In connection with the Holdings Offer to Purchase, Holdings is soliciting consents to delete all of the restrictive covenants from the Discount Note Indenture. Following the Reincorporation Merger, New Holdings and the trustee under the Discount Note Indenture will execute a supplemental indenture assuming the obligations of Holdings thereunder. New Holdings and the trustee under the Discount Note Indenture will then execute a second supplemental indenture implementing such proposed amendments to the Discount Note Indenture after certification to such trustee that Holdings has received consents from at least a majority in aggregate principal amount of such notes. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS Latham & Watkins, counsel to Food 4 Less ("Counsel"), has advised Food 4 Less that the following discussion expresses their opinion as to the material federal income tax consequences expected to result from the Offers and the Solicitation. Such opinion is based on current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations, judicial authority and current administrative rulings and pronouncements of the Internal Revenue Service (the "Service"), any of which may be altered with retroactive effect, thereby changing the federal income tax consequences discussed below. There can be no assurance that the Service will not take a contrary view, and no ruling from the Service has been or will be sought. The tax treatment of a holder of Old RGC Notes or New Notes may vary depending upon such holder's particular situation. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. This discussion is limited to those who have held the Old RGC Notes as "capital assets" and who will hold the New Notes as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Code. EACH HOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING, HOLDING AND DISPOSING OF THE OLD RGC NOTES AND NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. EXCHANGES OF OLD RGC NOTES FOR NEW NOTES, THE EXCHANGE PAYMENT AND/OR CASH CONSIDERATION GENERAL Whether the exchange of Old RGC Notes for New Notes and the Exchange Payment pursuant to the Offers (or New Notes, the Exchange Payment and Cash Consideration pursuant to a combination of both of the Offers) will be a recapitalization under the Code will depend in part upon whether the Old RGC Notes and New Notes are considered to be "securities" within the meaning of the provisions of the Code governing reorganizations. The test as to whether a debt instrument is a "security" involves an overall evaluation of the nature of the debt instrument, with the term of the debt instrument usually regarded as a significant factor. 146 158 Generally, a debt instrument with a term of ten years or more is considered to constitute a security for purposes of the reorganization provisions of the Code. Although the treatment of Old RGC 10 1/4% Notes is not entirely certain because the stated term of such instruments is less than ten years, the Old RGC 10 1/4% Notes should, and the Old RGC 9% Notes and New Notes will, be treated as "securities" for federal income tax purposes. As a result, an exchange of Old RGC Notes for New Notes and the Exchange Payment pursuant to the Offers should constitute a recapitalization for federal income tax purposes. Thus, exchanging holders of Old RGC Notes for New Notes and the Exchange Payment should recognize gain, but not loss, equal to the lesser of (i) the amount of the Exchange Payment received (other than that portion, if any, attributable to accrued but unpaid interest on the Old RGC Notes) or (ii) the excess of the sum of the issue price of the New Notes (or possibly their fair market value, for cash method holders) and the amount of the Exchange Payment received over the holders' adjusted tax basis in the Old RGC Notes surrendered therefor. Such gain will be long-term capital gain if the Old RGC Notes had been held for more than one year. A holder's initial tax basis in the New Notes received will equal such holder's adjusted tax basis in the Old RGC Notes exchanged therefor, increased by any gain recognized as a result of the exchange and decreased by the amount of the Exchange Payment received. An exchange of Old RGC Notes for New Notes, the Exchange Payment and Cash Consideration pursuant to the Offers should also constitute a recapitalization for federal income tax purposes. As a result, exchanging holders of Old RGC Notes who receive New Notes, the Exchange Payment and Cash Consideration should recognize gain, but not loss, equal to the lesser of (i) the amount of the Exchange Payment and Cash Consideration received (other than that portion, if any, attributable to accrued but unpaid interest on the Old RGC Notes) or (ii) the excess of the sum of the issue price of the New Notes (or possibly their fair market value, for cash method holders) and the amount of the Exchange Payment and Cash Consideration (other than that portion, if any, attributable to accrued but unpaid interest on the Old RGC Notes) received over the holders' adjusted tax basis in the Old RGC Notes surrendered therefor. Such gain will be long-term capital gain if the Old RGC Notes had been held for more than one year. A holder's initial tax basis in the New Notes received in such exchange will equal such holder's adjusted tax basis in the Old RGC Notes exchanged therefor, increased by any gain recognized as a result of the exchange and decreased by the amount of the Exchange Payment and Cash Consideration received. A holder whose Old RGC Notes are purchased for Cash Consideration pursuant to the Offers (and who does not receive any New Notes) will recognize gain or loss equal to the difference between (i) the amount of Cash Consideration received and (ii) the holder's adjusted tax basis in the Old RGC Notes purchased. Such gain or loss should be long-term capital gain or loss if the Old RGC Notes had been held for more than one year. Because the law is unclear, however, Counsel is unable to opine on whether the Old RGC 10 1/4% Notes will be treated as "securities" for federal income tax purposes. If the Old RGC 10 1/4% Notes were determined not to constitute "securities" for federal income tax purposes, holders exchanging Old RGC 10 1/4% Notes for New Notes and the Exchange Payment pursuant to the Offers (or New Notes, the Exchange Payment and Cash Consideration pursuant to a combination of both of the Offers) would recognize gain or loss equal to the difference between the sum of the issue price of the New Notes (or possibly their fair market value for cash method holders) and the amount of cash received (other than that portion, if any, attributable to accrued but unpaid interest on the Old RGC 10 1/4 Notes) and the holders' adjusted tax basis in the Old RGC 10 1/4% Notes surrendered therefor. Such gain or loss would generally be long-term capital gain or loss, provided the Old RGC 10 1/4% Notes had been held for more than one year. It should be noted that restrictions apply to the deduction of net capital losses. Noncorporate taxpayers may deduct no more than $3,000 of capital losses from ordinary income and corporations may deduct capital losses only from capital gains. ACCRUED INTEREST Under the terms of the Offers, accrued interest on tendered Old RGC Notes up to, but not including, the date on which such Old RGC Notes are accepted for exchange or purchase will be paid in cash promptly after consummation of the Offers and will be taxable as ordinary income. 147 159 CONSEQUENCES TO HOLDERS OF OLD RGC NOTES NOT PARTICIPATING IN THE OFFERS Although not free from doubt, holders of Old RGC Notes who do not participate in the Offers should not recognize any income, gain or loss for federal income tax purposes as a result of the Proposed Amendments. Because the law is unclear, however, Counsel is unable to opine on whether holders of Old RGC Notes who do not participate in the Offers will recognize any such income, gain or loss. The Service could assert that, due to the modifications to certain covenants regarding the Old RGC Notes, such non-participating holders should be treated as having exchanged their Old RGC Notes for modified Old RGC Notes ("Modified Old RGC Notes"). The deemed exchange should, however, constitute a recapitalization and non-participating holders would not recognize any gain or loss as a result of such deemed exchange. Modified Old RGC Notes may, however, contain original issue discount (see "-- New Notes -- Original Issue Discount"). NEW NOTES STATED INTEREST Holders of New Notes will be required to include stated interest in gross income in accordance with their methods of accounting for tax purposes. ORIGINAL ISSUE DISCOUNT General Original Issue Discount Rules. The amount of original issue discount, if any, on a debt instrument is the excess of its "stated redemption price at maturity" over its "issue price," subject to a statutorily-defined de minimis exception. The "issue price" of a debt instrument that is part of an issue of debt instruments a substantial amount of which is issued for money (such as the New Notes) will be equal to the first price at which a substantial amount of such debt instruments is sold for money. The "stated redemption price at maturity" of a debt instrument is the sum of its principal amount plus all other payments required thereunder, other than payments of "qualified stated interest" (defined generally as stated interest that is unconditionally payable in cash or in property (other than debt instruments of the issuer) at least annually at a single fixed rate that appropriately takes into account the length of intervals between payments). In general, a holder of a debt instrument with original issue discount must include in gross income for federal income tax purposes the sum of the daily portions of original issue discount with respect to such debt instrument for each day during the taxable year or portion of a taxable year on which such holder holds the debt instrument. The daily portion is determined by allocating to each day of any accrual period (generally, a six month period or a shorter or longer period from the date of original issuance) a pro rata portion of an amount equal to the "adjusted issue price" of the debt instrument at the beginning of the accrual period multiplied by the yield to maturity of the debt instrument. The "adjusted issue price" is the issue price of the debt instrument increased by the accrued original issue discount for all prior accrual periods (and decreased by the amount of cash payments made in all prior accrual periods, other than qualified stated interest payments). The tax basis of the debt instrument in the hands of the holder will be increased by the amount of original issue discount, if any, on the debt instrument that is included in the holder's gross income and will be decreased by the amount of any cash payments (other than qualified stated interest payments) received with respect to the debt instrument, whether such payments are denominated as principal or interest. Sections 1272 and 1273 of the Code and the Treasury regulations thereunder provide detailed rules for computing original issue discount. Notwithstanding the original issue discount rules described in the preceding paragraphs, a holder of a debt instrument would not be required to include original issue discount in income if such holder's tax basis in the debt instrument were to exceed the debt instrument's stated principal amount. In addition, a holder would be permitted to offset any original issue discount income by an amount equal to the excess of such holder's tax basis (if less than or equal to the stated principal amount) over the adjusted issue price of the debt instrument. New Notes. Because the New Notes will be part of an issue a substantial amount of which will be sold in the Subordinated Note Public Offering for money, the issue price of the New Notes received by holders in exchange for their Old RGC Notes should be equal to the first price at which a substantial amount of the New 148 160 Notes is sold pursuant to the Subordinated Note Public Offering. The stated redemption price at maturity of the New Notes will be equal to their stated principal amount (in that all interest will be paid on a current basis in cash and will constitute qualified stated interest). As a result, the New Notes will not be issued with original issue discount unless the first price at which the New Notes are sold pursuant to the Subordinated Note Public Offering is less than the stated principal amount of the New Notes by more than the de minimis amount. MARKET DISCOUNT The Code generally requires holders of "market discount bonds" to treat as ordinary income any gain realized on the disposition (or gift) of such bonds to the extent of the market discount accrued during the holder's period of ownership. A "market discount bond" is a debt obligation purchased at a market discount subject to a statutory de minimis exception. For this purpose, a purchase at a market discount includes a purchase at or after the original issue at a price below the stated redemption price at maturity, or, in the case of a debt instrument issued with original issue discount, at a price below (a) its "issue price," plus (b) the amount of original issue discount includible in income by all prior holders of the debt instrument, minus (c) all cash payments (other than payments constituting qualified stated interest) received by such previous holders. The accrued market discount generally equals a ratable portion of the bond's market discount, based on the number of days the taxpayer has held the bond at the time of such disposition, as a percentage of the number of days from the date the taxpayer acquired the bond to its date of maturity. An exception is made for certain tax-free (and partially tax-free) exchanges, such as the exchange of Old RGC Notes for New Notes and the Exchange Payment (and, if applicable, Cash Consideration). In such cases, however, on a subsequent disposition of the stock or securities received in such a non-recognition transaction, gain is treated as ordinary income to the extent of the market discount accrued prior to the nontaxable exchange. In that regard, the New Notes received by a holder of Old RGC Notes will contain accrued market discount to the extent of the market discount accrued in the Old RGC Notes but not recognized at the time of the exchange. AMORTIZABLE BOND PREMIUM Generally, if the tax basis of an obligation held as a capital asset exceeds the amount payable at maturity of the obligation, such excess will constitute amortizable bond premium that the holder may elect to amortize under the constant interest rate method and deduct over the period from his acquisition date to the obligation's maturity date. A holder who elects to amortize bond premium must reduce his tax basis in the related obligation by the amount of the aggregate deductions allowable for amortizable bond premium. Amortizable bond premium will be treated under the Code as an offset to interest income on the related debt instrument for federal income tax purposes, subject to the promulgation of Treasury regulations altering such treatment. DISPOSITION In general, a holder of New Notes will recognize gain or loss upon the sale, exchange, redemption or other taxable disposition of such New Notes measured by the difference between (i) the amount of cash and the fair market value of property received (except to the extent attributable to accrued interest on the New Notes) and (ii) the holder's tax basis in the New Notes (as increased by any original issue discount and market discount previously included in income by the holder and decreased by any amortizable bond premium, if any, deducted over the term of the New Notes). Subject to the market discount rules discussed above, any such gain or loss will generally be long-term capital gain or loss, provided the New Notes had been held for more than one year. ELECTION A holder of New Notes, subject to certain limitations, may elect to include all interest and discount, if any, on the New Notes in gross income under the constant yield method. For this purpose, interest includes stated and unstated interest, acquisition discount, original issue discount, de minimis market discount and 149 161 market discount, as adjusted by any acquisition premium. Such election, if made in respect of a market discount bond, will constitute an election to include market discount in income currently on all market discount bonds acquired by such holder on or after the first day of the first taxable year to which the election applies. See "-- Market Discount." BACKUP WITHHOLDING A holder of New Notes may be subject to backup withholding at the rate of 31% with respect to interest paid on and gross proceeds of a sale of the New Notes unless (i) such holder is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (ii) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A holder of New Notes who does not provide the Company with his or her correct taxpayer identification number may be subject to penalties imposed by the Service. The Company will report to the holders of the New Notes and the Service the amount of any "reportable payments" (including any interest paid on the New Notes) and any amount withheld with respect to the New Notes during the calendar year. TAX CONSEQUENCES TO THE COMPANY OFFERS AND SOLICITATION In general, the consummation of the Offers and the Solicitation will result in no material federal income tax consequences to the Company, except that the Company will recognize cancellation of indebtedness income to the extent that the adjusted issue price of the Old RGC Notes surrendered by holders exceeds the sum of (i) the issue price of the New Notes (as described above under "New Notes -- Original Issue Discount") and (ii) the amount of the Exchange Payments and Cash Consideration delivered to holders in exchange therefor. The Company does not expect to recognize any cancellation of indebtedness income as a result of the consummation of the Offers and the Solicitation, although no assurance can be given in this regard due to the uncertainty regarding the issue price of the New Notes. See "New Notes -- Original Issue Discount." NET OPERATING LOSS CARRYFORWARDS Under Section 382 of the Code, if a corporation with net operating losses (a "loss corporation") undergoes an "ownership change," the use of such net operating losses will be limited annually to the product of the long-term tax-exempt rate (published monthly by the Service) and the value of the loss corporation's outstanding stock immediately before the ownership change (excluding certain capital contributions) (the "Section 382 Limitation"). In general, an "ownership change" occurs if the percentage of the value of the loss corporation's stock owned by one or more direct or indirect "five percent shareholders" has increased by more than 50 percentage points over the lowest percentage of that value owned by such five percent shareholder or shareholders at any time during the applicable "testing period" (generally the shorter of (i) the three-year period preceding the testing date or (ii) the period of time since the most recent ownership change of the corporation). Both FFL and RSI have significant net operating loss carryforwards for regular federal income tax purposes. The New Equity Investment and Merger will trigger ownership changes for both the FFL and RSI affiliated groups for purposes of Section 382 of the Code. As a result, the use of the FFL and RSI pre-ownership change net operating loss carryforwards will be limited annually by the Section 382 Limitation. The annual Section 382 Limitation that will be applicable to the FFL net operating loss carryforwards is estimated to be approximately $15.6 million, and the annual Section 382 Limitation that will be applicable to the RSI net operating loss carryforwards is estimated to be approximately $15 million. THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF OLD RGC NOTES AND 150 162 NEW NOTES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF OLD RGC NOTES AND NEW NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OFFERS AND THE SOLICITATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. LEGAL MATTERS The validity of the New Notes to be issued in connection with the Offers and the Solicitation will be passed upon for Food 4 Less by Latham & Watkins, Los Angeles, California. Certain legal matters in connection with the Offers and the Solicitation will be passed upon for the Dealer Managers by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York. EXPERTS The consolidated balance sheets of Ralphs Supermarkets, Inc. as of January 30, 1994 and January 29, 1995 and the related consolidated statements of operations, cash flows and stockholders' equity for the year ended January 31, 1993, the year ended January 30, 1994 and the year ended January 29, 1995, have been included in this Amended and Restated Prospectus and Solicitation Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated balance sheets of Food 4 Less Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25, 1994 and the related consolidated statements of operations, cash flows and stockholders' equity of Food 4 Less Supermarkets, Inc. for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993 and the 52 weeks ended June 25, 1994, and the related financial statement schedules included in this Amended and Restated Prospectus and Solicitation Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 151 163 INDEX TO FINANCIAL STATEMENTS
PAGE ----- RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY): Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-2 Consolidated balance sheets at January 30, 1994 and January 29, 1995 ................. F-3 Consolidated statements of operations for the years ended January 31, 1993, January 30, 1994 and January 29, 1995....................................................... F-4 Consolidated statements of cash flows for the years ended January 31, 1993, January 30, 1994 and January 29, 1995....................................................... F-5 Consolidated statements of stockholders' equity for the years ended January 31, 1993, January 30, 1994 and January 29, 1995............................................... F-6 Notes to consolidated financial statements............................................ F-7 FOOD 4 LESS SUPERMARKETS, INC.: Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-28 Consolidated balance sheets as of June 26, 1993, June 25, 1994 and January 7, 1995 (unaudited)......................................................................... F-29 Consolidated statements of operations for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28 weeks ended January 8, 1994 (unaudited) and January 7, 1995 (unaudited)......................................................... F-31 Consolidated statements of cash flows for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28 weeks ended January 8, 1994 (unaudited) and January 7, 1995 (unaudited)......................................................... F-32 Consolidated statements of stockholder's equity for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28 weeks ended January 7, 1995 (unaudited)......................................................................... F-34 Notes to consolidated financial statements............................................ F-35
F-1 164 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Ralphs Supermarkets, Inc.: We have audited the consolidated balance sheets of Ralphs Supermarkets, Inc. and subsidiary as of January 30, 1994 and January 29, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended January 31, 1993, the year ended January 30, 1994 and the year ended January 29, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ralphs Supermarkets, Inc. and subsidiary as of January 30, 1994 and January 29, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended January 29, 1995, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Los Angeles, California March 9, 1995 F-2 165 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
JANUARY JANUARY 30, 29, 1994 1995 ---------- ---------- Current Assets: Cash and cash equivalents......................................... $ 55,080 $ 35,125 Accounts receivable............................................... 30,420 43,597 Inventories....................................................... 202,354 221,388 Prepaid expenses and other current assets......................... 18,111 19,793 ---------- ---------- Total current assets...................................... 305,965 319,903 Property, plant and equipment, net................................ 601,897 624,724 Excess of cost over net assets acquired, net...................... 376,414 365,418 Beneficial lease rights, net...................................... 55,553 49,164 Deferred debt issuance costs, net................................. 26,583 23,011 Deferred income taxes............................................. 109,125 112,491 Other assets...................................................... 8,113 15,203 ---------- ---------- Total assets.............................................. $1,483,650 $1,509,914 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt.............................. $ 70,975 $ 83,989 Short-term debt................................................... -- 51,500 Bank overdrafts................................................... 37,716 45,669 Accounts payable.................................................. 138,554 130,889 Accrued expenses.................................................. 101,543 99,804 Current portion of self-insurance reserves........................ 30,138 27,552 ---------- ---------- Total current liabilities................................. 378,926 439,403 Long-term debt.................................................... 927,909 883,020 Self-insurance reserves........................................... 49,872 44,954 Lease valuation reserve........................................... 32,575 28,957 Other non-current liabilities..................................... 89,299 86,393 ---------- ---------- Total liabilities......................................... 1,478,581 1,482,727 ---------- ---------- Stockholders' equity: Common stock, $.01 par value per share Authorized 50,000,000 shares; issued and outstanding, 25,587,280 shares at January 30, 1994 and January 29, 1995.................................. 256 256 Additional paid-in capital........................................ 175,292 175,292 Accumulated deficit............................................... (170,479) (148,361) ---------- ---------- Total stockholders' equity................................ 5,069 27,187 ---------- ---------- Commitments and contingencies (See Notes 2 and 8) Total liabilities and stockholders' equity (deficit)...... $1,483,650 $1,509,914 ========= =========
See accompanying notes to consolidated financial statements. F-3 166 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 31, 1993 JANUARY 30, 1994 JANUARY 29, 1995 ------------------ ------------------ ------------------ Sales............................ $2,843,816 100.0% $2,730,157 100.0% $2,724,604 100.0% Cost of sales.................... 2,217,197 78.0 2,093,727 76.7 2,101,033 77.1 ---------- ----- ---------- ----- ---------- ----- Gross profit................... 626,619 22.0 636,430 23.3 623,571 22.9 Selling, general and administrative expenses..... 470,012 16.5 471,000 17.2 467,022 17.2 Amortization of excess cost over net assets acquired.... 10,997 0.4 10,996 0.4 10,996 0.4 Provision for restructuring.... 7,100 0.2 2,374 0.1 -- -- ---------- ----- ---------- ----- ---------- ----- Operating income............... 138,510 4.9 152,060 5.6 145,553 5.3 Other expenses: Interest expense, net.......... 125,611 4.4 108,755 4.0 112,651 4.1 Loss on disposal of assets..... 2,607 0.1 1,940 0.1 784 0.0 Provision for legal settlement.................. 7,500 0.3 -- -- -- -- Provision for earthquake losses...................... -- -- 11,048 0.4 -- -- ---------- ----- ---------- ----- ---------- ----- Earnings before income taxes and extraordinary item............. 2,792 0.1 30,317 1.1 32,118 1.2 Income tax expense (benefit)..... 8,346 0.3 (108,049) (4.0) -- -- ---------- ----- ---------- ----- ---------- ----- Earnings (loss) before extraordinary item............. (5,554) (0.2) 138,366 5.1 32,118 1.2 Extraordinary item-debt refinancing, net of tax benefit $4,173......................... (70,538) (2.5) -- -- -- -- ---------- ----- ---------- ----- ---------- ----- Net earnings (loss).............. $ (76,092) (2.7)% $ 138,366 5.1% $ 32,118 1.2% ========= ===== ========= ===== ========= =====
See accompanying notes to consolidated financial statements. F-4 167 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss).................................. $ (76,092) $ 138,366 $ 32,118 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization..................... 76,873 74,452 76,043 Amortization of discounts and deferred debt issuance costs.................................. 20,978 9,768 9,032 LIFO charge (credit).............................. 1,115 (2,054) 2,085 Loss on sale of assets............................ 6,841 4,314 784 Provision for post-retirement benefits............ 3,275 3,370 2,555 Provision for legal settlement.................... 7,500 -- -- Other changes in assets and liabilities: Accounts receivable.................................. 6,376 326 (13,177) Inventories at replacement cost...................... (13,682) 6,724 (21,120) Prepaid expenses and other current assets............ 3,703 (1,658) (1,682) Other assets......................................... (616) 4,449 (7,287) Interest payable..................................... (13,393) (4,822) (2,419) Accounts payable and accrued liabilities............. 23,054 (1,622) (1,047) Income taxes payable................................. (527) (1,480) (2,906) Deferred tax asset................................... -- (109,125) (3,366) Business interruption credit......................... -- (581) -- Earthquake losses.................................... -- (11,048) -- Self insurance reserves.............................. 8,456 7,031 (7,503) Other liabilities.................................... (170) (12,407) (6,692) ----------- ----------- ----------- Cash provided by operating activities................ 53,691 104,003 55,418 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures................................. (102,697) (62,181) (64,018) Proceeds from sale of property, plant and equipment......................................... 219 16,700 13,257 ----------- ----------- ----------- Cash used in investing activities.................... (102,478) (45,481) (50,761) ----------- ----------- ----------- Cash flows from financing activities: Net borrowings under lines of credit................. 2,100 (31,100) 51,500 Redemption of preferred stock........................ (3,000) -- -- Capitalized financing and acquisition costs.......... (22,426) (5,108) (2,496) Increase (decrease) in bank overdrafts............... (8,865) 655 7,952 Proceeds from issuance of long-term debt............. 668,269 150,000 -- Dividends paid....................................... -- -- (10,000) Principal payments on long-term debt................. (577,902) (164,081) (71,568) ----------- ----------- ----------- Cash provided by (used in) financing activities...... 58,176 (49,634) (24,612) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents... 9,389 8,888 (19,955) Cash and cash equivalents at beginning of period....... 36,803 46,192 55,080 ----------- ----------- ----------- Cash and cash equivalents at end of period............. $ 46,192 $ 55,080 $ 35,125 ========= ========= ========
See accompanying notes to consolidated financial statements. F-5 168 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
RALPHS RALPHS SUPERMARKETS, INC. GROCERY COMPANY -------------------- -------------------- ADDITIONAL OUTSTANDING COMMON OUTSTANDING COMMON PAID-IN- ACCUMULATED SHARES STOCK SHARES STOCK CAPITAL DEFICIT TOTAL ----------- ------ ----------- ------ ---------- ----------- --------- BALANCES AT FEBRUARY 2, 1992...................... -- $ -- 100 -- $ 175,548 $(232,753) $ (57,205) Capitalization of Ralphs Supermarkets, Inc. .... 25,587,280 256 (100) -- (256) -- -- Net Loss.................. -- -- -- -- -- (76,092) (76,092) ----------- ------ ----------- ------ ---------- ----------- --------- BALANCES AT JANUARY 31, 1993...................... 25,587,280 256 -- -- 175,292 (308,845) (133,297) Net earnings.............. -- -- -- -- -- 138,366 138,366 ----------- ------ ----------- ------ ---------- ----------- --------- BALANCES AT JANUARY 30, 1994...................... 25,587,280 256 -- -- 175,292 (170,479) 5,069 Net Earnings.............. -- -- -- -- -- 32,118 32,118 Dividends Paid............ -- -- -- -- -- (10,000) (10,000) ----------- ------ ----------- ------ ---------- ----------- --------- BALANCES AT JANUARY 29, 1995...................... 25,587,280 $256 -- $ -- $ 175,292 $(148,361) $ 27,187 ========= ====== ========= ====== ======== ========= =========
See accompanying notes to consolidated financial statements. F-6 169 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-7 170 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company would be obligated to pay the Affiliated Group. However, such additional liability, if any, is limited to $10 million subject to certain adjustments. Under the Tax Indemnity agreement, both Ralphs Supermarkets, Inc. and Ralphs Grocery Company have agreed to pay Federated Department Stores, Inc. $1 million annually for each of five years starting on February 3, 1992, and an additional $5 million on February 3, 1997. These total payments of $10 million have been recorded in the consolidated financial statements at February 2, 1992. The five $1 million installments are to be paid by Ralphs Grocery Company and the $5 million is the joint obligation of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company. Also, in the event Federated Department Stores, Inc. is required to pay certain tax liabilities on behalf of Ralphs Grocery Company, both Ralphs Supermarkets, Inc. and Ralphs Grocery Company have agreed to reimburse Federated Department Stores, Inc. up to an additional $10 million, subject to certain adjustments. This additional obligation is the joint and several obligation of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company. The $5 million payment and the potential $10 million payment may be paid, at the option of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company, in cash or newly issued Ralphs Supermarkets, Inc. Common Stock. In connection with the consummation of the FSI Plan and the Allied-Federated Plan, Ralphs Grocery Company and certain parties entered into an agreement (the "Comprehensive Settlement Agreement") pursuant to which the parties thereto, among other things, agreed to deliver releases to the various parties to the Comprehensive Settlement Agreement as well as certain additional parties. Under the Comprehensive Settlement Agreement, Ralphs Grocery Company received general releases from Allied, Federated, Federated Department Stores, Inc. and certain other affiliates which released it from any and all claims which could have been asserted by the parties thereto prior to the effective dates of FSI Plan and the Allied-Federated Plan other than for claims arising under the Comprehensive Settlement Agreement, the FSI Plan, the Allied-Federated Plan and the Tax Indemnity Agreement. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation These consolidated financial statements present the statements of financial position of Ralphs Supermarkets, Inc. and subsidiary as of January 31, 1993, January 30, 1994 and January 29, 1995 and the results of their operations and their cash flows for the three years then ended. Ralphs Grocery Company is deemed to be the predecessor entity of Ralphs Supermarkets, Inc. For purposes of these consolidated financial statements Ralphs Supermarkets, Inc. and Ralphs Grocery Company will be collectively referred to as "Ralphs". (b) Reporting Period Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal year-ends are as follows: January 31, 1993 (Fiscal 1992) January 30, 1994 (Fiscal 1993) January 29, 1995 (Fiscal 1994) (c) Cash and Cash Equivalents For purposes of the statements of cash flows, Ralphs considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. F-8 171 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (d) Inventories Inventories are stated at the lower cost or market. Cost is determined primarily using the last-in, first-out (LIFO) method. The replacement cost of inventories exceeded the LIFO inventory cost by $15.5 million and $17.6 million at January 30, 1994 and January 29, 1995, respectively. (e) Property, Plant and Equipment Property, plant and equipment are stated at cost. Property and equipment held under capital leases are stated at the present value of the minimum lease payments at the inception of the lease. Depreciation of plant and equipment is calculated using the straight-line method over the estimated useful lives of assets. Plant and equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Useful lives range from 10 to 40 years for buildings and improvements and 3 to 20 years for fixtures and equipment. Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. Interest cost capitalized during fiscal 1992, 1993 and 1994 was $1.074 million, $.740 million and $.324 million, respectively. (f) Deferred Debt Issuance Costs Direct costs incurred as a result of financing transactions are capitalized and amortized over the terms of the applicable debt agreements using the effective interest method. (g) Pre-opening Costs Pre-opening costs of new stores are deferred and expensed at the time the store opens. If a new store is ultimately not opened, the costs are expensed directly to selling, general and administrative expense at the time it is determined that the store will not be opened. (h) Self Insurance Reserves Ralphs is self-insured for a portion of workers' compensation, general liability and automobile accident claims. Ralphs establishes reserve provisions based on an independent actuary's review of claims filed and an estimate of claims incurred but not yet filed. (i) Excess of Cost Over Net Assets Acquired The excess of cost over net assets acquired, resulting from the May 3, 1988 acquisition of Ralphs is being amortized using the straight-line method over 40 years. Ralphs assesses the recoverability of this intangible asset by determining whether the amortization of the asset balance over its remaining life can be recovered through projected undiscounted operating income (including interest, depreciation and all amortization expense except amortization of excess of cost over net assets acquired) over the remaining amortization period of the excess of cost over net assets acquired. The amount of excess of cost over net assets acquired impairment, if any, is measured based on projected discounted future results using a discount rate reflecting Ralphs' average cost of funds. Accumulated amortization aggregated $63.4 million and $74.4 million at January 30, 1994 and January 29, 1995, respectively. F-9 172 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (j) Acquired Leases Beneficial lease rights and lease valuation reserves are recorded as the net present value of the differences between contractual rents under existing lease agreements and fair value of entering such lease agreements as of the May 3, 1988 acquisition of Ralphs. All beneficial lease rights and lease valuation reserves arose solely as a result of the May 3, 1988 acquisition. Adjustments to the carrying value of these assets would typically occur only through additional business combinations or in the event of early lease termination. Beneficial lease rights are amortized using the straight-line method over the terms of the leases. Lease valuation reserves are amortized using the interest method over the terms of the leases. (k) Discounts and Promotional Allowances Promotional allowances and vendor discounts are recorded as a reduction of cost of sales in the accompanying statements of operations. Allowance proceeds received in advance are deferred and recognized over the period earned. (l) Income Taxes Through February 2, 1992, Ralphs operated under a tax-sharing agreement with Federated and was included in the consolidated Federal tax returns of Federated. Through January 28, 1990, Ralphs was included in the combined state tax returns of Federated; however, Ralphs filed separate state tax returns subsequent to January 28, 1990. Under the tax-sharing agreement, tax-sharing payments were made to Federated based on the amount that Ralphs would be liable for had Ralphs filed separate tax returns, taking into account applicable carryback and carryforward provision of the tax laws. Subsequent to February 2, 1992, Ralphs is responsible for filing tax returns with the Internal Revenue Service and state taxing authorities. Prior to February 3, 1992 Ralphs paid alternative minimum tax to Federated under its tax sharing agreement. As a result of the Internal Reorganization, Ralphs will not be entitled to offset its future Federal regular tax liability with the payments made to Federated. Effective for the fiscal year ended February 2, 1992, Ralphs adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." At the date of adoption such change had no impact on the consolidated financial results. (m) Reclassification Certain amounts in the accompanying financial statements have been reclassified to conform to the current year's presentation. (n) Consolidation Policy The consolidated financial statements include the accounts of Ralphs Supermarkets, Inc., and its wholly owned subsidiary, Ralphs Grocery Company, and its wholly owned subsidiary, collectively referred to as the Company. All material intercompany balances and transactions are eliminated in consolidation. (o) Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: (i) Cash and short-term investments The carrying amount approximates fair value because of the short maturity of those instruments. F-10 173 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ii) Long-term debt The fair value of Ralphs' long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to Ralphs for debt of the same remaining maturities. (iii) Interest Rate Swap Agreements The fair value of interest rate swap agreements is the estimated amount that Ralphs would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current credit-worthiness of the swap counterparties. (p) Advertising The Company expenses the production costs of advertising the first time the advertising takes place. Advertising expense was $17.5 million, $16.4 million and $18.2 million in fiscal 1992, 1993 and 1994, respectively. (q) Transaction Costs In connection with the proposed merger, Ralphs has capitalized in other assets approximately $2.3 million of transaction costs, principally attorney and accounting fees. Upon completion of the merger these amounts will be reclassified to excess of cost of net assets acquired and amortized accordingly. (3) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is summarized as follows:
JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Land................................................. $ 159,904 $ 161,725 Buildings and improvements........................... 191,179 199,133 Leasehold improvements............................... 161,341 170,430 Fixtures and equipment............................... 354,626 372,077 Capital leases....................................... 86,964 124,861 ----------- ----------- 954,014 1,028,226 Less: Accumulated depreciation....................... (312,746) (354,539) Less: Accumulated capital lease amortization......... (39,371) (48,963) ----------- ----------- Property, plant and equipment, net................... $ 601,897 $ 624,724 ========= =========
(4) ACCRUED EXPENSES Accrued expenses are summarized as follows:
JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Accrued wages, vacation and sick leave............... $ 34,763 $ 43,766 Taxes other than income tax.......................... 11,084 10,055 Interest............................................. 11,090 8,670 Other................................................ 44,606 37,313 ----------- ----------- $ 101,543 $ 99,804 ========= =========
F-11 174 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) LONG-TERM DEBT Long-term debt is summarized as follows:
JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) First mortgage notes payable in monthly installments, commencing June 1, 1994 of $1.6 million including interest at an effective rate of 9.651%; interest only payable monthly prior to June 1, 1994. Final payment due June 1, 1999. Secured by land and buildings with a net book value of $188.8 million.......................... $ 178,013 $ 176,634 Notes payable in varying monthly installments including interest ranging from 11.5% to 18.96%. Final payment due through November 30, 1996. Secured by equipment with a net book value of $28.5 million.................................... 9,721 6,291 Capitalized lease obligations at interest rates ranging from 7.25% to 14% maturing at various dates through 2019 (note 6)...................... 61,150 89,084 Note payable to bank............................... 300,000 245,000 Initial Notes and Exchange Notes, 9% due 2003...... 150,000 150,000 Senior Subordinated Debentures, 10 1/4%, due 2002............................................. 300,000 300,000 ----------- ----------- Total long-term debt............................... 998,884 967,009 Less current maturities............................ (70,975) (83,989) ----------- ----------- Long-term debt..................................... $ 927,909 $ 883,020 ========= =========
During the third quarter of 1992, the Company implemented a recapitalization plan (the "Recapitalization Plan") which was completed during the first quarter of 1993 by the Company's offering of $150.0 million aggregate principal amount of its 9% Senior Subordinated notes due 2003 (the "Initial Notes") in private placement under the Securities Act of 1933, as amended (the "Securities Act"). The proceeds of the Initial Notes were used to (i) purchase for cancellation of $60.0 million aggregate principal amount of the Company's 14% Senior Subordinated Debentures due 2000 (the "14% Subordinated Debentures") from a noteholder who had made an unsolicited offer to sell such 14% Subordinated Debentures, (ii) defease the remaining $38.1 million aggregate principal amount of the 14% Subordinated Debentures, (iii) prepay $36.1 million of borrowings under the Company's $350.0 million 1992 term loan facility entered into as part of the Recapitalization Plan and (iv) pay fees and expenses associated with such transactions and for other purposes. As part of a registration rights agreement entered into with the initial purchasers of the Initial Notes, the Company agreed to offer to exchange up to $150.0 million aggregate principal amount of the Exchange Notes for all of the outstanding Initial Notes (the "Exchange Offer"). The terms of the Exchange Notes are substantially identical (including principal amount, interest rate and maturity) in all respects to the terms of the Initial Notes except that the Exchange Notes are freely transferable by the holders thereof (with certain exceptions) and are not subject to any covenant upon the Company regarding registration under the Securities Act. On June 24, 1993, the Company completed the Exchange Offer exchanging $149.7 million aggregate principal amount of Exchange Notes for Initial Notes ($.3 million of Initial Notes remain outstanding). The note payable to bank and working capital line, under the 1992 Credit Agreement, are secured by first priority liens on Ralphs' inventory and receivables, servicemarks and registered trademarks, equipment (other than equipment located at facilities subject to existing liens in favor of equipment financiers) and after-acquired real property interests and all existing real property interests (other than those that are subject to prior encumbrances) and bears interest at the rates, as selected by Ralphs as follows: (i) 1 3/4% over the prime F-12 175 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) rate, or (ii) 2 3/4% over the Eurodollar Rate. Interest calculated pursuant to (i) above is payable quarterly, otherwise interest is payable quarterly or at the selected borrowings option maturity. During the 52 weeks ended January 29, 1995, interest rates under these borrowings ranged from 5.9375% to 10.25%. Ralphs is required to pay an annual administrative fee of $300,000 pursuant to the 1992 Credit Agreement as well as a commitment fee of 0.5% on the average daily amounts available for borrowing under the $120.0 million working capital credit line. The 1992 Credit Agreement, which includes a $350.0 million term loan and $120.0 million working capital credit line, also supports up to $60.0 million of letters of credit which reduce the available borrowings on the credit line. The 1992 Credit Agreement is subject to quarterly principal payment requirements, which commenced on March 31, 1993, with payment in full on June 30, 1998. As of January 29, 1995, $52.4 million of letters of credit and $51.5 million in borrowings were outstanding, with $16.1 million available under the working capital credit line. In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate cap agreement with an effective date of November 6, 1992 and a three-year maturity. The interest rate cap agreement hedges the interest rate in excess of 6.5% LIBOR on $105.0 million principal amount against increases in short-term rates. This agreement satisfies interest rate protection requirements under the 1992 Credit Agreement. In addition to the interest rate cap agreement, Ralphs entered into an interest rate swap agreement on $150.0 million notional principal amount. Under the interest rate swap agreement, Ralphs is required to pay interest based on LIBOR at the end of each six month calculation period and Ralphs will receive interest payments based on LIBOR at the beginning of each six month calculation period. This interest rate swap agreement has a three-year term expiring November 6, 1995. Ralphs is exposed to credit loss in the event of nonperformance by the other party to the interest rate swap agreement. However, Ralphs does not anticipate nonperformance by the counterpart. The following details the impact of the hedging activity on the weighted average interest rate for each of the last three fiscal years.
WITH HEDGE WITHOUT HEDGE ---------- ------------- 1992........................................ 10.52% 10.22% 1993........................................ 8.96% 8.96% 1994........................................ 9.37% 9.18%
The Initial Notes and Exchange Notes are unsecured obligations of Ralphs subordinated in right of payment to amounts due on the aforementioned senior debt. Interest at 9% is payable each April 1 and October 1 through April 1, 2003, when the notes mature. The 10 1/4% Senior Subordinated Debentures are unsecured obligations of Ralphs subordinated in right of payment to amounts due on the senior debt. Interest at 10 1/4% is payable each January 15 and July 15 through July 15, 2002, when the debentures mature. The aforementioned debt agreements contain various restrictive covenants pertaining to net worth levels, limitations on additional indebtedness and capital expenditures, financial ratios and dividends. The 1992 Credit Agreement requires Ralphs to reduce its working capital credit line to zero for 30 consecutive days annually. The current annual period extends from July 1 to June 30. The Company has not yet complied with this annual covenant. The Company intends to either satisfy this covenant by June 30, 1995 or seek to obtain the necessary waiver from its lenders, if such event of non-compliance ultimately occurs but there is no assurance that such waiver will be granted, or, if granted, will be on terms acceptable to the Company. At January 29, 1995, Ralphs is in compliance with all its 1992 Credit Agreement restrictive covenants. The Company currently anticipates that it may be out of compliance with certain other maintenance covenants at the end of the second quarter of 1995. The Company intends to seek the necessary waivers from its lenders F-13 176 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) should these events of non-compliance ultimately occur, but there is no assurance that such waivers will be granted, or, if granted, will be on terms acceptable to the Company. The aggregate maturities on long-term debt for each of the five years subsequent to fiscal 1994 are as follows:
(DOLLARS IN THOUSANDS) ------------ 1995...................................................... $ 83,989 1996...................................................... 86,792 1997...................................................... 84,771 1998...................................................... 53,605 1999...................................................... 175,400 2000 and thereafter....................................... 482,452 -------- $967,009 ========
The estimated fair value of each class of financial instruments (where practical), all held for non-trading purposes, is as follows in (000s): Long-term debt............................................ $953,883 Interest rate swap agreement.............................. $ 1,252 Interest rate cap agreement............................... $ (366)
(6) LEASES Ralphs has leases for retail store facilities, warehouses and manufacturing plants for periods up to 30 years. Generally, the lease agreements include renewal options for five years each. Under most leases, Ralphs is responsible for property taxes, insurance, maintenance and expense related to the lease property. Certain store leases require excess rentals based on a percentage of sales at that location. Certain equipment is leased by Ralphs under agreements ranging from 3 to 15 years. The agreements usually do not include renewal option provisions. Minimum rental payments due under capital leases and operating leases subsequent to fiscal 1994 are as follows:
CAPITAL OPERATING LEASES LEASES TOTAL -------- -------- -------- (DOLLARS IN THOUSANDS) 1995............................................... $ 21,640 $ 61,324 $ 82,964 1996............................................... 19,093 60,847 79,940 1997............................................... 18,288 58,182 76,470 1998............................................... 15,901 53,321 69,222 1999............................................... 11,784 52,839 64,623 2000 and thereafter................................ 53,959 373,021 426,980 -------- -------- -------- Total minimum lease payments....................... $140,665 $659,534 $800,199 ======== ======== Less amounts representing interest................. (51,581) -------- Present value of net minimum lease payments........ 89,084 Less current portion of lease obligations.......... (13,151) -------- Long-term capital lease obligations................ $ 75,933 ========
F-14 177 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Total rent expense is summarized as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Capital Leases Contingent rental............................. $ 2,443 $ 2,241 $ 2,256 Rentals from subleases........................ (2,144) (2,048) (1,734) Operating Leases Minimum rentals............................... 49,001 54,965 55,906 Contingent rentals............................ 5,058 3,645 3,763 Rentals from subleases........................ (1,123) (1,150) (1,791) -------- -------- -------- $53,235 $57,653 $58,400 ======== ======== ========
(7) SELF-INSURANCE Ralphs is a qualified self-insurer in the State of California for worker's compensation and for automobile liability. For fiscal 1992, 1993 and 1994 self insurance loss provisions amounted to (in thousands) $25,950, $30,323 and $14,003, respectively. Ralphs discounts self-insurance liabilities using an 8% discount rate for all years presented. Management believes that this rate approximates the time value of money over the anticipated payout period (approximately 8 years) for essentially risk free investments. Based on a review of modifications in its workers compensation and general liability insurance programs, Ralphs adjusted its self-insurance costs during Fiscal 1994, resulting in a reduction in the loss provision in Fiscal 1994 of approximately $18.9 million. Ralphs' historical self-insurance liability for the previous two fiscal years is as follows:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY JANUARY 30, 29, 1994 1995 -------- -------- (DOLLARS IN THOUSANDS) Self-insurance liability..................................... $ 97,864 $ 87,830 Less: Discount............................................... (17,854) (15,324) -------- -------- Net self-insurance liability................................. $ 80,010 $ 72,506 ======== ========
The Company expects that cash payments for claims over the next five years will aggregate approximately $28 million in fiscal year 1995, $19 million in fiscal year 1996, $13 million in fiscal year 1997, $8 million in fiscal year 1998 and $7 million in fiscal year 1999. (8) COMMITMENTS AND CONTINGENCIES In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against Ralphs and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in the retail market for fluid milk and to fix the retail price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14, and December 23, 1992, respectively. The Court has yet to certify any of these classes. A demurrer to the complaints was denied. Notwithstanding F-15 178 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) that it believes there is no merit to these cases, Ralphs had reached an agreement in principle to settle them. However, no settlement agreement has been signed. The Company does not believe that the resolution of these cases will have a material adverse effect on its future financial condition. Any settlement would be subject to court approval. On March 25, 1991, George A. Koteen Associates, In. ("Koteen Associates") commenced an action in San Diego Superior Court alleging that Ralphs breached an alleged utility rate consulting agreement. In December 1992, a jury returned a verdict of approximately $4.9 million in favor of Koteen Associates and in March 1993, attorney's fees and certain other costs were awarded to the plaintiff. Ralphs has appealed the judgment and fully reserved in Fiscal 1992 against an adverse ruling by the appellate courts. In April 1994, Ralphs was served with a complaint filed by over 240 former employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery Plaintiffs"). The action was commenced in the United States District Court for the Central District of California, and, among other claims, the Bakery Plaintiffs alleged that Ralphs breached its collective bargaining agreement and violated the Workers Adjustment Retraining Notification Act (the "WARN Act") when it downsized and subsequently closed the bakery. In their complaint, the Bakery Plaintiffs are seeking damages for lost wages and benefits as well as punitive damages. The Bakery Plaintiffs also named Ralphs and two of its management employees in fraud, conspiracy and emotional distress causes of action. In addition, the Bakery Plaintiffs sued their union local for breach of its duty of fair representation and other alleged misconduct, including fraud and conspiracy. The defendants have answered the complaint and discovery is ongoing. Trial is set for February, 1996, and Ralphs is vigorously defending this suit. Management believes, based on its assessment of the facts, that the resolution of this case will not have a material effect on the Company's financial position or results of operations. In addition, Ralphs is a defendant in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on Ralphs' financial position or results of operations. Environmental Matters In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a subsurface characterization of Ralphs' Atwater property. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where Ralphs' Atwater property is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, because of regional groundwater contamination. On June 18, 1991, the EPA made its own request for information concerning the Atwater property. Since that time, the Regional Board has requested further investigation by Ralphs. Ralphs has conducted the requested investigations and has reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Atwater property. Ralphs is not a party to the Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on Ralphs' property. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. Ralphs has removed underground storage tanks and remediated soil contamination at the Atwater property. In some instances the removals and the contamination were associated with grocery business F-16 179 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) operations, in others they were associated with prior property users. Although the possibility of other contamination from prior operations or adjacent properties exists at the Atwater property, management does not believe that the costs of remediating such contamination will be material to the Company. Apart from the Atwater property, the Company has recently had environmental assessments performed on a significant portion of its facilities, including warehouse and distribution facilities. The Company believes that any responsive actions required at the examined properties as a result of such assessments will not have a material adverse effect on its financial condition or results of operations. Ralphs has incurred approximately $4.5 million in non-recurring capital expenditures for conversion of refrigerants during 1994. Other than these expenditures, Ralphs has not incurred material capital expenditures for environmental controls during the previous three years, nor does management anticipate incurring such expenditures during the current fiscal year or the succeeding fiscal year. Ralphs is subject to a variety of environmental laws, rules, regulations and investigative or enforcement activities, as are other companies in the same or similar business. The Company believes it is in substantial compliance with such laws, rules and regulations. These laws, rules, regulations and agency activities change from time to time, and such changes may affect the ongoing business and operations of the Company. (9) REDEEMABLE PREFERRED STOCK Ralphs' non-voting preferred stock consisted of 10,000,000 shares of authorized $.01 par value preferred stock. At February 3, 1991 and February 2, 1992, 170,000 shares of Class A Preferred Stock and 130,000 shares of Class B Preferred Stock were issued and outstanding. All of the outstanding shares of preferred stock were redeemed by Ralphs during February 1992 at their initial issuance price of $3.0 million. (10) EQUITY APPRECIATION RIGHTS PLANS Effective August 26, 1988, Ralphs adopted an Equity Appreciation Plan ("1988 Plan"), whereby certain officers received equity rights representing, in aggregate, the right to receive 15% of the increase in the appraised value (as defined in the 1988 Plan) of the Ralphs' equity over an initial value of $120.0 million. The 1988 Plan was amended in January 1992 by agreement among Ralphs and the Equity Rights holders ("Amended Plan"). Ralphs accrued for the increase in equity appreciation rights over the contractually defined vesting period (fully accrued in fiscal 1991), based upon the maximum allowable contractual amount which approximated ending appraised value. Under the Amended Plan, all outstanding Equity Rights vested in full are no longer subject to forfeiture by the holders, except in the event a holder's employment is terminated for cause within the meaning of the Amended Plan. The appraised value of Ralphs' equity is to be determined as of May 1 each year by an investment banking company engaged for this purpose utilizing the methodology specified in the Amended Plan (which is unchanged from that specified in the 1988 Plan); however, under the Amended Plan the appraised value of Ralphs' equity for purposes of the plan may not be less than $400.0 million nor exceed $517.0 million. The amount of equity rights redeemable at any given time is defined in each holders' separate agreement. On exercise of an equity right, the holder will be entitled to receive a pro rata percentage of any such increase in appraised value. In addition, the Amended Plan provides for the possible additional further payment to the holder of each exercised Equity Right of an amount equal to the "Deferred Value" of such Equity Right as defined in the Amended Plan. Ralphs did not incur any expense under the Equity Appreciation Rights Plan in fiscal 1992, fiscal 1993 and fiscal 1994. F-17 180 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The amount of Equity Rights redeemable for each of the four years subsequent to fiscal 1994 are as follows:
(DOLLARS IN THOUSANDS) 1995...................................................... $ 6,669 1996...................................................... 12,389 1997...................................................... 3,636 1998...................................................... 10,150 ----------- $32,844 ========
(11) INCOME TAXES Income tax expense (benefit) consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Current Federal...................................... $ 4,173 $ (2,424) $ 713 State........................................ -- 3,500 2,653 ----------- ----------- ----------- $ 4,173 $ 1,076 $ 3,366 ----------- ----------- ----------- Deferred Federal...................................... $ -- $ (109,125) $ (3,366) State........................................ -- -- -- ----------- ----------- ----------- $ -- $ (109,125) $ (3,366) ----------- ----------- ----------- Total income tax expense (benefit)........... $ 4,173 $ (108,049) $ -- ======== ========= =========
Income tax expense (benefit) has been classified in the accompanying statements of operations as follows:
1992 1993 1994 ------- --------- --------- Earnings before extraordinary items............. $ 8,346 $(108,049) $ -- Extraordinary item.............................. (4,173) -- -- ------- --------- --------- Net tax expense (benefit)....................... $ 4,173 $(108,049) $ -- ======= ========= =========
F-18 181 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The differences between income tax expense and income taxes computed using the top marginal U.S. Federal income tax rate of 34% for fiscal 1992 and of 35% for fiscal 1993 and fiscal 1994 applied to earnings (loss) before income taxes (including, in fiscal 1992, the extraordinary loss of $74.8 million) were as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Amount of expected expense (benefit) computed using the statutory Federal rate.............. $ (24,450) $ 10,611 $ 11,241 Utilization of financial operating loss....... -- (10,611) (11,241) Amortization of excess cost over net assets acquired................................... 3,356 -- -- State income taxes, net of Federal income tax benefit.................................... -- 3,500 2,653 Accounting limitation (recognition) of deferred tax benefit....................... 20,041 (109,125) (3,366) Alternative minimum tax....................... 4,173 625 -- Other, net.................................... 1,053 (3,049) 713 ----------- ----------- ----------- Total income tax expense (benefit).... $ 4,173 $ (108,049) $ -- ========= ========= =========
Ralphs' deferred tax assets, recorded under SFAS 109, were comprised of the following:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Deductible intangible assets............................... $ 56,000 $ 43,000 Net operating loss carryforward and tax credit............. 40,125 55,000 Self insurance accrual..................................... 43,000 25,000 Software basis difference and amortization................. -- -- Fees collected in advance.................................. -- 2,600 Property, plant and equipment basis difference and depreciation............................................. 21,000 16,000 Equity appreciation rights................................. 16,000 11,000 Favorable lease basis differences.......................... 16,000 16,000 State deferred taxes....................................... 17,000 19,000 Other...................................................... 40,000 51,103 ----------- ----------- 249,125 238,703 Less valuation allowance................................. (140,000) (126,212) ----------- ----------- Total............................................ $ 109,125 $ 112,491 ========= =========
On October 15, 1992, Ralphs filed an election with the Internal Revenue Service under Section 338(h)(10). Under this Section, Ralphs is required to restate, for Federal tax purposes, its assets and liabilities to fair market value as of February 3, 1992. The effect of this transaction is to record a new Federal tax basis to reflect a change of control for Federal tax purposes resulting from the Internal Reorganization. No change of control for financial reporting purposes was affected. In August, 1993, The Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted. The Act increased the Federal income tax rate from 34 to 35 percent for filers whose taxable income exceeded $10.0 million. In the current year, the effect of the Federal income tax rate change was to increase the net F-19 182 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) deferred tax assets. In addition, the Act also provided for the deductibility of certain intangibles, including costs in excess gross assets acquired. The Act has significantly impacted the aggregate deferred tax asset position of Ralphs at January 29, 1995. Ralphs elected to retroactively apply certain provisions of the Act related to the February 3, 1992 change of control for Federal tax purposes. As such, approximately $610.7 million in excess of cost over net assets acquired became fully deductible for Federal tax purposes. This amount is deductible over 15 years. This excess in the tax basis over the financial statement basis of excess of cost over net assets acquired aggregated $123.0 million at January 29, 1995. During the year ended January 30, 1994, Ralphs recorded the incremental impact of the Act on deductible temporary differences and increased its deferred income tax assets by a net amount of $109.1 million. The decision to reduce the valuation allowance was based upon several factors. Specific among them, was the Company's completion of its restructuring plan which effectively reduced estimated interest expense by approximately $9.0 as compared to the year ended January 31, 1993. In addition, the January 31, 1993 operating results were negatively effected by several charges including provisions for restructuring, legal settlements and a loss on retirement of debt all aggregating approximately $90 million on a pre-tax basis. Although there can be no assurance as to future taxable income, the Company believes that, based upon the above mentioned events, as well as the Company's expectation of future taxable income, it is more likely than not that the recorded deferred tax asset will be realized. In order to realize the net deferred tax asset currently recorded, Ralphs will need to generate sufficient future taxable income, assuming current tax rates, of approximately $320.0 million. At January 29, 1995, the Company has Federal net operating loss (NOL) carryforwards of approximately $162.0 million and Federal and state Alternative Minimum Tax Credit carryforwards of approximately $2.1 million which can be used to offset Federal taxable income and regular taxes payable, respectively. The NOL carryforwards begin expiring in 2008. During the past three fiscal years, the Company has generated Federal taxable losses of approximately $162.0 million versus financial pre-tax earnings of approximately $65.2 million for the same periods. These differences result principally from excess tax versus financial amortization on certain intangible assets (excess of cost over net assets acquired), as well as several other originating temporary differences. (12) EMPLOYEE BENEFIT PLANS Ralphs has a defined benefit pension plan covering substantially all employees not already covered by collective bargaining agreements with at least one year of credit service (defined at 1,000 hours). Ralphs' policy is to fund pension costs at or above the minimum annual requirement. On February 23, 1990, the Company adopted a Supplemental Executive Retirement Plan covering certain key officers of Ralphs. The Company has purchased split dollar life insurance policies for participants under this plan. Under certain circumstances, the cash surrender value of certain split dollar life insurance policies will offset Ralphs obligations under the Supplemental Executive Retirement Plan. During the second quarter of 1994, the Company approved and adopted a new non-qualified retirement plan, the Ralphs Grocery Company Retirement Supplemental Plan ("Retirement Supplement Plan") effective January 1, 1994 and amended the existing Supplemental Executive Retirement Plan effective April 9, 1994. These changes to the retirement plans were made pursuant to the enactment of the 1993 Omnibus Budget Reconciliation Act. F-20 183 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At January 29, 1995, the Company recorded a $4.0 million additional minimum liability in offsetting intangible asset to reflect the changes in the new and amended plans. Under the provisions of the Retirement Supplement Plan, participants are entitled to receive benefits based on earnings over the indexed amount of $150,000. The following actuarially determined components were included in the net pension expense:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Service cost...................................... $ 2,076 $ 2,228 $ 2,901 Interest cost on projected benefit obligation..... 2,471 2,838 3,821 Actual return on assets........................... (2,794) (2,695) (1,447) Net amortization and deferral..................... 237 (46) (1,100) ----------- ----------- ----------- Net pension expense............................. $ 1,990 $ 2,325 $ 4,175 ======== ======== ========
The funded status of Ralphs' pension plan, (based on December 31, 1993 and 1994 asset values), is as follows:
JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Assets Exceed Accumulated Benefits: Actuarial present value of benefit obligations: Vested benefit obligation................................... $29,659 $31,621 Accumulated benefit obligation.............................. 29,950 31,856 Projected benefit obligation................................ 42,690 45,246 Plan assets at fair value................................... 32,968 38,179 ----------- ----------- Projected benefit obligation in excess of Plan Assets......... (9,722) (7,067) Unrecognized net gain......................................... 4,567 3,611 Unrecognized prior service cost............................... (1,778) (1,659) Unrecognized net asset........................................ -- -- ----------- ----------- Accrued pension cost........................................ $(6,933) $(5,115) ======== ======== Accumulated Benefits Exceed Assets: Actuarial present value of benefit obligations: Vested benefit obligation................................... 2,982 Accumulated benefit obligation.............................. 2,982 Projected benefit obligation................................ 7,102 Plan assets at fair value................................... -- ----------- Projected benefit obligation in excess of plan assets......... (7,102) Unrecognized net gain......................................... (229) Unrecognized prior service cost............................... 8,354 Adjustment required to recognized minimum liability........... (4,005) ----------- Accrued pension cost........................................ $(2,982) ========
The accrued pension cost for accumulated benefits that exceeded assets at January 30, 1994 was immaterial to the consolidated financial statements. F-21 184 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The accrued pension cost for accumulated benefits that exceeded assets at January 30, 1994 was immaterial to the consolidated financial statements. Service costs for fiscal 1992 and 1993 were calculated using a discount rate of 8.5% and a rate of increase in future compensation levels of 6%. The 1994 discount rate and the rate of increase in future compensation levels were reduced to 7.75% and 5.0%, respectively, to reflect the decline in interest rates in 1994. The discount rate will be increased to 8.25% in 1995 in order to reflect the increase in the current long-term interest rate. A long-term rate of return on assets of 9% was used for fiscal 1992, 1993 and 1994. The pension plan assets consist primarily of common stocks, bonds, debt securities, and a money market fund. Plan benefits are based primarily on years of service and on average compensation during the last years of employment. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During Fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans received a prorata share of excess reserve in these health care benefit plans through a reduction in current maintenance payments. Ralphs' share of the excess reserve was approximately $24.5 million of which $11.8 million was recognized in Fiscal 1993 and the remainder, $12.7 million, was recognized in Fiscal 1994. Since employers are required to make contributions to the benefit funds at whatever level is necessary to maintain plan benefits, there can be no assurance that plan maintenance payments will remain at current levels. The expense related to these plans is summarized as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Multi-employer pension plans.............. $ 7,973 $17,687 $ 8,897 ======== ======== ======== Multi-employer health and welfare......... $71,183 $45,235 $66,351 ======== ======== ========
Ralphs maintains the Ralphs Grocery Company Savings Plan Plus--Prime and the Ralphs Grocery Savings Plan Plus -- Basic (collectively referred to as the "401(k) Plan") covering substantially all employees who are not covered by collective bargaining agreements and who have at least one year of credited service (defined at 1,000 hours). The 401(k) Plan provided for both pre-tax and after-tax contributions by participating employees. With certain limitations, participants may elect to contribute from 1% to 12% of their annual compensation on a pre-tax basis to the Plan. Ralphs has committed to match a minimum of 20% of an employee's contribution to the 401(k) Plan that do not exceed 5% of the employee's compensation. Expenses under the 401(k) Plan for fiscal 1992, 1993 and 1994 were $407,961, $431,774 and $446,826, respectively. Ralphs has an executive incentive compensation plan which covers approximately 39 key employees. Benefits to participants are earned based on a percentage of base compensation upon attainment of a targeted formula of earnings. Expense under this plan for fiscal 1992, 1993 and 1994 was $2.5 million, $2.6 million and $2.4 million, respectively. Ralphs has also adopted an incentive plan for certain members of management. Benefits to participants are earned based on a percentage of base compensation upon attainment of a targeted formula of earnings. Expense under this plan for fiscal 1992, 1993 and 1994 was $2.8 million, $3.0 million and $3.1 million, respectively. F-22 185 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The aforementioned incentive plans may be cancelled by the Board of Directors at any time. Ralphs sponsors a postretirement medical benefit plan (Postretirement Medical Plan) covering substantially all employees who are not members of a collective bargaining agreement and who retire under certain age and service requirements. The Postretirement Medical Plan is a traditional type medical plan providing outpatient, inpatient and various other covered services. Such benefits are funded from Ralphs' general assets. The calendar year deductible is $1,270 per individual, indexed to the Medical Consumer Price Index. The net periodic cost of the Postretirement Medical Plan includes the following components:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Service cost.............................. $ 1,908 $ 1,767 $ 1,396 Interest cost............................. 1,367 1,603 1,387 Return on plan assets..................... -- -- -- Net amortization and deferral............. -- -- (228) ----------- ----------- ----------- Net postretirement benefit cost......... $ 3,275 $ 3,370 $ 2,555
The funded status of the postretirement benefit plan is as follows:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees.............................................. $ 1,237 $ 1,303 Fully eligible plan participants...................... 357 1,499 Other active plan participants........................ 16,062 10,289 Plan assets at fair value............................. -- -- ----------- ----------- Funded status......................................... (17,656) (13,091) Plan assets in excess of projected obligations........ -- -- Unrecognized gain (loss).............................. 6,302 13,676 Unrecognized prior service cost....................... -- (358) ----------- ----------- Accrued postretirement benefit obligation............. $ (23,958) $ (26,409) ======== ========
Service cost was calculated using a medical cost trend of 10.5% for fiscal 1992. Service cost was calculated using a medical cost trend of 10.5% and a decreasing medical cost trend rate of 14%-8% for 1993 and 1994 respectively. The discount rate for 1993 was 8.5% and was reduced to 7.75% in 1994 to reflect the decline in interest rates in 1994. In 1995, the discount rate will increase to 8.25% in order to reflect the increase in the current long-term interest rate. The long-term rate of return of plan assets is not applicable as the plan is not funded. The effect of a one-percent increase in the medical cost trend would increase the fiscal 1994 service and interest cost to 18%. The accumulated postretirement benefit obligation at January 29, 1995 would also increase by 27%. F-23 186 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (13) QUARTERLY RESULTS (UNAUDITED) Quarterly results for fiscal 1993 and 1994 are as follows:
GROSS OPERATING INCOME NET SALES PROFIT INCOME TAXES EARNINGS ------- ------ --------- ------- -------- (DOLLARS IN MILLIONS) FY 1993 Quarters 12 weeks ended 04/25/93......................... $ 632.4 $142.4 $ 31.4 $ 1.0 $ 3.9 12 weeks ended 07/18/93......................... 629.0 145.2 36.8 (1.0) 12.9 12 weeks ended 10/10/93......................... 612.8 141.5 31.7 -- 7.0 16 weeks ended 01/30/94......................... 856.0 207.4 52.2 (108.0) 114.6 ------- ------ --------- ------- -------- Total................................... $2,730.2 $636.5 $ 152.1 $(108.0) $138.4 ======= ====== ======= ======= ====== FY 1994 Quarters 12 weeks ended 04/24/94......................... $ 616.0 $141.7 $ 34.1 $ -- $ 8.4 12 weeks ended 07/17/94......................... 625.0 142.9 32.9 -- 7.2 12 weeks ended 10/09/94......................... 615.4 138.8 30.8 -- 4.3 16 weeks ended 01/29/95......................... 868.2 200.2 47.8 -- 12.2 ------- ------ --------- ------- -------- Total................................... $2,724.6 $623.6 $ 145.6 $ -- $ 32.1 ======= ====== ======= ======= ======
(14) SUPPLEMENTAL CASH FLOW INFORMATION
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Supplemental cash flow disclosures: Interest paid, net of amounts capitalized................... $ 118,391 $93,738 $99,067 Income taxes paid........................................... $ 7,169 $ 2,423 $ 6,270 Capital lease assets and obligations assumed................ $ -- $15,395 $41,131
(15) STOCK OPTION PLAN On February 3, 1992, 3,162,235 options for Common Stock of the Company were granted under the Ralphs Non-qualified Stock Option Plan. All options were vested, but not exercisable, on the date of the grant. Options granted to certain officers become exercisable at the rate of 20% on each September 30 of calendar years 1992 through 1996. Options granted to other officers become exercisable as to 10% of the grant on each of September 30, 1992 and 1993, 15% on each of September 30, 1994 through September 30, 1997, and 20% on September 20, 1998. F-24 187 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the Ralphs Non-qualified Stock Option Plan.
NUMBER OF PRICE OPTIONS RANGE --------- ------ Options Outstanding at January 30, 1994: Beginning of year............................................. 3,162,235 $20.21 Granted....................................................... -- -- Exercised..................................................... -- -- Cancelled..................................................... -- -- Expired....................................................... -- -- End of year................................................ 3,162,235 $20.21 --------- ------ Exercisable at end of year...................................... 811,760 -- --------- ------ Available for grant at end of year.............................. -- -- --------- ------ Options Outstanding at January 29, 1995: Beginning of year............................................. 3,162,235 $20.21 Granted....................................................... -- -- Exercised..................................................... -- -- Cancelled..................................................... -- -- Expired....................................................... -- -- End of year................................................ 3,162,235 $20.21 --------- ------ Exercisable at end of year...................................... 1,330,924 -- --------- ------ Available for grant at end of year.............................. -- -- --------- ------
The option price for outstanding options at January 29, 1995 assumes a grant date fair market value of Common Stock of the Company equal to $20.21 per share, which represents the high end of a range of estimated values of the Common Stock of the Company on February 3, 1992, the date of the grant. (16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value is discussed in Note 2. The estimated fair value of each class of financial instruments (where practical), all held for non-trading purposes, is as follows in (000s):
JANUARY 30, 1994 JANUARY 29, 1995 ----------------------- ----------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- Long term debt................................ $998,884 $1,014,634 $967,009 $ 953,883 Interest rate swap agreements................. n/a 1,153 n/a 1,252 Interest rate cap agreements.................. n/a (19) n/a (366)
In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate cap agreement with an effective date of November 6, 1992 and a three year maturity. The interest rate cap agreement hedges the interest rate in excess of 6.5% LIBOR on $105.0 million principal amount against increases in short-term rates. This F-25 188 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) agreement satisfies interest rate protection requirements under the 1992 Credit Agreement. In addition to the interest rate cap agreement, Ralphs entered into an interest rate swap agreement on $150.0 million national principal amount. Under the interest rate swap agreement, Ralphs is required to pay interest based on LIBOR at the end of each six month calculation period and Ralphs will receive interest payments based on LIBOR at the beginning of each six month calculation period. This interest rate swap agreement has a three-year term expiring November 6, 1995. Ralphs is exposed to credit loss in the event of nonperformance by the other party to the interest rate swap agreement. However, Ralphs does not anticipate nonperformance by the counterpart. The following details the impact of the hedging activity on the weighted average rate for each of the last three fiscal years.
WITH HEDGE WITHOUT HEDGE ---------- ------------- 1992........................................................ 10.52% 10.22% 1993........................................................ 8.96% 8.96% 1994........................................................ 9.37% 9.18%
(17) THE MERGER (UNAUDITED) On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food 4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4 Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (as amended from time to time, the "Merger Agreement") with Ralphs Supermarkets, Inc. (the "Holding Company") and its stockholders. Pursuant to the terms of the Merger Agreement, Food 4 Less will be merged with and into Holding Company (the "RSI Merger") and Holding Company will continue as the surviving corporation. Food 4 Less is a multiple format supermarket operator that operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest. Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which is currently a wholly-owned subsidiary of Holding Company, will merge with and into Holding Company (the "RGC Merger," and together with the RSI Merger, the "Merger"), and Holding Company will change its name to Ralphs Grocery Company (the "New Company"). Prior to the Merger, FFL will merge with and into Holdings, which will be the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging with a newly-formed, wholly-owned subsidiary ("New Holdings"), incorporated in Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL Merger and the Reincorporation Merger, the New Company will become a wholly-owned subsidiary of New Holdings. Agreement has been reached with each of the California Attorney General and the Federal Trade Commission for approval of the Merger. Food 4 Less and Ralphs have agreed in a settlement agreement with the Attorney General to divest 27 specific stores in Southern California. Under the agreement, the Company must divest 14 stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. In order to consummate the Merger, Food 4 Less has made an Offer to Exchange and Offer to Purchase and Solicit Consents with respect to the holders of the 9% Senior Subordinated Notes (the "Old RGC 9% Notes") due April 1, 2003 of Ralphs and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the "Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") (i) to exchange (as so amended and restated, the "Exchange Offers") such Old RGC Notes for New Senior Subordinated Notes due 2005 (the "New Notes") plus a cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC Notes tendered for exchange or (ii) to purchase (the "Cash Offers," and together with the Exchange Offers, the "Offers") Old RGC Notes for $1,010 in cash per $1,000 principal amount of Old RGC Notes accepted for purchase, in each case, plus accrued and unpaid interest to the date of F-26 189 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) exchange or purchase. The Offers are subject to the terms and conditions set forth in an Amended and Restated Prospectus and Solicitation Statement, filed by Food 4 Less with the Securities and Exchange Commission and which is subject to further change (the "Prospectus"), including: (1) satisfaction of a minimum tender amount (i.e., at least a majority of the aggregate principal amount of the outstanding Old RGC Notes being validly tendered for exchange for New Notes and not withdrawn pursuant to the Offers prior to the date of expiration); (2) the receipt of the requisite consents to certain amendments to the indentures (the "Indentures") under which the Old RGC Notes were issued (i.e., consents from holders of Old RGC Notes representing at least a majority in aggregate principal amount of each issue of Old RGC Notes held by persons other than Ralphs and its affiliates) on or prior to the date of expiration; (3) the satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the Merger; (4) the prior or contemporaneous consummation of other exchange offers, consent solicitations and public offerings contemplated by the Prospectus; and (5) the prior or contemporaneous consummation of the bank financing and the equity investment described in the Prospectus. As a result of the RSI Merger and the RGC Merger, the New Notes and any outstanding Old RGC Notes not tendered in the Offers will be the obligations of the New Company. Conditions to the consummation of the RSI Merger include the receipt of necessary consents and the completion of financing of the transaction. The purchase price for Holding Company is approximately $1.5 billion, including the assumption or repayment of debt. The consideration payable to the stockholders of Holding Company consists of $375 million in cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be issued to the selling shareholders of Holding Company (the "Seller Debentures") by New Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures"). New Holdings will use $100 million of the cash received from a new equity investment (the "New Equity Investment"), together with the Seller Debentures and the New Discount Debentures, to acquire approximately 48% of the capital stock of Holding Company immediately prior to consummation of the RSI Merger. New Holdings will then contribute the $250 million of purchased shares of Holding Company stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company stock will be acquired for $275 million in cash. Standard & Poor's has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline pursuant to the Indentures. The consummation of the Merger and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline, would constitute a Change of Control Triggering Event under the Indentures. Although RGC does not anticipate that there will be a significant amount of Old RGC Notes outstanding following consummation of the Exchange Offers, upon such a Change of Control Triggering Event, the New Company would be obligated to make the Change of Control Offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Due to the increased size, dual format strategy and integration related costs, after giving effect to or in connection with the Merger, RGC believes that its future operating results will not be directly comparable to the historical operating results of RGC. Upon consummation of the Merger, the operations and activities of RGC will be significantly impacted due to conversions of some existing stores to Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. This consolidation may result in a restructuring charge for the New Company. The amount of the restructuring charge is not determinable due to various factors, including uncertainties inherent in the completion of the Merger, however, the restructuring charge may be material in relation to the stockholders' equity and financial position of RGC and the New Company. Following the consummation of the Merger, the New Company will be highly leveraged. F-27 190 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Food 4 Less Supermarkets, Inc.: We have audited the accompanying consolidated balance sheets of Food 4 Less Supermarkets, Inc. (a Delaware corporation) and subsidiaries (the Company) as of June 26, 1993 and June 25, 1994, and the related consolidated statements of operations, stockholder's equity and cash flows for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Food 4 Less Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25, 1994, and the results of their operations and their cash flows for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California July 29, 1994 (except with respect to the matter discussed in Note 14, as to which the date is October 14, 1994, and with respect to the matter discussed in Note 15, as to which the date is April 13, 1995) F-28 191 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
JUNE 26, JUNE 25, JANUARY 7, 1993 1994 1995 -------- -------- ----------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents.............................. $ 25,089 $ 32,996 $ 15,750 Trade receivables, less allowances of $1,919, $1,386 and $1,264 at June 26, 1993, June 25, 1994 and January 7, 1995, respectively....................... 22,048 25,039 25,992 Notes and other receivables............................ 1,278 1,312 777 Inventories............................................ 191,467 212,892 223,261 Patronage receivables from suppliers................... 2,680 2,875 5,093 Prepaid expenses and other............................. 6,011 6,323 12,542 -------- -------- --------- Total current assets........................... 248,573 281,437 283,415 INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER COOPERATIVES: A.W.G.................................................. 6,693 6,718 6,718 Certified and Other.................................... 6,657 5,984 5,694 PROPERTY AND EQUIPMENT: Land................................................... 23,912 23,488 23,488 Buildings.............................................. 12,827 12,827 24,148 Leasehold improvements................................. 81,049 97,673 106,484 Store equipment and fixtures........................... 129,178 148,249 153,538 Transportation equipment............................... 31,758 32,259 32,363 Construction in progress............................... 757 12,641 14,459 Leased property under capital leases................... 77,553 78,222 78,222 Leasehold interests.................................... 93,863 93,464 93,226 -------- -------- --------- 450,897 498,823 525,928 Less: Accumulated depreciation and amortization........ 96,948 134,089 155,758 -------- -------- --------- Net property and equipment.......................... 353,949 364,734 370,170 OTHER ASSETS: Deferred financing costs, less accumulated amortization of $11,611, $17,083 and $20,166 at June 26, 1993, June 25, 1994 and January 7, 1995, respectively..... 33,778 28,536 25,529 Goodwill, less accumulated amortization of $26,254, $33,945 and $38,113 at June 26, 1993, June 25, 1994 and January 7, 1995, respectively................... 280,895 267,884 263,658 Other, net............................................. 27,295 24,787 29,438 -------- -------- --------- $957,840 $980,080 $ 984,622 ======== ======== =========
The accompanying notes are an integral part of these consolidated balance sheets. F-29 192 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDER'S EQUITY
JUNE 26, JUNE 25, JANUARY 7, 1993 1994 1995 -------- -------- ---------- (UNAUDITED) CURRENT LIABILITIES: Accounts payable........................................ $140,468 $180,708 $ 164,981 Accrued payroll and related liabilities................. 40,319 42,805 39,976 Accrued interest........................................ 5,293 5,474 7,454 Other accrued liabilities............................... 40,467 53,910 60,619 Income taxes payable.................................... 2,053 2,000 689 Current portion of self-insurance liabilities........... 23,552 29,492 28,616 Current portion of long-term debt....................... 12,778 18,314 22,290 Current portion of obligations under capital leases..... 2,865 3,616 3,634 -------- -------- ---------- Total current liabilities................................. 267,795 336,319 328,259 LONG-TERM DEBT............................................ 335,576 310,944 342,396 OBLIGATIONS UNDER CAPITAL LEASES.......................... 41,864 39,998 38,071 SENIOR SUBORDINATED DEBT.................................. 145,000 145,000 145,000 DEFERRED INCOME TAXES..................................... 22,429 14,740 14,740 SELF-INSURANCE LIABILITIES AND OTHER...................... 72,313 64,058 55,701 COMMITMENTS AND CONTINGENCIES............................. -- -- -- STOCKHOLDER'S EQUITY: Cumulative convertible preferred stock, $.01 par value, 200,000 shares authorized and 50,000 shares issued at June 26, 1993, June 25, 1994 and January 7, 1995 (aggregate liquidation value of $53.8 million, $62.2 million and $67.3 million at June 26, 1993, June 25, 1994 and January 7, 1995, respectively).............. 50,230 58,997 64,541 Common stock, $.01 par value, 1,600,000 shares authorized and 1,519,632 shares issued at June 26, 1993, June 25, 1994 and January 7, 1995.............. 15 15 15 Additional paid-in capital.............................. 107,650 107,650 107,650 Notes receivable from shareholders of parent............ (714) (586) (702) Retained deficit........................................ (83,119) (94,586) (108,858) -------- -------- ---------- 74,062 71,490 62,646 Treasury stock: 13,249 shares, 16,732 shares and 14,205 shares of common stock at June 26, 1993, June 25, 1994 and January 7, 1995, respectively............... (1,199) (2,469) (2,191) -------- -------- ---------- Total stockholder's equity...................... 72,863 69,021 60,455 -------- -------- ---------- $957,840 $980,080 $ 984,622 ======== ======== ==========
The accompanying notes are an integral part of these consolidated balance sheets. F-30 193 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7, 1992 1993 1994 1994 1995 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) SALES....................................... $2,913,493 $2,742,027 $2,585,160 $1,416,213 $1,404,665 COST OF SALES (including purchases from related parties of $277,812, $204,028, $175,929, $106,060 and $99,367 for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, and for the 28 weeks ended January 8, 1994 and January 7, 1995, respectively)............................. 2,392,655 2,257,835 2,115,842 1,153,989 1,167,205 ---------- ---------- ----------- ---------- ---------- GROSS PROFIT................................ 520,838 484,192 469,318 262,224 237,460 SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET....................................... 469,751 434,908 388,836 221,464 199,161 AMORTIZATION OF EXCESS COST OVER NET ASSETS ACQUIRED.................................. 7,795 7,571 7,691 4,132 4,168 RESTRUCTURING CHARGE........................ -- -- -- -- 5,134 ---------- ---------- ----------- ---------- ---------- OPERATING INCOME............................ 43,292 41,713 72,791 36,628 28,997 INTEREST EXPENSE: Interest expense, excluding amortization of deferred financing costs............ 63,907 64,831 62,778 33,914 34,601 Amortization of deferred financing costs.................................. 6,304 4,901 5,472 2,948 3,083 ---------- ---------- ----------- ---------- ---------- 70,211 69,732 68,250 36,862 37,684 LOSS (GAIN) ON DISPOSAL OF ASSETS........... (1,364) (2,083) 37 87 (459) PROVISION FOR EARTHQUAKE LOSSES............. -- -- 4,504 -- -- ---------- ---------- ----------- ---------- ---------- LOSS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY CHARGES..................... (25,555) (25,936) -- (321) (8,228) PROVISION FOR INCOME TAXES.................. 3,441 1,427 2,700 700 500 ---------- ---------- ----------- ---------- ---------- LOSS BEFORE EXTRAORDINARY CHARGES........... (28,996) (27,363) (2,700) (1,021) (8,728) EXTRAORDINARY CHARGES: Loss on extinguishment of debt, net of income tax benefit of $2,484........... 6,716 -- -- -- -- Gain on partially depreciated assets replaced by insurance companies, net of income tax expense of $702............. (1,898) -- -- -- -- ---------- ---------- ----------- ---------- ---------- NET LOSS.................................... $ (33,814) $ (27,363) $ (2,700) $ (1,021) $ (8,728) ========== ========== ========== ========== ========== PREFERRED STOCK ACCRETION................... -- 3,882 8,767 4,721 5,544 LOSS APPLICABLE TO COMMON SHARES............ $ (33,814) $ (31,245) $ (11,467) $ (5,742) $ (14,272) ========== ========== ========== ========== ========== LOSS PER COMMON SHARE: Loss before extraordinary charges......... $ (20.74) $ (21.52) $ (7.63) $ (3.82) $ (9.49) Extraordinary charges..................... (3.45) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net loss.................................. $ (24.19) $ (21.52) $ (7.63) $ (3.82) $ (9.49) ========== ========== ========== ========== ========== Average Number of Common Shares Outstanding............................ 1,397,939 1,452,184 1,503,828 1,504,245 1,504,288 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. F-31 194 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7, 1992 1993 1994 1994 1995 ----------- ----------- ----------- ------------- ------------- (UNAUDITED) CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Cash received from customers............. $ 2,913,493 $ 2,742,027 $ 2,585,160 $ 1,416,213 $ 1,404,665 Cash paid to suppliers and employees..... (2,752,442) (2,711,779) (2,441,353) (1,361,103) (1,389,667) Interest paid............................ (56,234) (58,807) (56,762) (29,178) (32,621) Income taxes (paid) refunded............. (4,665) 2,971 (247) 1,652 (1,811) Interest received........................ 1,266 993 903 486 836 Other, net............................... 4,734 8,093 121 2,388 583 ----------- ----------- ----------- ------------- ------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES............................... 106,152 (16,502) 87,822 30,458 (18,015) CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Proceeds from sale of property and equipment............................. 17,395 15,685 11,953 12,307 7,120 Payment for purchase of property and equipment............................. (60,263) (53,467) (57,471) (20,404) (39,049) Proceeds (payment) for sale (purchase) of other assets.......................... (4,754) (18) 813 -- -- Business acquisition costs, net of cash acquired.............................. (27,563) -- (11,050) -- -- Receivable received from seller of business acquired..................... 12,259 -- -- -- -- Other, net............................... -- -- -- 61 (907) ----------- ----------- ----------- ------------- ------------- NET CASH USED BY INVESTING ACTIVITIES...... (62,926) (37,800) (55,755) (8,036) (32,836) CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Proceeds from issuance of long-term debt.................................. 177,500 26,557 28 28 -- Net increase (decrease) in revolving loan.................................. (23,900) 4,900 (4,900) (4,900) 48,700 Payments of long-term debt............... (184,389) (14,319) (14,224) (10,395) (13,272) Proceeds from the issuance of preferred stock................................. -- 46,348 -- -- -- Proceeds from issuance of common stock, net................................... 341 3,652 -- -- -- Purchase (sale) of treasury stock, net... (313) (545) (1,192) (726) 92 Payments of capital lease obligation..... (2,814) (2,840) (3,693) (1,565) (1,909) Deferred financing costs and other....... (6,656) (8,839) (179) (161) (6) ----------- ----------- ----------- ------------- ------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES............................... (40,231) 54,914 (24,160) (17,719) 33,605 ----------- ----------- ----------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. 2,995 612 7,907 4,703 (17,246) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................... 21,482 24,477 25,089 25,089 32,996 ----------- ----------- ----------- ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD......................... $ 24,477 $ 25,089 $ 32,996 $ 29,792 $ 15,750 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. F-32 195 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7, 1992 1993 1994 1994 1995 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) RECONCILIATION OF NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Net loss................................ $ (33,814) $(27,363) $ (2,700) $ (1,021) $ (8,728) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization........ 61,181 62,541 62,555 33,320 33,878 Extraordinary charge................. 4,818 -- -- -- -- Restructuring charge................. -- -- -- -- 5,134 Loss (gain) on sale of assets........ (1,364) (4,613) 65 87 (459) Equity loss on investments in supplier cooperative............... 472 207 -- -- -- Change in assets and liabilities, net of effects from acquisition of businesses: Accounts and notes receivable...... (7,688) 17,145 (3,220) (9,568) (2,725) Inventories........................ 202 17,697 (17,125) (16,106) (10,369) Prepaid expenses and other......... (2,834) (6,163) (5,717) (5,659) (9,097) Accounts payable and accrued liabilities..................... 71,369 (83,286) 55,301 23,752 (20,228) Self-insurance liabilities......... 15,034 2,935 (3,790) 3,301 (4,110) Deferred income taxes.............. 2,033 4,004 2,506 1,714 -- Income taxes payable............... (3,257) 394 (53) 638 (1,311) ------------ ------------ ------------ ------------ ------------ Total adjustments.................... 139,966 10,861 90,522 31,479 (9,287) ------------ ------------ ------------ ------------ ------------ NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.............................. $ 106,152 $(16,502) $ 87,822 $ 30,458 $(18,015) ========== ========== ========== ========== ========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Purchase of property and equipment through issuance of capital lease obligation........................... -- -- $ 2,575 -- -- ========== ========== ========== ========== ========== Reduction of goodwill and deferred income taxes......................... -- -- $ 9,896 -- -- ========== ========== ========== ========== ========== Acquisition of businesses: Fair value of assets acquired........ -- -- $ 11,241 -- -- Net cash paid in acquisition......... -- -- (11,050) -- -- ------------ ------------ ------------ ------------ ------------ Liabilities assumed.................. -- -- $ 191 -- -- ========== ========== ========== ========== ========== Final purchase price allocation for the Alpha Beta Acquisition: Property and equipment valuation adjustment......................... $ 44,231 -- -- -- -- ========== ========== ========== ========== ========== Additional acquisition liabilities... $ 14,305 -- -- -- -- ========== ========== ========== ========== ========== Deferred tax benefit................. $ 12,800 -- -- -- -- ========== ========== ========== ========== ========== Accretion of preferred stock............ $ -- $ 3,882 $ 8,767 $ 4,721 $ 5,544 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. F-33 196 FOOD 4 LESS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED STOCK COMMON STOCK TREASURY STOCK ---------------- ------------------ ----------------- TOTAL NUMBER NUMBER NUMBER SHARE- ADD'L STOCK- OF OF OF HOLDERS' PAID-IN RETAINED HOLDER'S SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL (DEFICIT) EQUITY ------ ------- --------- ------ ------- ------- -------- -------- --------- -------- BALANCES AT JUNE 29, 1991................... -- $ -- 1,396,878 $ 14 (1,250) $ (125) $ (930) $103,658 $ (18,060) $ 84,557 Net loss............... -- -- -- -- -- -- -- -- (33,814) (33,814) Issuance of Common Stock................ -- -- 1,636 -- -- -- (190) 341 -- 151 Purchase of Treasury Stock................ -- -- -- -- (3,947) (463) 131 -- -- (332) Sale of Treasury Stock................ -- -- -- -- 1,560 159 (50) -- -- 109 Payments of Shareholders' Notes................ -- -- -- -- -- -- 100 -- -- 100 ------ ------- --------- ------ ------- ------- -------- -------- --------- -------- BALANCES AT JUNE 27, 1992................... -- -- 1,398,514 14 (3,637) (429) (939) 103,999 (51,874) 50,771 Net loss............... -- -- -- -- -- -- -- -- (27,363) (27,363) Issuance of Common Stock................ -- -- 121,118 1 -- -- -- 3,651 -- 3,652 Purchase of Treasury Stock................ -- -- -- -- (9,612) (770) 225 -- -- (545) Issuance of Cumulative Convertible Preferred Stock................ 50,000 46,348 -- -- -- -- -- -- -- 46,348 Accretion of Preferred Stock................ -- 3,882 -- -- -- -- -- -- (3,882) -- ------ ------- --------- ------ ------- ------- -------- -------- --------- -------- BALANCES AT JUNE 26, 1993................... 50,000 50,230 1,519,632 15 (13,249) (1,199) (714) 107,650 (83,119) 72,863 Net loss............... -- -- -- -- -- -- -- -- (2,700) (2,700) Purchase of Treasury Stock................ -- -- -- -- (3,483) (1,270) 78 -- -- (1,192) Payments of Shareholders' Notes................ -- -- -- -- -- -- 50 -- -- 50 Accretion of Preferred Stock................ -- 8,767 -- -- -- -- -- -- (8,767) -- ------ ------- --------- ------ ------- ------- -------- -------- --------- -------- BALANCES AT JUNE 25, 1994................... 50,000 58,997 1,519,632 15 (16,732) (2,469) (586) 107,650 (94,586) 69,021 Net loss (unaudited)... -- -- -- -- -- -- -- -- (8,728) (8,728) Payment of Shareholders' Notes (unaudited).......... -- -- -- -- -- -- 70 -- -- 70 Issuance of Treasury Stock (unaudited).... -- -- -- -- 3,644 340 (191) -- -- 149 Purchase of Treasury Stock (unaudited).... -- -- -- -- (1,117) (62) 5 -- -- (57) Accretion of Preferred Stock (unaudited).... -- 5,544 -- -- -- -- -- -- (5,544) -- ------ ------- --------- ------ ------- ------- -------- -------- --------- -------- BALANCES AT JANUARY 7, 1995 (unaudited)....... 50,000 $64,541 1,519,632 $ 15 (14,205) $(2,191) $ (702) $107,650 $(108,858) $ 60,455 ======= ======== ========= ======= ======== ======== ======= ========= ========== ========
The accompanying notes are an integral part of these consolidated statements. F-34 197 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND ACQUISITIONS Food 4 Less Supermarkets, Inc. (the "Company"), a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("Holdings"), is a multiple format supermarket operator that tailors its retail strategy to the particular needs of the individual communities it serves. Holdings is a majority-owned subsidiary of Food 4 Less, Inc. ("FFL"). The Company operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest. The Company has three first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc. ("Falley's") and Food 4 Less of Southern California, Inc. ("F4L-SoCal"), formerly known as Breco Holding Company, Inc. ("BHC"). Cala Foods, Inc. ("Cala Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of Cala, and Alpha Beta Company ("Alpha Beta") is a subsidiary of F4L-SoCal. (a) Acquisitions On March 29, 1994, the Company purchased certain operating assets formerly owned by Food Barn Stores, Inc. (the "Food Barn Stores") from Associated Wholesale Grocers, Inc. ("AWG") (the "Food Barn Acquisition") for $11,241,000 (including acquisition costs of $180,000). The financial statements reflect the preliminary allocation of the purchase price as the purchase price allocation has not been finalized. The effect of the acquisition was not material to the Company's financial position and results of operations. Falley's has agreed to purchase merchandise (as defined) for the Food Barn Stores from AWG through March 24, 2001. Falley's has pledged its patronage dividends and notes receivable from AWG as security under this supply agreement. On June 17, 1991, the Company acquired all of the common stock of Alpha Beta for $270,513,000 (including acquisition costs of $41,477,000) in a transaction accounted for as a purchase. In January 1990, the Company purchased certain operating assets of ABC Market Corp. ("ABC") for $14,675,000, plus approximately $1,000,000 in fees and expenses. On June 30, 1989, the Company acquired Bell for approximately $13,700,000, which includes $8,000,000 of notes and the assumption of Bell's long-term debt. The transaction was accounted for as a purchase. Certified Grocers of California, Ltd. ("Certified") has guaranteed up to $4,000,000 of notes issued by the Company to the seller in connection with the purchase and the performance of a lease. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Business The Company is engaged primarily in the operation of retail supermarkets. (b) Basis of Presentation Principles of Consolidation. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The results of operations of Alpha Beta, F4L-SoCal (BHC), Bell, ABC and the Food Barn Stores have been excluded from the consolidated financial statements prior to their respective acquisition dates. The excess of the purchase price over the fair value of the net assets acquired is classified as goodwill. All intercompany transactions have been eliminated in consolidation. Interim Financial Statements. The consolidated balance sheet of the Company as of January 7, 1995 and the consolidated statements of operations and cash flows for the interim periods ended January 7, 1995 and January 8, 1994 are unaudited, but include all adjustments (consisting of only normal recurring accruals) which the Company considers necessary for a fair presentation of its consolidated financial position, results of operations and cash flows for these periods. These interim financial statements do not include all disclosures required by generally accepted accounting principles, and, therefore, should be read in conjunction with the F-35 198 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company's financial statements and notes thereto included herein. Results of operations for interim periods are not necessarily indicative of the results for a full fiscal year. (c) Fiscal Years The Company's fiscal year is the 52 or 53-week period which ends on the last Saturday in June. Fiscal years 1994, 1993, and 1992 include 52 weeks. (d) Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. (e) Inventories Inventories, which consist of grocery products, are stated at the lower of cost or market. Cost has been principally determined using the last-in, first-out ("LIFO") method. If inventories had been valued using the first-in, first-out ("FIFO") method, inventories would have been higher by $13,103,000, $13,802,000 and $16,202,000 (unaudited) at June 26, 1993, June 25, 1994 and January 7, 1995, respectively, and gross profit and operating income would have been greater by $3,554,000, $4,441,000, $699,000, $2,200,000 (unaudited) and $2,400,000 (unaudited) for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25, 1994, the 28 weeks ended January 8, 1994, and the 28 weeks ended January 7, 1995, respectively. (f) Pre-opening Costs The costs associated with opening new stores are deferred and amortized over one year following the opening of each new store. (g) Closed Store Reserves When a store is closed, the Company provides a reserve for the net book value of any store assets, net of salvage value, and the net present value of the remaining lease obligation, net of sublease income. For the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25, 1994, the 28 weeks ended January 8, 1994 and the 28 weeks ended January 7, 1995, utilization of this reserve was $4.0 million, $2.4 million, $1.1 million, $0.5 million (unaudited) and $0.5 million (unaudited), respectively. (h) Investments in Supplier Cooperatives The investment in Certified is accounted for on the cost method. There are certain restrictions on the sale of this investment. (i) Investment in Food 4 Less of Modesto, Inc. During the 52 weeks ended June 26, 1993, the Company sold its 20% investment in Food 4 Less of Modesto, Inc. ("Modesto") for gross proceeds of $4.5 million, which included a $1.5 million note receivable, resulting in a gain of $2.5 million. The Company previously accounted for this investment using the cost method. F-36 199 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (j) Property and Equipment Property and equipment are stated at cost and are depreciated principally using the straight-line method over the following estimated useful lives: Buildings and improvements.................. 5-40 years Equipment and fixtures...................... 3-10 years Property under capital leases and leasehold interests................................. 3-45 years (lease term)
(k) Deferred Financing Costs Costs incurred in connection with the issuance of debt are amortized over the term of the related debt using the effective interest method. (l) Goodwill and Covenants Not to Compete The excess of the purchase price over the fair value of the net assets of businesses acquired is amortized on a straight-line basis over 40 years beginning at the date of acquisition. Covenants not to compete, which are included in Other Assets, are amortized on a straight-line basis over the term of the covenant. Current and undiscounted future operating cash flows are compared to current and undiscounted future goodwill amortization to determine if an impairment of goodwill has occurred and is continuing. As of June 25, 1994, no impairment exists. (m) Income Taxes On June 27, 1993, the Company prospectively adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Previously, the Company used the SFAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. Under SFAS 109, the Company recognizes to a greater degree the future tax benefits of expenses which have been recognized in the financial statements. The implementation of SFAS No. 109 did not have a material effect on the accompanying consolidated financial statements. (n) Notes Receivable from Shareholders of Parent Notes receivable from shareholders of parent represent loans to employees of the Company for purchases of Holdings' stock. The notes are due over various periods, bear interest at the prime rate, and are secured by each shareholder's shares of common stock. (o) Self-Insurance Certain of the Company's subsidiaries are self-insured for a portion of workers' compensation, general liability and automobile accident claims. The Company establishes reserves based on an independent actuary's review of claims filed and an estimate of claims incurred but not yet filed. F-37 200 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (p) Discounts and Promotional Allowances Promotional allowances and vendor discounts are recorded as a reduction of cost of sales in the accompanying consolidated statements of operations. Allowance proceeds received in advance are deferred and recognized over the period earned. (q) Provision for Earthquake Losses On January 17, 1994, Southern California was struck by a major earthquake which resulted in the temporary closing of 31 of the Company's stores. The closures were caused primarily by loss of electricity, water, inventory, or structural damage. All but one of the closed stores reopened within a week of the earthquake. The final closed store reopened on March 24, 1994. The Company is insured against earthquake losses (including business interruption), subject to certain deductibles. The pre-tax financial impact, net of insurance claims, was approximately $4.5 million. At June 25, 1994, the Company had received all expected insurance proceeds related to this claim. (r) Extraordinary Items For the 52 weeks ended June 27, 1992, the Company classified the write-off of deferred financing costs associated with the early extinguishment of debt as an extraordinary item. For the 52 weeks ended June 27, 1992, the Company also classified the difference between the net book value and replacement cost of property and equipment destroyed during the April 1992 civil unrest in Los Angeles and replaced by insurance companies as an extraordinary item. Proceeds received from insurance companies for business interruption related to the civil unrest are included as a component of selling, general, administrative and other expenses. (s) Loss Per Common Share Loss per common share is computed based on the weighted average number of shares outstanding during the applicable period. Fully diluted loss per share has been omitted as it is anti-dilutive for all periods presented. (t) Reclassifications Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the June 25, 1994 presentation. (3) PREFERRED STOCK On December 31, 1992, the Company issued 50,000 shares of $.01 par value Series A cumulative convertible preferred stock (the "Preferred Stock") with a liquidation value of $1,000 per share and 121,118 shares of its $.01 par value common stock (the "Common Stock") to its parent company, Food 4 Less Holdings, Inc. ("Holdings") in exchange for gross proceeds of $50.0 million. The Preferred Stock is convertible into common stock at the option of the holder based upon a conversion price which results in a one-for-one exchange. The Preferred Stock has a stated dividend rate of $152.50 per share, per annum, and is anti-dilutive. The Company may pay dividends on or before December 31, 1997 only by issuing additional shares of Preferred Stock. The Company may redeem the Preferred Stock at any time after December 31, 1997 for its liquidation value. At June 25, 1994, the Company had accrued approximately $12,649,000 for the Preferred Stock dividends earned but not yet declared. In order to finance the purchase of the Preferred and Common Stock from the Company, Holdings issued $103.6 million aggregate principal amount of 15.25% Senior Discount Notes due 2004 (the "Holdings F-38 201 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Notes") and 121,118 Common Stock Purchase Warrants (the "Warrants") for gross proceeds of $50.0 million. No cash interest is payable on the Notes until June 15, 1998. At the present time, Holdings has no other income or assets other than its investment in the Company's Common and Preferred Stock and intends to service the interest payments on the Holdings Notes when they become payable in cash (in fiscal 1998) through dividends it receives on the Company's capital stock. (4) LONG-TERM DEBT AND SENIOR SUBORDINATED DEBT The Company's long-term debt is summarized as follows:
JUNE 26, JUNE 25, 1993 1994 ------------ ------------ Bank Term Loan, principal due quarterly through January 1999, with interest payable monthly in arrears........ $148,478,000 $137,064,000 10.45 percent Senior Notes principal due 2000 with interest payable semi-annually in arrears............. 175,000,000 175,000,000 Revolving Loan.......................................... 4,900,000 -- 10.625 percent first real estate mortgage due 1998, $12,000 of principal plus interest payable monthly secured by land and building with a net book value of $2,122,000............................................ 1,558,000 1,521,000 9.2 to 9.25 percent notes payable, collateralized by equipment, due September 1994, $67,000 of principal plus interest payable monthly, plus balloon payment of $992,000.............................................. 1,772,000 1,103,000 10.8 percent notes payable, collateralized by equipment, due September 1995, $72,000 of principal plus interest payable monthly, plus balloon payment of $1,004,000... 2,447,000 1,819,000 10.0 percent secured promissory note, collateralized by the stock of Bell, due 1996, interest payable quarterly through June 1996........................... 8,000,000 8,000,000 10.08 percent notes payable, collateralized by equipment, due November 1996, $34,000 of principal plus interest payable monthly, plus balloon payment of $493,000.............................................. 1,515,000 1,242,000 10.15 percent notes payable, collateralized by equipment, due December 1996, $45,000 of principal and interest payable monthly, plus balloon payment of $640,000.............................................. 1,994,000 1,675,000 10.0 percent real estate mortgage due 2000, $8,000 of principal and interest payable monthly................ 474,000 419,000 Other long-term debt.................................... 2,216,000 1,415,000 ------------ ------------ 348,354,000 329,258,000 Less -- current portion................................. 12,778,000 18,314,000 ------------ ------------ $335,576,000 $310,944,000 =========== ===========
In June 1991, the Company and certain of its subsidiaries entered into a Credit Agreement (the "Credit Agreement") with certain banks, comprised of a $315,000,000 Term Loan (the "Bank Term Loan") facility, a $70,000,000 Revolving Loan (the "Revolving Loan") facility and a $55,000,000 standby letter of credit facility (the "Letter of Credit Facility"). At June 25, 1994, $137,064,000 was outstanding under the Bank Term Loan, there were no borrowings outstanding under the Revolving Loan and $48,131,000 of standby letters of credit had been issued on behalf of the Company. A commitment fee of 1/2 of 1 percent is charged on the average daily unused portion of the Revolving Loan and the Letter of Credit Facility; such commitment fees are due quarterly in arrears. Interest on borrowings under the Bank Term Loan is at the bank's Base Rate (as defined) plus 1.25 percent or the Eurodollar Rate (as defined) plus 2.5 percent. At June 25, 1994, the F-39 202 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) weighted average interest rate on the Bank Term Loan was 6.5 percent. In accordance with certain requirements of the Credit Agreement, the Company purchased an interest rate cap for a principal amount of approximately $91.4 million on the three-month Libor rate at 5.5% which expires on January 3, 1995. Quarterly principal installments on the Bank Term Loan continue to December 1998, with $15,580,000 payable in fiscal year 1995, $21,245,000 payable in fiscal year 1996, $22,661,000 payable in fiscal 1997, $40,489,000 payable in fiscal 1998, and $37,089,000 payable in fiscal 1999. Interest on borrowings under the Revolving Loan is at the bank's Base Rate (as defined) plus 1.25 percent. At June 25, 1994, the interest rate on the Revolving Loan was 8.5 percent. To the extent borrowings under the Revolving Loan are not paid earlier, they are due in June 1996. The common stock of F4L-SoCal, Falley's, Cala and certain of their direct and indirect subsidiaries has been pledged as security under the Credit Agreement. In April 1992, the Company and its wholly-owned subsidiaries issued $175,000,000 of 10.45 percent Senior Notes (the "Senior Notes"). These notes are due in two equal sinking fund payments on April 15, 1999 and 2000. They are general unsecured obligations of the Company and rank senior in right of payment to all subordinated indebtedness (as defined). The Senior Notes rank "pari passu" in right of payment with all borrowings and other obligations of the Company under its bank Credit Agreement; however, the obligations under the Credit Agreement are secured by substantially all the assets of the Company and its subsidiaries. The Senior Notes may be redeemed beginning in 1996 at 104.5 percent, declining ratably to 100 percent in 1999. The proceeds received, net of issuance costs, were used to pay down borrowings under the Bank Term Loan. Deferred financing costs related to the portion of the Bank Term Loan that was retired of $6.7 million, net of related tax benefit of $2.5 million, are classified as an extraordinary item in the Company's consolidated statement of operations for the 52 weeks ended June 27, 1992. Scheduled maturities of principal of Long-Term Debt at June 25, 1994 are as follows: 1995................................................... $ 18,314,000 1996................................................... 23,384,000 1997................................................... 32,322,000 1998................................................... 40,701,000 1999................................................... 124,823,000 Later years............................................ 89,714,000 ------------ $329,258,000 ===========
The Company issued $145,000,000 principal amount of Senior Subordinated Notes (the "Subordinated Notes") in connection with the acquisition of Alpha Beta as described in Note 1. The Subordinated Notes bear interest, payable semi-annually on June 15 and December 15, at an annual rate of 13.75 percent. The Subordinated Notes are subordinated to all Senior Indebtedness (as defined) of the Company, and may be redeemed beginning in 1996 at a redemption price of 106 percent. The redemption price declines ratably to 100 percent in 2000. The debt agreements, among other things, require the Company to maintain minimum levels of net worth (as defined), to maintain minimum levels of earnings (as defined), to maintain a hedge agreement to provide interest rate protection, and to comply with certain ratios related to interest expense (as defined), fixed charges (as defined), working capital and indebtedness. In addition, the debt agreements limit, among other things, additional borrowings, dividends on, and redemption of, capital stock, capital expenditures, incurrence of lease obligations, and the acquisition and disposition of assets. At June 26, 1993 and June 25, 1994 the Company was in compliance with the financial covenants of its debt agreements. At June 25, 1994, dividends and certain other payments are restricted based on terms in the debt agreements. F-40 203 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) LEASES The Company's operations are conducted primarily in leased properties. Substantially all leases contain renewal options. Rental expense under operating leases was as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ----------- ----------- ----------- Minimum rents................................. $46,706,000 $44,504,000 $49,788,000 Rents based on sales.......................... 7,656,000 5,917,000 3,806,000
Following is a summary of future minimum lease payments under operating leases at June 25, 1994: 1995................................................... $ 52,542,000 1996................................................... 48,966,000 1997................................................... 45,325,000 1998................................................... 38,925,000 1999................................................... 34,423,000 Later years............................................ 269,332,000 ------------ $489,513,000 ===========
The Company has entered into lease agreements for new supermarket sites which were not in operation at June 25, 1994. Future minimum lease payments under such operating leases generally begin when such supermarkets open and at June 25, 1994 are: 1995 -- $5,990,000; 1996 -- $11,772,000; 1997 -- $11,825,000; 1998 -- $11,810,000; 1999 -- $11,819,000; later years -- $218,480,000. Certain leases qualify as capital leases under the criteria established in Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and are classified on the consolidated balance sheets as leased property under capital leases. Future minimum lease payments for the property under capital leases at June 25, 1994 are as follows: 1995.................................................... $ 7,948,000 1996.................................................... 7,521,000 1997.................................................... 6,995,000 1998.................................................... 6,374,000 1999.................................................... 6,071,000 Later years............................................. 44,108,000 ----------- Total minimum lease payments.................. 79,017,000 Less: amounts representing interest..................... 35,403,000 ----------- Present value of minimum lease payments................. 43,614,000 Less: current portion................................... 3,616,000 ----------- $39,998,000 ==========
Accumulated depreciation related to capital leases was $20,356,000 and $24,041,000 at June 26, 1993 and June 25, 1994, respectively. The Company is leasing a distribution facility and four store locations from the previous owner of Alpha Beta. The agreement contains a purchase option for the land, buildings and improvements and equipment at a price that equals or exceeds the estimated fair market value throughout the term of the lease. F-41 204 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) INVESTMENT IN A.W.G. The investment in Associated Wholesale Grocers ("A.W.G.") consists principally of the cooperative's six percent interest-bearing seven and eight-year patronage certificates received in payment of certain rebates. Following is a summary of future maturities based upon current redemption terms: 1995..................................................... $ -- 1996..................................................... -- 1997..................................................... 795,000 1998..................................................... 1,420,000 1999..................................................... 1,520,000 Later years.............................................. 2,983,000 ---------- $6,718,000 =========
(7) INCOME TAXES The provision (benefit) for income taxes consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ---------- ---------- ----------- Current: Federal..................................... $2,507,000 $ -- $ 3,251,000 State and other............................. 934,000 82,000 712,000 ---------- ---------- ----------- 3,441,000 82,000 3,963,000 ---------- ---------- ----------- Deferred: Federal..................................... -- 1,345,000 (70,000) State and other............................. -- -- (1,193,000) ---------- ---------- ----------- -- 1,345,000 (1,263,000) ---------- ---------- ----------- $3,441,000 $1,427,000 $ 2,700,000 ========= ========= ==========
A reconciliation of the provision (benefit) for income taxes to amounts computed at the federal statutory rates of 34% for fiscal 1992 and 1993 and 35% for fiscal 1994 is as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ----------- ----------- ---------- Federal income taxes at statutory rate on loss before provision for income taxes and extraordinary charges...................... $(8,689,000) $(8,818,000) $ -- State and other taxes, net of federal tax benefit.................................... 934,000 82,000 (1,000) Alternative minimum tax...................... 2,507,000 -- -- Effect of permanent differences resulting primarily from amortization of goodwill.... 2,706,000 2,850,000 2,820,000 Accounting limitation (recognition) of deferred tax benefit....................... 5,983,000 7,313,000 (119,000) ----------- ----------- ---------- $ 3,441,000 $ 1,427,000 $2,700,000 ========== ========== =========
F-42 205 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for deferred taxes consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ------------ ----------- ----------- Depreciation....................................... $ 6,282,000 $ 7,756,000 $ 2,536,000 Difference between book and tax basis of assets sold............................................. 2,514,000 3,198,000 (4,223,000) Deferred revenues and allowances................... (7,028,000) 40,000 (2,349,000) Pre-opening costs.................................. 1,072,000 (512,000) 174,000 Accounts receivable reserves....................... -- (270,000) 249,000 Unicap............................................. (124,000) (5,000) (536,000) Capital lease obligation........................... (2,010,000) (1,385,000) 2,792,000 Self-insurance reserves............................ (13,558,000) (4,082,000) (535,000) Inventory shrink reserve........................... (528,000) 777,000 (869,000) LIFO............................................... 7,104,000 (554,000) (1,010,000) Closed store reserve............................... 964,000 1,092,000 440,000 Accrued expense.................................... -- -- (582,000) Accrued payroll and related liabilities............ (2,656,000) 193,000 1,721,000 Damaged inventory reimbursement.................... 1,195,000 -- -- Acquisition costs.................................. 4,974,000 2,626,000 1,397,000 Sales tax reserves................................. -- (715,000) (418,000) Deferred rent subsidy.............................. -- (483,000) (624,000) Net operating loss usage........................... -- -- 5,782,000 Tax credits benefited.............................. -- (1,392,000) (4,477,000) Accounting limitation (recognition) of deferred tax benefit 1,588,000 (4,591,000) (1,085,000) Other, net......................................... 211,000 (348,000) 354,000 ------------ ----------- ----------- $ -- $ 1,345,000 $(1,263,000) =========== ========== ==========
F-43 206 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The significant components of the Company's deferred tax assets (liabilities) are as follows:
JUNE 26, JUNE 25, 1993 1994 ------------ ------------ Deferred tax assets: Accrued payroll and related liabilities............... $ 4,064,000 $ 2,448,000 Other accrued liabilities............................. 13,488,000 13,953,000 Property and equipment................................ 9,674,000 2,997,000 Self-insurance liabilities............................ 30,907,000 27,744,000 Loss carryforwards.................................... 27,863,000 20,675,000 Tax credit carryforwards.............................. 1,392,000 5,869,000 Other................................................. 1,223,000 580,000 ------------ ------------ Gross deferred tax assets.......................... 88,611,000 74,266,000 Valuation allowance................................... (45,008,000) (31,149,000) ------------ ------------ Net deferred tax assets............................ $ 43,603,000 $ 43,117,000 ------------ ------------ Deferred tax liabilities: Inventories........................................... $(20,243,000) $(16,738,000) Property and equipment................................ (38,298,000) (30,516,000) Obligations under capital leases...................... (5,802,000) (8,733,000) Other................................................. (1,689,000) (1,870,000) ------------ ------------ Gross deferred tax liability....................... (66,032,000) (57,857,000) ------------ ------------ Net deferred tax liability......................... $(22,429,000) $(14,740,000) =========== ===========
The Company recorded a valuation allowance to reserve a portion of its gross deferred tax assets at June 25, 1994 due primarily to financial and tax losses in recent years. Under SFAS 109, this valuation allowance will be adjusted in future periods as appropriate. However, the timing and extent of such future adjustments to the allowance cannot be determined at this time. At June 25, 1994, approximately $8,864,000 of the valuation allowance for deferred tax assets will reduce goodwill when the allowance is no longer required. At June 25, 1994, the Company has net operating loss carryforwards for federal income tax purposes of $59,071,000, which expire in 2007 through 2008. The Company has federal and state Alternative Minimum Tax ("AMT") credit carryforwards of approximately $4,090,000 which are available to reduce future regular taxes in excess of AMT. Currently, there is no expiration date for these credits. FFL files a consolidated federal income tax return, under which the federal income tax liability of FFL and its subsidiaries (which since June 23, 1989 include the Company) is determined on a consolidated basis. FFL has entered into a federal income tax sharing agreement with the Company and certain of its subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides that in any year in which the Company is included in any consolidated tax liability of FFL and has taxable income, the Company will pay to FFL the amount of the tax liability that the Company would have had on such due date if it had been filing a separate return. Conversely, if the Company generates losses or credits which actually reduce the consolidated tax liability of FFL and its other subsidiaries, FFL will credit to the Company the amount of such reduction in the consolidated tax liability. These credits are passed between FFL and the Company in the form of cash payments. In the event any state and local income taxes are determinable on a combined or consolidated basis, the Tax Sharing Agreement provides for a similar allocation between FFL and the Company of such state and local taxes. F-44 207 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company currently has an Internal Revenue Service examination in process covering its 1990 and 1991 fiscal years. The Internal Revenue Service has not yet made any additional tax assessments related to these years. (8) RELATED PARTY TRANSACTIONS The Company has a five-year consulting agreement with an affiliated company effective June 17, 1991 for management, financing, acquisition and other services. The agreement is automatically renewed on January 1 of each year for the five-year term unless ninety (90) days' notice is given by either party. The contract provides for annual management fees equal to $2 million plus an additional amount based on the Company's performance and advisory fees for acquisition and financing transactions. Fees paid or accrued associated with management services were $2,270,000 during the 52 weeks ended June 25, 1994, $2,000,000 during the 52 weeks ended June 26, 1993, and $2,000,000 during the 52 weeks ended June 27, 1992. Advisory fees paid or accrued were $170,000 during the 52 weeks ended June 25, 1994, $1,795,000 for the 52 weeks ended June 26, 1993, and $116,000 for the 52 weeks ended June 27, 1992. Advisory fees paid or accrued for financing transactions are capitalized and amortized over the term of the related financing. In connection with the acquisitions of Alpha Beta, ABC and the Food Barn Stores, the Company capitalized fees of $8,000,000, $500,000 and $92,000, respectively, which were paid to this affiliated company for acquisition services. (9) COMMITMENTS AND CONTINGENCIES The Company is contingently liable to former stockholders of certain predecessors for any prorated gains which may be realized within ten years of the acquisition of the respective companies resulting from the sale of the Certified stock. Such gains are only payable if Certified is purchased or dissolved, or if the Company sells the shares to Certified within the period noted above. The Company is a partner in a supplier partnership, in which it is contingently liable for the partnership's long-term debt. The Company's portion of such debt is approximately $1,650,000. The Company has entered into lease agreements with the developers of several new sites in which the Company has agreed to provide construction financing. At June 25, 1994, the Company had capitalized construction costs of $10,435,000 on total commitments of $19,250,000. In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against the Company and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in and to fix the price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and December 23, 1992, respectively. To date, the Court has yet to certify any of these classes, while a demurrer to the complaints was denied. The Company will vigorously defend itself in these class action suits. In addition, the Company or its subsidiaries are defendants in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on the Company's financial position or results of operations. The Company self-insures its workers compensation and general liability. For the 52 weeks ended June 25, 1994, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 27, 1992, self-insurance loss provisions were $19,880,000, $38,040,000 and $46,140,000, respectively. The Company discounts its self- insurance liability using a 7% discount rate for all years presented. Management believes that this rate F-45 208 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) approximates the time value of money over the anticipated payout period (approximately 10 years) for essentially risk free investments. The Company's historical self-insurance liability for the three most recent fiscal years is as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ------------ ------------ ----------- Self-insurance liability.......... $ 95,605,000 $100,773,000 $90,898,000 Less: Discount.................... (13,046,000) (15,279,000) (9,194,000) ------------ ------------ ----------- Net self-insurance liability...... $ 82,559,000 $ 85,494,000 $81,704,000 ============ ============ ===========
The Company expects that cash payments for claims will aggregate approximately $16 million, $20 million, $18 million, $12 million and $7 million for its fiscal years ended in June 1995, 1996, 1997, 1998 and 1999. (10) EMPLOYEE BENEFIT PLANS The Company implemented SOP No. 93-6, Employer Accounting for Employee Stock Ownership Plans, effective June 26, 1994. The implementation of SOP No. 93-6 did not have a material effect on the accompanying unaudited consolidated financial statements. The Company and its subsidiaries sponsor several defined contribution benefit plans. The full-time employees of Falley's who are not members of a collective bargaining agreement are covered under a 401(k) plan under which the Company matches certain employee contributions with cash or FFL stock (the "Falley's ESOP"). As part of the original stock sale agreement between FFL and the Falley's ESOP, which has been amended from time to time, a partnership which owns stock of FFL has assumed the obligation to purchase any FFL shares as to which terminated plan participants exercise a put option under the terms of Falley's ESOP. The Company is not required to make cash payments to redeem the shares. As part of that agreement, the Company may elect, after providing a right of first refusal to the partnership, to purchase FFL shares put under the provisions of the plan. However, the partnership's obligation to purchase such FFL shares is unconditional, and any repurchase of shares by the Company is at the Company's sole election. During the year ended June 25, 1994, the Company elected to purchase $1.0 million of FFL shares as to which terminated plan participants had exercised their put option. FFL shares purchased by the Company are classified as treasury stock. As of April 30, 1994, the fair value of the shares allocated which are subject to a repurchase obligation by the partnership referred to above was approximately $15,170,000. The Company also sponsors two ESOPs for employees of the Company who are members of certain collective bargaining agreements (the "Union ESOPs"). The Union ESOPs provide for annual contributions based on hours worked at a rate specified by the terms of the collective bargaining agreements. The Company contributions are made in the form of Holdings stock or cash for the purchase of Holdings stock and are to be allocated to participants based on hours worked. During the 28 weeks ended January 7, 1995, the Company recorded a charge against operations of approximately $230,000 (unaudited) for benefits under the Union ESOPs. There were no shares issued to the Union ESOPs at January 7, 1995. All other full-time employees of the Company who are not members of a collective bargaining agreement are covered under a separate 401(k) plan (the "Management Plan"). The Management Plan provides for annual contributions which are determined at the discretion of the Company. The Company contributions are allocated to participants based on employee compensation and matching of certain employee contributions. A portion of the Company contribution allocated based on compensation is made in the form of stock or cash for the purchase of stock. F-46 209 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Total charges against operations related to all employee benefit plans sponsored by the Company and its subsidiaries were $337,000, $284,000 and $699,000 for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994, respectively. No contributions were made with stock and no stock was acquired by any plans in fiscal 1992, fiscal 1993 or fiscal 1994. The Company contributes to multi-employer pension plans administered by various trustees. Contributions to these plans are based upon negotiated wage contracts. These plans may be deemed to be defined benefit plans. Information related to accumulated plan benefits and plan net assets as they may be allocated to the Company at June 25, 1994 is not available. The Company contributed $78.6 million, $69.4 million and $57.2 million to these plans for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, respectively. Management is not aware of any plans to terminate such plans. The United Food and Commercial Workers health and welfare plans were overfunded and those employers who contributed to the plans are to receive a pro rata share of the excess reserves in these plans through a reduction of current contributions. The Company's share of the excess reserve was $24.2 million, of which $8.1 million was recognized in the 52 weeks ended June 25, 1994, with the remainder to be recognized in future periods as the credits are taken. Offsetting the reduction in employer contributions was a $5.5 million union contract ratification bonus and contractual wage increases. (11) COMMON STOCK On December 31, 1992, concurrent with the sale of the Preferred Stock, the Company sold 121,118 shares of common stock to Holdings. Concurrently, the remaining shares of common stock of the Company were exchanged for shares of Holdings common stock on a one for one basis. (12) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: (a) Cash and Cash Equivalents The carrying amount approximates fair value as a result of the short maturity of these instruments. (b) Short-Term Notes and Other Receivables The carrying amount approximates fair value as a result of the short maturity of these instruments. (c) Investments In and Notes Receivable From Supplier Cooperatives The Company maintains a non-current deposit with Certified in the form of Class B shares of Certified. Certified is not obligated in any fiscal year to redeem more than a prescribed number of the Class B shares issued. Therefore, it is not practicable to estimate the fair value of this investment. The Company maintains a non-current note receivable from A.W.G. There are no quoted market prices for this investment and a reasonable estimate could not be made without incurring excessive costs. Additional information pertinent to the value of this investment is provided in Note 6. (d) Long-Term Debt The fair value of the $175.0 million Senior Notes, the $145.0 million Subordinated Notes and the Bank Term Loan is based on quoted market prices. Market quotes for the fair value of the remainder of the Company's debt are not available, and a reasonable estimate of the fair value could not be made without F-47 210 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) incurring excessive costs. Additional information pertinent to the value of the unquoted debt is provided in Note 4. The estimated fair values of the Company's financial instruments are as follows:
JUNE 25, 1994 ------------------------- CARRYING FAIR AMOUNT VALUE ----------- ----------- Cash and cash equivalents................................... $32,996,000 $32,996,000 Short-term notes and other receivables...................... 4,187,000 4,187,000 Investments in and notes receivable from supplier cooperatives.............................................. 12,702,000 -- Long-term debt for which it is: - Practicable to estimate fair values..................... 457,064,000 472,779,000 - Not practicable......................................... 17,194,000 --
(13) OTHER INCOME, NET The components of other income items included in SG&A are as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, 1992 1993 1994 ---------- ---------- --------- Interest income.................................... $1,266,000 $ 993,000 $ 903,000 Licensing fees..................................... 493,000 246,000 270,000 Other income (expense)............................. 769,000 3,710,000 (177,000) ---------- ---------- --------- $2,528,000 $4,949,000 $ 996,000 ========= ========= =========
(14) RESTATEMENT The Company has restated the statements of operations for its fiscal years ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28 weeks ended January 8, 1994 to classify certain buying, occupancy and labor costs associated with making its products available for sale as cost of sales. These amounts were previously classified as selling, general, administrative, and other net, and depreciation and amortization of property and equipment and totalled $236,152,000, $224,469,000, $219,548,000 and $114,334,000 (unaudited) for the fiscal years ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28 weeks ended January 8, 1994, respectively. The Company has also classified a portion of its self-insurance costs as interest expense that was previously recorded in selling, general, administrative and other, net. These amounts were $4,960,000, $5,865,000, $5,836,000 and $3,275,000 (unaudited) for the fiscal years 1992, 1993 and 1994 and the 28 weeks ended January 8, 1994, respectively. Depreciation and amortization costs not classified in cost of sales are included in selling, general, administrative and other, net. The change in classification did not affect the net loss, loss before provision for income taxes and extraordinary charges or loss per common share. (15) SUBSEQUENT EVENT (UNAUDITED) On September 14, 1994, the Company, Holdings, and FFL entered into a definitive Agreement and Plan of Merger (the "Merger") with Ralphs Supermarkets, Inc. ("Ralphs") and the stockholders of Ralphs. Pursuant to the terms of the Merger Agreement, the Company will, subject to certain terms and conditions being satisfied or waived, be merged into Ralphs and Ralphs will become a wholly-owned subsidiary of Holdings. Conditions to the consummation of the Merger include, among other things, receipt of regulatory approvals and other necessary consents and the completion of financing for the transaction. The purchase price for Ralphs is approximately $1.5 billion, including the assumption of debt. F-48 211 FOOD 4 LESS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The aggregate purchase price, payable to the stockholders of Ralphs, will consist of $375 million in cash, $131.5 million initial principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 ("Seller Debentures") and $18.5 million of initial accreted value of 13 5/8% Senior Discount Debentures due 2005 ("New Discount Debentures"). In addition, the Company will enter into an agreement with a stockholder of Ralphs pursuant to which such stockholder will act as a consultant to the Company with respect to certain real estate and general commercial matters for a period of five years from the closing of the Ralphs Merger in exchange for the payment of a consulting fee. The financing required to complete the Merger will include the issuance of significant additional equity by FFL, the issuance of new debt securities by the Company and Holdings and the incurrence of additional bank financing by the Company. The equity issuance would be made to a group of investors led by Apollo Advisors, L.P. ("Apollo"), which will purchase up to $140 million in FFL stock. Apollo will receive a $5 million fee for its commitment to make an equity investment. The issuance of new debt securities would be in the form of senior notes of Supermarkets of up to $295 million and senior subordinated notes of Supermarkets of up to $200 million. The bank financing would be made pursuant to a commitment by Bankers Trust Company to provide up to $1,075 million in such financing. In connection with the receipt of new financing, the Company and Holdings will also be required to complete certain exchange offers, consent solicitations and or other transactions with the holders of their currently outstanding debt securities. Holdings will issue an additional $81.5 million of initial accreted value of New Discount Debentures for $59.0 million in cash and $22.5 million in lieu of cash for fees associated with the Merger. Holdings will redeem the Discount Notes, with a book value of $64.5 million at January 7, 1995, for $83.9 million in cash. As of January 29, 1995, Ralphs had outstanding indebtedness of approximately $1,018.5 million. Ralphs had sales of $2,724.6 million, operating income of $145.6 million and earnings before income taxes of $32.1 million for its most recent fiscal year ended January 29, 1995. Upon consummation of the Merger, the operations and activities of the Company will be significantly impacted due to conversions of the Company's existing Southern California conventional stores to either Ralphs or Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. The Merger will result in restructuring charges that are currently estimated to be approximately $45 million, of which approximately $5.1 million was recorded in the Company's results of operations for the 28 weeks ended January 7, 1995. The remaining estimated restructuring charges will be recorded as an expense once the Merger is completed. (16) RESTRUCTURING CHARGE (UNAUDITED) The Company has converted 11 of its conventional format supermarkets to warehouse format stores. During the 28 weeks ended January 7, 1995, the Company recorded a non-cash restructuring charge for the write-off of property and equipment at the 11 stores of $5.1 million. F-49 212 APPENDIX A COMPARISON OF OLD RGC NOTES AND NEW NOTES The terms of the New Notes differ from the current (unamended) terms of the Old RGC Notes in certain significant respects including those described below. The comparisons set forth below are summaries which do not purport to be complete and are qualified in their entirety by reference to the description of the Proposed Amendments and to the description of the New Notes and the related definitions contained therein.
OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ ISSUER ISSUER RGC The Company, as successor by merger to RGC. PRINCIPAL AMOUNT OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING Old RGC 9% Notes: The up to $450 million principal amount of New Notes As of May 1, 1995, $150 million. offered hereby will be part of an issue of up to $650 million aggregate principal amount of New Notes, up to Old RGC 10 1/4 Notes: $200 million principal amount of which will be issued As of May 1, 1995, $300 million. pursuant to the Subordinated Note Public Offering. INTEREST RATE INTEREST RATE Old RGC 9% Notes: Concurrently with the Exchange Offers and the other bear interest at the rate of 9% per annum. financing transactions described herein, Food 4 Less is offering up to $200 million principal amount of New Old RGC 10 1/4% Notes: Notes in the Subordinated Note Public Offering. The bear interest at the rate of 10 1/4% per annum. Subordinated Note Public Offering is expected to price ten business days preceding the final Expiration Date of the Offers. The New Notes offered pursuant to the Offers will bear interest at a fixed rate per annum equal to the greater of (a) 11.00% and (b) the Applicable Treasury Rate plus 400 basis points (4.00 percentage points); provided, however, that in no event will the New Notes offered for exchange hereby bear interest at a rate per annum that is less than the interest rate on the New Notes offered in the Subordinated Note Public Offering. The "Applicable Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the average life to stated maturity of the New Notes; provided that if the average life to stated maturity of the New Notes is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of the year) from the weekly average yields of the United States Treasury securities for which such yields are given. INTEREST PAYMENT DATES INTEREST PAYMENT DATES Old RGC 9% Notes: June 1 and December 1, commencing on December 1, 1995. April 1 and October 1. Old RGC 10 1/4% Notes: January 15 and July 15. FINAL MATURITY DATE FINAL MATURITY DATE Old RGC 9% Notes: June 1, 2005. May 1, 2003. Old RGC 10 1/4% Notes: July 15, 2002. OPTIONAL REDEMPTION OPTIONAL REDEMPTION Old RGC 9% Notes: The New Notes will be redeemable at the option of the The Old RGC 9% Notes are subject to redemption in Company, in whole or in part, at any time on or after whole or in part, at the option of RGC, at any time June 1, 2000, at the following redemption prices on or after April 1, 2000, at 100% of the principal (expressed as percentages of principal amount) if amount thereof plus accrued and unpaid interest to redeemed during the twelve month period beginning June the redemption date. 1 of the years set forth below: Old RGC 10 1/4% Notes: YEAR PERCENTAGE The Old RGC 10 1/4% Notes are subject to redemption 2000............................. 104.125% in whole or in part, at the option of RGC, at any 2001............................. 102.750% time on or after July 15, 1997, at the following 2002............................. 101.375% redemption prices if redeemed during the twelve-month 2003 and thereafter.............. 100.000% period beginning July 15, 1997 of the years indicated below:
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ 1997..........................................105.0% in each case plus accrued and unpaid interest to the 1998..........................................102.5% redemption date. In the event the interest rate on the 1999 and thereafter............................100.0% New Notes is greater than 11.00%, the above redemption prices will be correspondingly adjusted. in each case plus accrued and unpaid interest to the redemption date. In addition, on or prior to June 1, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the New Notes originally issued, at a redemption price equal to 111.00% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1995, 109.625% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1996 and 108.25% of the principal amount thereof if redeemed during the 12 months commencing on June 1, 1997, in each case plus accrued and unpaid interest to the redemption date. In the event the interest rate on the New Notes is greater than 11.00%, the above redemption prices will be correspondingly adjusted. In order to effect the foregoing redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. The documents evidencing Senior Indebtedness will restrict the Company's ability to optionally redeem New Notes. GUARANTEES GUARANTEES None. The New Notes will be guaranteed on a senior subordinated basis by the Subsidiary Guarantors. The Guarantees will be general unsecured obligations of the Subsidiary Guarantors, and will be released upon the occurrence of certain events. See "Description of the New Notes -- Guarantees." "Subsidiary Guarantors" means (i) each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less GM, Inc. and Food 4 Less of Southern California, Inc., (ii) upon consummation of the Merger, Crawford Stores, Inc., (iii) each of the Company's Subsidiaries which becomes a guarantor of the New Notes in compliance with the provisions set forth under "-- Certain Covenants -- Guarantees of Certain Indebtedness," and (iv) each of the Company's Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the New Note Indenture. RANKING RANKING Subordinated to all Senior Indebtedness of RGC which, The New Notes will be senior subordinated unsecured as of January 29, 1995, was approximately $570 obligations of the Company and will be subordinated in million. right of payment to all Senior Indebtedness of the Company, including the Company's obligations under the "Senior Indebtedness" means (i) the principal of, Credit Agreement and the indebtedness under the New F4L premium, if any, and accrued and unpaid interest on Senior Notes and the Old F4L Senior Notes, if any. (including, without limitation, interest at the contract rate subsequent to the commencement of any The Indebtedness represented by each Guarantee bankruptcy, insolvency or similar proceeding with (including the payment of principal of, premium, if respect to RGC and with respect to the 1992 Credit any, and interest on the New Notes) will be Agreement only, such interest whether or not a claim subordinated on the same basis to Guarantor Senior therefor is allowed in such proceeding), letters of Indebtedness as the New Notes are subordinated to credit (or reimbursement agreements with respect Senior Indebtedness. thereto) and any fees and reasonable expenses payable under or in respect of (A) Indebtedness of RGC under At January 7, 1995, on a pro forma basis after giving the 1992 Credit Agreement, (B) Indebtedness of RGC, effect to the Merger and the Financing (and certain contingent or otherwise, in respect of borrowed money related assumptions), the aggregate outstanding amount (whether or not the recourse of the lender is to the of Senior Indebtedness of the Company (excluding whole of the assets of RGC or only to a portion thereof Company guarantees of certain Guarantor Senior and including any Indebtedness issued in exchange for Indebtedness) would have been approximately $1,512.7 Indebtedness for borrowed money), (C) Guaranties by RGC million and the aggregate outstanding amount of Guar- of Indebtedness for borrowed money (exclusive of antor Senior Indebtedness of the Subsidiary Guarantors whether such Indebtedness would appear on a balance (excluding guarantees by Subsidiary Guarantors of sheet), (D) Indebtedness of RGC evidenced by notes, certain Senior Indebtedness) would have been debentures, bonds, overdrafts or other similar approximately $16.5 million and the Company would have instruments for which RGC is liable, bankers' had $169.4 million available to be borrowed under the acceptances or similar credit transactions or New Revolving Facility. representing the balance deferred and unpaid of the purchase price of any property that would appear as a "Senior Indebtedness" means the principal of, premium, liability on RGC's consolidated balance sheet prepared if any, and interest on any Indebtedness of the in accordance with GAAP consistently applied, (E) Company, whether outstanding on the Issue Date or obligations of RGC under leases which have, in thereafter created, incurred or accordance with GAAP consistently ap-
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ plied, been recorded as capital leases, and (F) assumed, unless, in the case of any particular obligations under interest rate and currency swaps, Indebtedness, the instrument creating or evidencing the caps, collars, options, forward or spot contracts or same or pursuant to which the same is outstanding similar arrangements or with respect to foreign expressly provides that such Indebtedness shall not be currency hedges or similar agreements or arrangements senior in right of payment to the New Notes. Without designed to protect RGC against fluctuations in limiting the generality of the foregoing, "Senior interest or currency rates, and (ii) modifications, Indebtedness" shall include (x) the principal of, renewals, extensions and refundings (including premium, if any, and interest on all obligations of increases and refinancing of the Indebtedness of RGC every nature of the Company from time to time owed to under the 1992 Credit Agreement) of the foregoing the lenders under the Credit Agreement including, obligations, unless the foregoing obligations or such without limitation, the Letter of Credit Obligations modifications, renewals, extensions and refundings and principal of and interest on, and all fees, and thereof provide by their terms that such shall not be expenses payable under the Credit Agreement and the superior in right of payment to the Old RGC Notes. Letter of Credit Obligations and (y) interest accruing Notwithstanding the foregoing, "Senior Indebtedness" thereon subsequent to the occurrence of any Event of shall not include (i) Indebtedness evidenced by the Old Default specified in clause (vi) or (vii) under "Events RGC Notes, (ii) Indebtedness that is subordinate or of Default" in the New Note Indenture relating to the junior in right of payment to any Indebtedness of RGC Company, whether or not the claim for such interest is (provided, however, that Indebtedness under the 1992 allowed under any applicable Bankruptcy Law. Credit Agreement shall always be considered Senior Indebtedness), (iii) any liability for federal, state, Notwithstanding the foregoing, "Senior Indebtedness" provincial, local or other taxes owed or owing by RGC, shall not include (a) Indebtedness evidenced by the New (iv) Indebtedness of RGC to a Subsidiary of RGC or any Notes, (b) Indebtedness that is expressly subordinate other Affiliate of RGC or any of such Affiliate's or junior in right of payment to any Indebtedness of subsidiaries other than payments pursuant to the EJDC the Company, (c) Indebtedness which, when incurred and Guaranty, (v) that portion of any Indebtedness which at without respect to any election under Section 1111(b) the time of issuance is issued in violation of the of Title 11, United States Code, is without recourse to applicable Old RGC Indenture, and (vi) amounts owing the Company, (d) Indebtedness which is represented by under leases (other than Capital Lease Obligations). Disqualified Capital Stock, (e) obligations for goods, materials or services purchased in the ordinary course "1992 Credit Agreement" means that certain Credit of business or obligations consisting of trade Agreement dated as of July 22, 1992 among RGC, the payables, (f) Indebtedness of or amounts owed by the lenders named therein and Bankers Trust Company, as Company for compensation to employees or for services agent, as the same may be amended, amended and rendered to the Company, (g) any liability for federal, restated, supplemented or otherwise modified from time state, local or other taxes owed or owing by the to time and any agreement providing for aggregate Company, (h) Indebtedness of the Company to a extension of credit in excess of $25,000,000 Subsidiary of the Company and (i) that portion of any refinancing or replacing such agreement. Indebtedness which is incurred by the Company in violation of the New Note Indenture. "EJDC Guaranty" means the Guaranty issued by the Permitted Holder guaranteeing the payment of obligations of RGC as required under workers' compensation regulations in the State of California and any extensions and renewals thereof. "Guarantor Senior Indebtedness" means, with respect to any Subsidiary Guarantor, the principal of, premium, if any, and interest on any Indebtedness of such Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of such Subsidiary Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of such Subsidiary Guarantor from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal of and interest on, and all fees, indemnities and expenses payable under the Credit Agreement and the Letters of Credit Obligations. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Guarantee of such Subsidiary Guarantor, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of such Subsidiary Guarantor, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Subsidiary Guarantor, (d) Indebtedness which is represented by Disqualified Capital Stock, (e) obligations for goods, materials or services purchased in the ordinary course of business or obligations consisting of trade payables, (f) Indebtedness of or amounts owed by such Subsidiary Guarantor for compensation to employees or for services rendered to such Subsidiary Guarantor, (g) any liability for federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (h) Indebtedness of such Subsidiary Guarantor representing a guarantee of Subordinated Indebted-
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ ness or Pari Passu Indebtedness of the Company or any other Subsidiary Guarantor, (i) Indebtedness of such Subsidiary Guarantor to a Subsidiary of the Company and (j) that portion of any Indebtedness which is incurred by such Subsidiary Guarantor in violation of the New Note Indenture. "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among Food 4 Less, certain of its subsidiaries, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or any such prior agreement as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). The term "Credit Agreement" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. The Company shall promptly notify the New Note Trustee of any such refunding or refinancing of the Credit Agreement. "Designated Senior Indebtedness" means (i) in the event any Indebtedness is outstanding under the Credit Agreement, all Senior Indebtedness under the Credit Agreement and (ii) if no Indebtedness is outstanding under the Credit Agreement, any other issue of Senior Indebtedness which (a) at the time of the determination is equal to or greater than $50 million in aggregate principal amount and (b) is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company. For purposes of this definition, the term "Credit Agreement" shall not include any agreement governing Indebtedness incurred to refund, replace or refinance borrowings or commitments under the Credit Agreement other than any such agreements incurred to refund, replace or refinance the entirety of the borrowings and commitments then outstanding or permitted to be outstanding thereunder. CHANGE OF CONTROL CHANGE OF CONTROL The Old RGC Indentures provide that if a Change of The New Note Indenture will provide that, upon the Control Triggering Event shall occur at any time, occurrence of a Change of Control, each Holder will then, subject to the provisions of the Old RGC have the right to require the repurchase of such Indentures, each Holder of Old RGC Notes shall have the Holder's New Notes pursuant to the offer described right to require that RGC repurchase such Holder's Old below (the "Change of Control Offer"), at a purchase RGC Notes in whole or in part in integral multiples of price equal to 101% of the principal amount thereof $1,000, at a purchase price (the "Change of Control plus accrued and unpaid interest to the date of Purchase Price") in cash in an amount equal to 101% of repurchase. the principal amount of such Old RGC Notes, plus accrued and unpaid interest (including any defaulted The New Note Indenture will provide that within 30 days interest), if any, to the date of purchase, pursuant to following the date upon which the Change of Control the offer described in the following paragraph (the occurred, the Company must send, by first class mail, a "Change of Control Offer") and other procedures set notice to each Holder of New Notes, with a copy to the forth in this covenant. Any rights of Holders arising New Note Trustee, which notice shall govern the terms pursuant to a Change of Control Offer shall be of the Change of Control Offer. The New Note Indenture subordinated in right of payment to all Senior shall require that notice of an event giving rise to a Indebtedness of RGC to the same extent as the Old RGC Change of Control shall be given on the same date and Notes are subordinated to Senior Indebtedness of RGC. in the same manner to all Holders. Such notice shall state, among other things, the purchase date, which Pursuant to the Old RGC Indentures, within 30 days must be no earlier than 30 days nor later than 40 days following any Change of Control Triggering Event, RGC from the date such notice is mailed, other than as may shall notify each Old RGC Note Trustee and the Old RGC be required by law (the "Change of Control Payment Note Trustee shall promptly send by first-class mail, Date"). The New Note Indenture shall provide that the postage prepaid, to each holder of the Old RGC Notes, Change of Control Payment Date under the Senior F4L at his address appearing in the Old RGC Note registers, Note Indenture shall be one Business Day prior to the a notice stating, among other things, the purchase Change of Control Payment Date under the New Note price and that the purchase date (the "Change of Indenture with respect to such Change of Control. Control Purchase Date") shall be a Business Day no Holders electing to have a New Note purchased pursuant earlier than 45 days nor later than 60 days from the to a Change of Control Offer will be required to date such notice is mailed, or such later date as is surrender the New Note, with the form entitled "Option necessary to comply with requirements under the of Holder to Elect Purchase" on the reverse of the New Exchange Act; that any Old RGC Note not tendered will Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ continue to accrue interest; that RGC will pay the the Business Day prior to the Change of Control Payment Change of Control Purchase Price for any Old RGC Notes Date. Each Change of Control Offer is required to that have been properly tendered and not withdrawn remain open for at least 20 Business Days or such promptly following the Change of Control Purchase Date; longer period as may be required by law. and certain other procedures that a Holder must follow to accept a Change of Control Offer or withdrawal such The New Note Indenture will further provide that, acceptance. Any failure to comply with this covenant notwithstanding the foregoing, prior to the mailing of shall constitute a default in the performance of a the notice of a Change of Control Offer referred to covenant for purposes of determining whether an Event above, within 30 days following a Change of Control the of Default has occurred if payment of the Change of Company shall either (a) repay in full and terminate Control Purchase Price is prohibited by the all commitments under Indebtedness under the Credit subordination provisions of the Indenture. Agreement to the extent the terms thereof require repayment upon a Change of Control (or offer to repay "Change of Control Triggering Event" means the in full and terminate all commitments under all occurrence of both a Change of Control and a Rating Indebtedness under the Credit Agreement and repay the Decline. Indebtedness owed to each lender which has accepted such offer), or (b) obtain the requisite consents under "Change of Control" means such time as (i) a "person" the Credit Agreement, the terms of which require or "group" (within the meaning of Sections 13(d) and repayment upon a Change of Control, to permit the 14(d)(2) of the Exchange Act), other than the Permitted repurchase of the New Notes as provided above. The Holder or its Affiliates, becomes the "beneficial Company shall first comply with the covenant in the owner" (as defined in Rule 13d-3 under the Exchange immediately preceding sentence before it shall be Act) of more than fifty percent (50%) of the total required to repurchase New Notes pursuant to the voting power of the then outstanding Voting Stock of provisions described above. The Company's failure to RGC or RSI and (ii) such person or group succeeds in comply with the covenants described in this paragraph having its or their nominees constitute a majority of shall constitute an Event of Default under the New Note RGC's or RSI's board of directors. Indenture. "Rating Decline" means the occurrence of the In addition, the New Note Indenture will provide that following on, or within 90 days after, the earlier of prior to purchasing New Notes tendered in a Change of (i) the occurrence of a Change of Control, or (ii) Control Offer, the Company shall purchase all F4L public notice of the occurrence of a Change of Control Senior Notes (or permitted refinancings thereof) which or the intention by RGC or RSI to effect a Change of it is required to purchase by reason of such Change of Control (which period shall be extended so long as the Control pursuant to the provisions of the indenture rating of the Old RGC Notes is under publicly announced under which such F4L Senior Notes are issued, as in consideration for possible downgrade by any of the effect on the Issue Date. Rating Agencies): (a) in the event the Old RGC Notes are rated by either Standard & Poor's or Moody's on the The New Note Indenture will provide that the Company Rating Date as Investment Grade, the rating of the Old must comply with Rule 14e-1 under the Exchange Act and RGC Notes by both Rating Agencies shall be reduced any other applicable provisions of the federal below Investment Grade, or (b) in the event the Old RGC securities laws in connection with a Change of Control Notes are rated below Investment Grade by both rating Offer. agencies on the Rating Date, the rating of the Old RGC Notes by either Rating Agency shall be decreased by one "Change of Control" means the acquisition after the or more gradations (including gradations within Rating Issue Date, in one or more transactions, of beneficial Categories as well as between Rating Categories). ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than "Permitted Holder" means the Edward J. DeBartolo any Permitted Holder) or (ii) any group of persons or Corporation. entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of New Holdings or the Company such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of the Company (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of the Company's Board of Directors. "New Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and its successors. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and the Yucaipa Companies, or entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of the Company or any of its subsidiaries or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ plan of the Company or any of its subsidiaries or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such persons, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of the Company, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person and (v) any investment fund or investment entity that is a subsidiary of such person or a Permitted Transferee of such person. CERTAIN COVENANTS CERTAIN COVENANTS Limitation on Incurrence of Additional Limitation on Incurrences of Additional Indebtedness. The Old RGC Indentures provide that RGC Indebtedness. The New Note Indenture will provide that will not, and will not permit any of its Subsidiaries the Company shall not, and shall not permit any of its to, create, incur, assume, or directly or indirectly Subsidiaries, directly or indirectly, to incur, assume, guarantee or in any other manner become directly or guarantee, become liable, contingently or otherwise, indirectly liable for the payment of, any Indebtedness with respect to, or otherwise become responsible for (including any Acquired Indebtedness, but excluding the payment of (collectively "incur") any Indebtedness Permitted Indebtedness) unless, in the case of Acquired other than Permitted Indebtedness; provided, however, Indebtedness and Indebtedness of RGC or any Subsidiary, that if no Default with respect to payment of principal at the time of such event and after giving effect of, or interest on, the New Notes or Event of Default thereto on a pro forma basis, RGC's Consolidated shall have occurred and be continuing at the time or as Interest Coverage Ratio for the four full fiscal a consequence of the incurrence of any such quarters for which financial information in respect Indebtedness, the Company may incur Indebtedness if thereof is available immediately preceding such event, immediately before and immediately after giving effect taken as one period and calculated on the assumption to the incurrence of such Indebtedness the Operating that such Indebtedness had been incurred on the first Coverage Ratio of the Company would be greater than 2.0 day of such four-quarter period and, in the case of to 1.0; provided, further, a Subsidiary may incur Acquired Indebtedness, on the assumption that the Acquired Indebtedness to the extent such Indebtedness related acquisition (whether by means of purchase, could have been incurred by the Company pursuant to the merger or otherwise) also had occurred on such date immediately preceding proviso. with the appropriate adjustments with respect to such acquisition being included in such pro forma "Subsidiary" means any subsidiary of the Company. calculation, would have exceeded 1.8 to 1.0. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD RGC "Indebtedness" means with respect to any person, INDENTURES WILL BE MODIFIED TO ELIMINATE THIS without duplication, (i) all liabilities, contingent or PROVISION. otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the "Subsidiary" means any person a majority of the whole of the assets of such person or only to a portion equity ownership or the voting stock of which is at the thereof), (b) evidenced by bonds, notes, debentures, time owned directly or indirectly, by RGC or by one or drafts accepted or similar instruments or letters of more other Subsidiaries, or by RGC and one or more credit or representing the balance deferred and unpaid other Subsidiaries. of the purchase price of any property (other than any such balance that represents an account payable or any "Indebtedness" means, with respect to any person, any other monetary obligation to a trade creditor indebtedness, contingent or otherwise, in respect of (whether or not an Affiliate) created, incurred, borrowed money (whether or not the recourse of the assumed or guaranteed by such person in the lender is to the whole of the assets of such person ordinary course of business of such person in or only to a portion thereof and including any connection with obtaining goods, materials or services indebtedness issued in exchange for indebtedness for and due within twelve months (or such longer period for borrowed money), or evidenced by bonds, notes, payment as is customarily extended by such trade debentures or similar instruments or representing creditor) of the incurrence thereof, which account is the balance deferred and unpaid of the purchase not overdue by more than 90 days, according to the price of any property, if and to the extent original terms of sale, unless such account payable is any of the foregoing indebtedness would being contested in good faith), or (c) for the payment appear as a liability upon a balance sheet of such of money relating to a Capitalized Lease Obligation; person prepared on a consolidated basis in accordance (ii) the maximum fixed repurchase price of all with GAAP consistently applied and letters of credit or Disqualified Capital Stock of such person; (iii) reimbursement agreements related thereto; provided, reimbursement obligations of such person with respect however, that "Indebtedness" shall not include accounts to letters of credit; (iv) obligations of such person payable to trade creditors or other indebtedness for with respect to Interest Swap Obligations and Foreign goods or services created or assumed in the ordinary Exchange Agreements; (v) all liabilities of others of course of business or amounts payable under the EAR the kind described in the preceding clause (i), (ii), Plan. "Indebtedness" shall also include any amounts (in (iii) or (iv) that such person has guaranteed or that addition to principal and interest) payable under the is otherwise its legal liability; and (vi) all 1992 Credit Agreement, the principal component of any obligations of others secured by a Lien to which any of Capital Lease Obligations and Guaranties of items that the properties or assets (including, without would be included within this definition (regardless of limitation, leasehold interests and any other tangible whether such items would appear upon such balance or intangible property rights) of such person are sheet), provided that for purposes of computing subject, whether or not the obligations secured thereby Indebtedness outstanding at any time, such items shall shall have been assumed by such person or shall be excluded to the extent that they would otherwise be otherwise be such person's legal liability (provided eliminated as intercompany items in consolidation. Any that if the obligations so secured have not been reference in the Old RGC Indentures to any Indebtedness assumed by such person or are not otherwise such shall be deemed to include any renewals, extensions, person's legal liability, refundings, amendments and modifications of any such Indebtedness.
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ such obligations shall be deemed to be in an amount "Acquired Indebtedness" means Indebtedness of a equal to the fair market value of such properties or person (i) existing at the time such person becomes a assets, as determined in good faith by the Board of Subsidiary or (ii) assumed in connection with the Directors of such person, which determination shall be acquisition of assets from a person, other than evidenced by a Board Resolution). For purposes of the Indebtedness incurred in connection with, or in preceding sentence, the "maximum fixed repurchase contemplation of, such person becoming a Subsidiary or price" of any Disqualified Capital Stock that does not such acquisition, as the case may be. have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital "Permitted Indebtedness" means any of the following Stock as if such Disqualified Capital Stock were Indebtedness of RGC or any Subsidiary, as the case may purchased on any date on which Indebtedness shall be be: required to be determined pursuant to the New Note Indenture, and if such price is based upon, or measured (i) Indebtedness of RGC outstanding at any time under by, the fair market value of such Disqualified Capital the 1992 Credit Agreement, or any successor thereto, in Stock (or any equity security for which it may be an aggregate principal amount not to exceed the exchanged or converted), such fair market value shall aggregate commitments as in effect on the date of the be determined in good faith by the Board of Directors Old RGC Indentures; of such person, which determination shall be evidenced by a Board Resolution. For purposes of the New Note (ii) (a) Indebtedness and obligations of RGC under the Indenture, Indebtedness incurred by any person that is Old RGC Notes and the obligations relating to the Old a general partnership (other than non-recourse RGC Notes under the Old RGC Indentures, (b) any other Indebtedness) shall be deemed to have been incurred by Indebtedness and obligations outstanding on the dates the general partners of such partnership pro rata in of the Old RGC Indentures and (c) Indebtedness and accordance with their respective interests in the obligations arising after the dates of the Old RGC liabilities of such partnership unless any such general Indentures in respect of agreements existing as of the partner shall, in the reasonable determination of the dates of the Old RGC Indentures providing for Board of Directors of the Company, be unable to satisfy indemnification, adjustment of purchase price its pro rata share of the liabilities of the or similar obligations incurred in connection with partnership, in which case the pro rata share of any the acquisition of any business; Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining (iii) Indebtedness of a Subsidiary to RGC; general partners on a pro rata basis in accordance with their interests. (iv) Indebtedness the proceeds of which are used, directly or indirectly, to refinance outstanding "Permitted Indebtedness" means (a) Indebtedness of the Indebtedness of RGC or any Subsidiary (which Company and its Subsidiaries pursuant to (i) the Term outstanding Indebtedness shall include, in the case of Loans in an aggregate principal amount at any time the 1992 Credit Agreement or any successor thereto, the outstanding not to exceed $750 million or such lesser amount of the aggregate commitments under the 1992 amount as may be actually funded under the Term Loans Credit Agreement as in effect on the date of the Old on or within 91 days following the Issue Date (with any RGC Indentures) in a principal amount (or, if such such amounts funded after the Issue Date to be used to Indebtedness does not require cash payments prior to finance the repurchase of up to $224.5 million maturity, with an original issue price of such aggregate principal amount of Old RGC Notes pursuant to Indebtedness) not to exceed the principal amount of the the "change of control purchase offer" provision set Indebtedness so refinanced (or, if the Indebtedness forth in section 1014 of the Old RGC Indentues, plus being refinanced was issued with an original issue related fees and expenses), less the aggregate amount discount, the original issue price plus the amortized of all principal repayments thereunder pursuant to and portion of the original issue discount to the date that in accordance with the covenant described under such refinancing Indebtedness was incurred), plus any "-- Certain Covenants -- Limitation on Asset Sales" prepayment penalties and premiums, accrued and unpaid herein subsequent to the Issue Date, and (ii) the interest on the Indebtedness so refinanced, plus revolving credit facility under the Credit Agreement customary fees, expenses and costs related to the (and the Company and each Subsidiary (to the extent it incurrence of such refinancing Indebtedness; provided, is not an obligor) may guarantee such Indebtedness) in that if the Indebtedness being refinanced is an aggregate principal amount at any time outstanding Indebtedness of RGC, such refinancing shall be not to exceed $325 million, less all permanent Indebtedness of RGC; provided further that Indebtedness reductions thereunder pursuant to and in accordance the proceeds of which are used to refinance with the covenant described under "-- Certain Indebtedness of RGC that is subordinated in right of Covenants -- Limitation on Asset Sales" above, (b) payment to the Old RGC Notes will only be permitted if Indebtedness of the Company or a Subsidiary Guarantor (x) such Indebtedness is expressly subordinated in owed to and held by the Company or a Subsidiary right of payment to the Old RGC Notes at least to the Guarantor; (c) Indebtedness incurred by the Company or same extent that the Indebtedness to be refinanced is any Subsidiary in connection with the purchase subordinated to the Old RGC Notes, and (y) the Average or improvement of property (real or personal) Life to Stated Maturity and Stated Maturity of such or equipment or other capital expenditures in the Indebtedness exceeds the Stated Maturity of the Old RGC ordinary course of business (including for the purchase Notes. of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease (v) Indebtedness which represents the assumption by RGC Obligations, provided that (i) at the time of the of Indebtedness of any Subsidiary and refinancings incurrence thereof, such Indebtedness, together with thereof; any other Indebtedness incurred during the most recently completed four fiscal quarter period in (vi) Indebtedness under Currency Agreements, Interest reliance upon this clause (c) does not exceed, in the Swap Obligations and other agreements between RGC or a aggregate, 3% of net sales of the Company and its Subsidiary and one or more financial institutions Subsidiaries during the most recently completed four providing for "swap," "cap," "collar" or other interest fiscal quarter period on a consolidated basis rate protection; (calculated on a pro forma basis if the date of incurrence is prior to the first anniversary of the (vii) Indebtedness not to exceed at any one time Merger) and (ii) such Indebtedness, together with all outstanding an aggregate principal amount of $75 then outstanding Indebtedness incurred in reliance upon million in addition to the Indebtedness otherwise this clause (c) does not exceed, in the aggregate, 3% permitted hereby; of the aggregate net sales of the Company and its Subsidiaries during the most recently completed twelve (viii) Indebtedness arising from guarantees of fiscal quarter period on a consolidated basis (calcu- Indebtedness of RGC or any Subsidiary and agreements providing for indemnification, adjustment of purchase price or similar obligations incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebted-
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ ness incurred by any person acquiring all or any lated on a pro forma basis if the date of incurrence is portion of such business, assets or Subsidiary for the prior to the third anniversary of the Merger); (d) purpose of financing such acquisition, provided that Indebtedness incurred by the Company or any Subsidiary the maximum aggregate liability in respect of all such in connection with capital expenditures in an aggregate Indebtedness in the nature of such guarantees shall at principal amount not exceeding $150 million, provided no time exceed the gross proceeds actually received in that such capital expenditures relate solely to the connection with such disposition; integration of the operations of RSI, Food 4 Less and their respective subsidiaries, as described in this (ix) Indebtedness of RGC or any Subsidiary incurred in Amended and Restated Prospectus and Solicitation the ordinary course of business under guarantees of Statement; (e) Indebtedness of the Company incurred Indebtedness of suppliers, contractors, licensees, under certain Foreign Exchange Agreements and Interest franchisees, or customers; Swap Obligations; (f) guarantees incurred in the ordinary course of business, by the Company or a (x) accounts payable or any other indebtedness or Subsidiary, of Indebtedness of any other person in monetary obligations of RGC or any Subsidiary to trade aggregate not to exceed $25 million at any time creditors, employees, representatives or agents outstanding; (g) guarantees by the Company or a created, assumed or guaranteed by RGC or by any Subsidiary Guarantor of Indebtedness incurred by a Subsidiary in the ordinary course of business in wholly-owned Subsidiary Guarantor so long as the connection with the obtaining of materials, goods or incurrence of such Indebtedness incurred by such services; wholly-owned Subsidiary Guarantor is permitted under the terms of the New Note Indenture; (h) Refinancing (xi) accrued expenses of RGC or any Subsidiary incurred Indebtedness; (i) Indebtedness for letters of credit in the ordinary course of business. relating to workers' compensation claims and self-insurance or similar requirements in the ordinary (xii) obligations in respect or performance bonds and course of business; (j) Existing Indebtedness and other surety bonds provided by RGC or any Subsidiary in the Indebtedness outstanding on the Issue Date (after ordinary course of business and any renewals, giving effect to the Merger); (k) Indebtedness arising extensions or amendments, modifications or supplements from guarantees of Indebtedness of the Company or any thereto; Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of (xiii) Indebtedness incurred to finance Consolidated purchase price or similar obligations, in each case, Capital Expenditures (including Acquired Indebtedness incurred or assumed in connection with the disposition to the extent that, in conformity with GAAP, assets of any business, assets or Subsidiary, other than acquired in conjunction with such Acquired Indebtedness guarantees of Indebtedness incurred by any person are included in the property, plant or equipment acquiring all or any portion of such business, assets reflected on the consolidated balance sheet of RGC and or Subsidiary for the purpose of financing such its Subsidiaries); acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at (xiv) Indebtedness represented by letters of credit not no time exceed the gross proceeds actually received by exceeding an aggregate amount of $45 million at any one the Company and its Subsidiaries in connection with time outstanding; such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by (xv) Indebtedness arising from the honoring by a bank the Company or any Subsidiary in the ordinary course of or other financial institution of a check, draft or business; and (m) additional Indebtedness of the similar instrument drawn against insufficient funds in Company and the Subsidiary Guarantors in an amount not the ordinary course of business, provided that such to exceed $200 million at any time outstanding. Indebtedness is extinguished within two Business Days of its incurrence; "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange (xvi) Indebtedness represented by the obligations of for, or the proceeds from the issuance and sale or RGC, as they may exist from time to time, to repurchase disbursement of which are used to substantially from any employee or director, or former employee or concurrently repay, redeem, refund, refinance, director, of RGC or a Subsidiary, Capital Stock of RGC, discharge or otherwise retire for value, in whole or in or options, warrants or rights therefor, issued part (collectively, "repay"), or constituting an pursuant to any compensatory plan of RGC; and amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any (xvi) unsecured Indebtedness with an initial maturity Indebtedness of such person existing on the Issue Date not in excess of 270 days incurred in the ordinary or Indebtedness (other than Permitted Indebtedness, course of business in amounts permitted by the 1992 except Permitted Indebtedness incurred pursuant to Credit Agreement and any successor thereto. clauses (c), (d), (h) and (j) of the definition thereof) incurred in accordance with the New Note For the purpose of determining the amount of Indenture (a) in a principal amount (or, if such outstanding Indebtedness under any of the foregoing Refinancing Indebtedness provides for an amount less clauses, there shall be included (A) the principal than the principal amount thereof to be due and payable amount then outstanding that was originally incurred upon the acceleration thereof, with an original issue pursuant to such clause; (B) any outstanding price) not in excess of (without duplication) (i) the Indebtedness incurred pursuant to clause (iv) to principal amount or the original issue price, as the refinance or refund Indebtedness originally incurred case may be, of the Indebtedness so refinanced (or, if pursuant to such clause; and (C) any subsequent such Refinancing Indebtedness refinances Indebtedness refinancings or refundings thereof. under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with "Consolidated Interest Coverage Ratio" with respect a maximum commitment not to exceed the maximum to any period means the ratio of (i) the aggregate of commitment under such revolving credit facility or consolidated earnings before interest expense other agreement) plus (ii) unpaid accrued interest on (including imputed interest expense with respect to any such Indebtedness plus (iii) premiums, penalties, fees Capital Lease Obligations and capitalized interest, if and expenses actually incurred by such person in any), income taxes, depreciation and other noncash connection with the repayment or amendment thereof and charges deducted in computing consolidated net income (b) with respect to Refinancing Indebtedness that and without giving effect to any extraordinary gain or repays or constitutes an amendment to Subordinated loss or gains or losses from sales of assets (other Indebtedness, such Refinancing Indebtedness (x) shall than sales of inventory in the ordinary course of not have any fixed mandatory redemption or sinking fund business), for such period (taken as one accounting requirement in an amount period) to (ii) the aggregate amount of consolidated interest expense (including imputed interest expense with respect
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ to any Capital Lease Obligations and capitalized greater than or at a time prior to the amounts and interest, if any) and dividends paid by subsidiaries on times specified in such repaid or amended Subordinated preferred stock other than to RGC or a wholly owned Indebtedness, except to the extent that any such subsidiary of RGC for such period. requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Operating Coverage Ratio" means, with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT" for the Pro Forma Period shall be calculated, in the case of the Company, after giving effect on a pro forma basis to the Merger as if it had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by the New Note Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credit) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period (excluding any such
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period) in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its Subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring reserve or charge referred to in clause (v) above (and were not otherwise deducted in the computation of Consolidated Net Income for such period). "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of the Company, any original issue discount on the applicable New Notes but excluding amortization of debt issuance costs) and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period but excluding the amortization of debt issuance costs), (ii) dividend requirements on Preferred Stock of such person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock)) declared or paid or required to be declared or paid during such period (except to the extent accrued in a prior period) and excluding items eliminated in consolidation and (iii) dividends declared or paid or scheduled or required to be declared or paid to New Holdings which are permitted to be paid pursuant to clauses (v) and (vi) of the definition of "Permitted Payments". For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such person (as evidenced by a Board Resolution) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clauses (ii) and (iii) above, dividend requirements shall be increased to an amount representing the pre-tax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Acquired Indebtedness" means (i) with respect to any person that becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) after the Issue Date, Indebtedness of, such person or any of its Subsidiaries existing at the time such person becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) and which was not incurred in connection with, or in contemplation of, such person becoming a Subsidiary of the Company (or being merged into the Company or any of its Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries, any
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ 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. "Existing Indebtedness" means the following indebtedness of the Company to the extent outstanding on the Issue Date after giving effect to the Merger: (a) the % Senior Notes due 2004 issued pursuant to an indenture dated as of the Issue Date; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (c) the % Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of the Issue Date; (d) the 9% Senior Subordinated Notes due 2003 issued pursuant to an indenture dated as of March 30, 1993; (e) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to an indenture dated as of July 29, 1992; (f) the 13.75% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of the Issue Date, and (g) the 13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated as of June 15, 1991. Limitation on Restricted Payments. The Old RGC Inden- Limitation on Restricted Payments. The New Note tures provide that RGC will not, and will not permit Indenture will provide that the Company shall not, and any of its Subsidiaries to, directly or indirectly, shall cause each of its Subsidiaries not to, directly (i) declare or pay any dividend on, or make any or indirectly, make any Restricted Payment if, at the distribution to holders of, any shares of RGC's Capital time of such proposed Restricted Payment, or after Stock (other than dividends or distributions payable in giving effect thereto, (a) a Default or an Event of shares of its Capital Stock or in options, warrants or Default shall have occurred and be continuing, (b) the other rights to purchase such Capital Stock, but Company could not incur $1.00 of additional excluding dividends or distributions payable in Indebtedness (other than Permitted Indebtedness) Redeemable Capital Stock or in options, warrants or pursuant to the covenant described under "-- Certain other rights to purchase Redeemable Capital Stock), Covenants -- Limitation on Incurrences of Additional (ii) directly or indirectly purchase, redeem or acquire Indebtedness" herein or (c) the aggregate amount or retire for value any Capital Stock of RGC or any expended for all Restricted Payments, including such Subsidiary or any options, warrants or other rights to proposed Restricted Payment (the amount of any acquire such Capital Stock, (iii) declare or pay any Restricted Payment, if other than cash, to be the fair dividend or distribution on any Capital Stock of any market value thereof at the date of payment as Subsidiary to any Person (other than RGC or any of its determined in good faith by the Board of Directors of wholly owned Subsidiaries), (iv) incur, create or the Company), subsequent to the Issue Date, shall assume any guarantee of Indebtedness of any Affiliate exceed the sum of (i) 50% of the aggregate Consolidated (other than a wholly owned Subsidiary), or (v) make any Net Income (or if such aggregate Consolidated Net Investment (other than any Permitted Investment) in any Income is a loss, minus 100% of such loss) of the person other than a wholly owned Subsidiary (such Company earned subsequent to the Issue Date and on or payments or other actions described in clauses (i) prior to the date of the proposed Restricted Payment through (v) are collectively referred to as "Restricted (the "Reference Date") plus (ii) 100% of the aggregate Payments," provided, that Restricted Payments will not Net Proceeds received by the Company from any person include Permitted Holding Company Payments), unless at (other than a Subsidiary of the Company) from the the time of and after giving effect to the proposed issuance and sale (including upon exchange or Restricted Payment (the amount of any such Restricted conversion for other securities of the Company) Payment, if other than cash, shall be as determined by subsequent to the Issue Date and on or prior to the the board of directors of RGC, whose determination Reference Date of Qualified Capital Stock (excluding shall be conclusive and evidenced by a board (A) Qualified Capital Stock paid as a dividend on any resolution), (1) no Default or Event of Default shall Capital Stock or as interest on any Indebtedness and have occurred and be continuing or shall occur as a (B) any Net Proceeds from issuances and sales financed result of such Restricted Payment and (2) the aggregate directly or indirectly using funds borrowed from the amount of all Restricted Payments declared or made Company or any Subsidiary, until and to the extent such after the date of the Old RGC Indentures shall not borrowing is repaid), plus (iii) 100% of the aggregate exceed the sum of: net cash proceeds received by the Company as capital contributions to the Company after the Issue Date (ex- (A) 50% of the aggregate cumulative Consolidated Net cluding net cash proceeds of a Public Equity Offering Income of RGC accrued on a cumulative basis during the used to redeem outstanding New Notes), plus (iv) $25 period beginning October 12, 1992, in the case of the million. Old RGC 9% Notes, or July 20, 1992, in the case of the Old RGC 10 1/4% Notes, and ending on the last day of The New Note Indenture will provide that if no Default RGC's last fiscal quarter ending prior to the date of or Event of Default shall have occurred and be such proposed Restricted Payment (or, if such aggregate continuing as a consequence thereof, the provisions set cumulative Consolidated Net Income shall be a loss, forth in the immediately preceding paragraph will not minus 100% of such loss), prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would (B) the aggregate net proceeds, including the Fair have been permitted on the date of declaration, (2) the Market Value of property other than cash (as determined acquisition of any shares of Capital Stock of the by RGC's board of directors, whose determination shall Company or the repurchase, redemption or other be conclusive) received after the date of the Old RGC repayment of any Subordinated Indebtedness in exchange Indentures by RGC from the issuance or sale (other than for or solely out of the proceeds of the substantially to any of its Subsidiaries) of shares of Capital Stock concurrent sale (other than to a Subsidiary) of shares of RGC (other than Redeemable Capital 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
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ Stock) or warrants, options or rights to purchase such proceeds of the substantially concurrent sale (other shares of Capital Stock of RGC (other than Redeemable than to a Subsidiary) of Subordinated Indebtedness of Capital Stock), the Company with an Average Life equal to or greater than the remaining Average Life of the Subordinated (C) the aggregate net proceeds, including the Fair Indebtedness repurchased, redeemed or repaid, (4) any Market Value of property other than cash (as determined payments by the Company or any Subsidiary, or any by RGC's board of directors, whose determination shall dividend by the Company or any Subsidiary to New Hold- be conclusive) received after the date of the Old RGC ings the proceeds of which are used by New Holdings to Indentures by RGC (other than from any of its make payments, required to be made due to the exercise Subsidiaries) upon the exercise of options, warrants or of statutory dissenter's, appraisal or similar rights rights to purchase shares of Capital Stock of RGC by holders of common stock of FFL in connection with (other than Redeemable Capital Stock), the FFL Merger and (5) Permitted Payments; provided, however, that the declaration of each dividend paid in (D) the aggregate net proceeds, including the Fair accordance with clause (1) above, each acquisition or Market Value of property other than cash (as determined repayment made in accordance with, or of the type set by RGC's board of directors, whose determination shall forth in, clause (2) above, and each payment described be conclusive) received after the date of the Old RGC in clause (iii), (iv), (vii) and (ix) of the definition Indentures by RGC from the issue or sale of debt of the term "Permitted Payments" shall each be counted securities or Redeemable Capital Stock that have been for purposes of computing amounts expended pursuant to converted into or exchanged for Capital Stock of RGC subclause (c) in the immediately preceding paragraph, (other than Redeemable Capital Stock), plus the and no amounts expended pursuant to clause (3) above or aggregate cash received by RGC at the time of such pursuant to clause (i), (ii), (v), (vi), (viii) or (x) conversion or exchange, and of the definition of the term "Permitted Payments" shall be so counted; provided, further that to the (E) $25 million. extent any payments made pursuant to clause (vii) of the definition of the term "Permitted Payments" are The foregoing provision of the Old RGC Indentures deducted for purposes of computing the Consolidated Net will not be violated by reason of (a) the payment of Income of the Company, such payments shall not be any dividend within 60 days after the date of counted for purposes of computing amounts expended as declaration thereof, if at such declaration date such Restricted Payments pursuant to subclause (c) in the declaration complied with the foregoing provision (in immediately preceding paragraph. which event such dividend shall be deemed to have been paid on such date of declaration thereof for purposes "Restricted Payment" means any (i) Stock Payment, (ii) of the foregoing provision), (b) a Restricted Payment Investment (other than a Permitted Investment) or (iii) by a Subsidiary solely to RGC or a wholly owned Restricted Debt Prepayment. Subsidiary of RGC, (c) the retirement of any share of Capital Stock or Subordinated Indebtedness by exercise "Investment" by any person in any other person means for, or upon conversion of, or out of the proceeds of, any investment by such person in such other person, the substantially concurrent sale for cash (other than whether by share purchase, capital contribution, loan, to a Subsidiary) of other shares of Capital Stock advance (other than reasonable loans and advances to (other than Redeemable Capital Stock) of RGC or (d) any employees for moving and travel expenses, as salary cash payment pursuant to the EAR Plan with respect to advances or to permit the purchase of Qualified Capital obligations existing on February 2, 1992, provided that Stock of the Company and other similar customary any such payment shall be counted as a Restricted expenses incurred, in each case in the ordinary course Payment; provided, however, any surrender of a right of business consistent with past practice) or similar under the EAR Plan in connection with, or as a credit credit extension constituting Indebtedness of such toward, the exercise of any option for Capital Stock of other person, and any guarantee of Indebtedness of any the Holding Company shall not be deemed a Restricted other person. Payment. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD RGC INDENTURES WILL BE AMENDED TO ELIMINATE "Permitted Investment" by any person means (i) any THIS PROVISION. Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents "Investment" means, directly or indirectly, any and received in connection with an Asset Sale made advance, loan or other extension of credit or capital pursuant to the provisions of the covenant described contribution to (by means of any transfer of cash or under "-- Certain Covenants -- Limitation on Asset other property to others or any payment for property or Sales" above or any other disposition of assets not services for the account or use of others), or any constituting an Asset Sale by reason of the $500,000 purchase or acquisition by such person of any stock, threshold contained in the definition thereof, (iii) bonds, notes, debentures or other securities issued or cash and Cash Equivalents, (iv) Investments existing on owned by, any other person. Investment shall exclude the Issue Date, (v) Investments specifically permitted extensions of trade credit on commercially reasonable by and made in accordance with the provisions of the terms in accordance with normal trade practices. covenant described under "-- Certain Covenants -- Limitation on Transactions with Affiliates", "Permitted Investment" means an Investment which (vi) Investments by Subsidiary Guarantors in other consists of any one or more of the following: Subsidiary Guarantors and Investments by Subsidiaries which are not Subsidiary Guarantors in other (i) Investment in a Subsidiary or another person which, Subsidiaries which are not Subsidiary Guarantors and immediately after such Investment, will be a wholly (vii) additional Investments in an aggregate amount not owned Subsidiary; exceeding $15 million. (ii) Investments by wholly owned Subsidiaries in RGC; "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose (iii)(a) commercial paper rated P-1 by Moody's revenues are derived from the operation of one or more Investors Service Inc. or A-1 by Standard & Poor's retail grocery stores or supermarkets or any other line Corporation on the date of acquisition, (b) of business engaged in by the Company or any of its certificates of deposit of United States commercial Subsidiaries as of the Issue Date; (ii) any Investment banks having a combined capital and surplus in excess by such person in any cooperative or other supplier, of $100 million, (c) obligations of, or guaranteed by, including, without limitation, any joint venture which the United States government or any agency thereof, (d) is intended to supply any product or service useful to money market funds organized under the laws of the the business of the Company and its Subsidiaries as it United States or any state thereof that invest is conducted as of the Issue substantially all their assets in any of the types of investments described in subclauses (a), (b) or (c) of this
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ clause (iii), or (e) to the extent not comprehended by Date and as such business may thereafter evolve or subclauses (a) through (d) of this clause (iii), change; and (iii) any capital expenditure or temporary investments of cash balances in investments Investment, in each case reasonably related to the deemed to be cash equivalents under GAAP; business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may (iv) negotiable instruments held for collection; thereafter evolve or change. outstanding travel, moving and other like advances to officers, employees and consultants; lease, utility and "Restricted Debt Prepayment" means any purchase, other similar deposits; or stock, obligations or redemption, defeasance (including, but not limited to, securities received in settlement of debts owing to RGC in substance or legal defeasance) or other acquisition or a subsidiary as a result of foreclosure, perfection or retirement for value, directly or indirectly, by the or enforcement of any Lien, in each of the foregoing Company or a Subsidiary, prior to the scheduled cases in the ordinary course of business of RGC or a maturity or prior to any scheduled repayment of Subsidiary as the case may be; principal or sinking fund payment, as the case may be, in respect of Subordinated Indebtedness. (v) sales of goods on trade credit terms consistent with RGC's past practices or as otherwise consistent "Consolidated Net Income" means, with respect to any with trade credit terms in common use in the industry; person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such (vi) Investments, in an aggregate amount not to exceed period, on a consolidated basis, determined in $15 million, in joint ventures, corporations or accordance with GAAP; provided that (a) the net income partnerships formed with or organized by third persons, of any other person in which such person or any of its which joint ventures, corporations or partnerships, as subsidiaries has an interest (which interest does not the case may be, engage in a business other than a cause the net income of such other person to be business conducted by RGC; or consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included (vii) Investments in joint ventures, corporations or only to the extent of the amount of dividends or partnerships formed with or organized by third persons, distributions actually paid to such person or such which joint ventures, corporations or partnerships, as subsidiary by such other person in such period; (b) the the case may be, engage in a business substantially net income of any subsidiary of such person that is similar, or related, to the business conducted by RGC. subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented "Permitted Holding Company Payments" means only such the payment of an amount that otherwise could have been amounts as are required to cover all the needs of any paid to, or received by, such person or a subsidiary of type or kind and ordinary and necessary expenses of any such person not subject to any Payment Restriction; and type or kind incidental to RSI's functioning as a (c)(i) the net income (or loss) of any other person publicly owned company that owns, and provides certain acquired in a pooling of interests transaction for any services for, RGC. period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all "Consolidated Net Income" means, for any period, the gains realized upon or in connection with or as a net income (or loss) of any person and its Subsidiaries consequence of the issuance of the Capital Stock of for such period taken as a single accounting period such person or any of its subsidiaries and any gains on determined on a consolidated basis in accordance with pension reversions received by such person or any of GAAP excluding the effect of extraordinary items. its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any "Subordinated Indebtedness" means all Indebtedness of of its subsidiaries of any securities of such person or RGC that is expressly subordinated in right of payment any of its subsidiaries, (v) all gains and losses to any other Indebtedness of RGC, provided, however, resulting from the cumulative effect of any accounting that Indebtedness under the 1992 Credit Agreement shall change pursuant to the application of Accounting never constitute Subordinated Indebtedness. Principles Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii) all "EAR Plan" means RGC's 1988 Equity Appreciation non-cash charges incurred by the Company or any of its Rights Plan, as amended. Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by the Company and Subsidiaries resulting from earthquakes and (ix) with respect to the Company, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded; provided further that solely for the purpose of computing amounts described in subclause (c) of the first paragraph of the covenant described under "-- Limitation on Restricted Payments" above, "Consolidated Net Income" of the Company for any period shall be reduced by the aggregate amount of dividends paid by the Company or a Subsidiary to New Holdings pursuant to clauses (v) and (vi) of the definition of "Permitted Payments" during such period. "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
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ be evidenced by a Board Resolution) and (b) in the case of any conversion or exchange of any outstanding Indebtedness or Disqualified Capital Stock of such person for or into shares of Qualified Capital Stock of the Company, the sum of (i) the fair market value of the proceeds received by the Company in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the Holder to the Company upon such conversion or exchange. "Public Equity Offering" means an underwritten public offering of Common Stock of the Company or New Holdings pursuant to a registration statement filed with the Commission in accordance with the Securities Act which public equity offering results in gross proceeds to the Company or New Holdings, as the case may be, of not less than $20 million; provided, however, that in the case of a Public Equity Offering by New Holdings, New Holdings contributes to the capital of the Company net cash proceeds in an amount sufficient to redeem New Notes called for redemption in accordance with the terms thereof. "Subordinated Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which is subordinated in right of payment to the New Notes or the Guarantee of such Subsidiary Guarantor, as the case may be. "Permitted Payments" means (i) any payment by the Com- pany or any Subsidiary, or any dividend by the Company or any Subsidiary to New Holdings the proceeds of which are utilized by New Holdings to make payments, to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar services, or for the reimbursement of losses, costs and expenses pursuant to the Consulting Agreement, (ii) any payment by the Company or any Subsidiary pursuant to the Amended and Restated Tax Sharing Agreement, dated as of June 17, 1991, between Food 4 Less and certain Subsidiaries, as such Tax Sharing Agreement may be amended from time to time, so long as the payment thereunder by the Company and its Subsidiaries shall not exceed the amount of taxes the Company would be required to pay if it were the filing person for all applicable taxes, (iii) any payment by the Company or any Subsidiary pursuant to the Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4 Less and Holdings, as in effect on the Issue Date, (iv) any payment by the Company or any Subsidiary, or any dividend by the Company or any Subsidiary to New Holdings the proceeds of which are used by New Holdings to make payments, (a) in connection with repurchases of outstanding shares of the Company's or New Holdings' Common Stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by New Holdings, the Company or any of its Subsidiaries to participants or former participants in employee benefit plans upon termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period), (v) from and after June 30, 1998, payments of cash dividends or loans to New Holdings in an amount sufficient to enable New Holdings to make payments of interest required to be made in respect of the Discount Notes in an amount not to exceed the amount payable thereunder in accordance with the terms thereof in effect on the Issue Date, (vi) from and after June 1, 2000, payments of cash dividends to New Holdings in an amount sufficient to enable New Holdings to make payments of interest required to be made in respect of the Seller Debentures and the New Discount Debentures in an amount not to exceed the amount payable thereunder in accor-
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ dance with the terms thereof in effect on the Issue Date, (vii) dividends or other payments to New Holdings sufficient to enable New Holdings to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business or to pay required fees and expenses in connection with the Merger, the Reincorporation Merger and the registration under applicable laws and regulations of its debt or equity securities, (viii) dividends or other distributions by the Company to New Holdings on the Issue Date of shares of New Holdings common stock owned by the Company, (ix) dividends by the Company to New Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (a) neither the Company nor any of the Subsidiaries is required, nor may be required, pursuant to the documents governing any outstanding Indebtedness of the Company or any of the Subsidiaries to utilize such Net Cash Proceeds to repay (or offer to repay) such Indebtedness (or has complied with all such requirements), (b) such Net Cash Proceeds have not been utilized to repay outstanding Indebtedness of the Company or any of the Subsidiaries and (c) New Holdings is required pursuant to the documents governing any outstanding Indebtedness of New Holdings to utilize such Net Cash Proceeds to repay (or offer to repay) such Indebtedness and (x) the loan by the Company on the Issue Date to RGC Investment Co. of no more than $5 million. "Consulting Agreement" means that certain Consulting Agreement dated as of the Issue Date, between Food 4 Less, New Holdings and The Yucaipa Companies (as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date). Limitation on Transactions with Affiliates. The Old Limitation on Transactions with Affiliates. The New RGC Indentures provide that RGC will not, and will Note Indenture will provide that neither the Company not permit any of its Subsidiaries to, directly or nor any of its Subsidiaries shall (i) sell, lease, indirectly, enter into any transaction or series of transfer or otherwise dispose of any of its properties related transactions (including, without limitation, or assets or issue securities (other than equity the sale, purchase, exchange or lease of assets, securities which do not constitute Disqualified Capital property or services) in an amount greater than Stock) to, (ii) purchase any property, assets or $100,000 in any fiscal year with any Affiliate of RGC securities (other than equity securities which do not (other than a wholly owned Subsidiary thereof) unless constitute Disqualified Capital Stock) from, (iii) make (i) such transaction or series of transactions is or any Investment in, or (iv) enter into or suffer to are on terms that are no less favorable to RGC or such exist any contract or agreement with or for the benefit Subsidiary, as the case may be, than could have been of, an Affiliate or Significant Stockholder (or any obtained at the time of such transaction or Affiliate of such Significant Stockholder) of the transactions in a comparable transaction in Company or any Subsidiary (an "Affiliate Transaction"), arm's-length dealings with an unaffiliated third party other than (x) Affiliate Transactions permitted under and (ii) with respect to any transaction or series of the following paragraph and (y) Affiliate Transactions transactions involving aggregate payments in excess of in the ordinary course of business, that are fair to $5 million, RGC delivers an officer's certificate to the Company or such Subsidiary, as the case may be, and the Old RGC Note Trustee certifying that such on terms at least as favorable as might reasonably have transaction or series of transactions complies with been obtainable at such time from an unaffiliated clause (i) above and that such transaction or series of party; provided, that (A) with respect to Affiliate transactions has received the approval of a majority of Transactions involving aggregate payments in excess of the disinterested directors of the board of directors $1 million and less than $5 million, the Company or of RGC provided, however, that the foregoing such Subsidiary, as the case may be, shall have restriction shall not apply to transactions pursuant to delivered an Officers' Certificate to the Trustee agreements in place and as in place as of the date of certifying that such Affiliate Transaction complies the Old RGC Indentures as disclosed in the Registration with clause (y) above (other than the requirement set Statement for such Old RGC Notes to the extent required forth in such clause (y) than such Affiliate to be so disclosed. IF THE PROPOSED AMENDMENTS BECOME Transaction be in the ordinary course of business), (B) OPERATIVE, THE OLD RGC INDENTURES WILL BE AMENDED TO with respect to Affiliate Transactions involving ELIMINATE THIS PROVISION. aggregate payments in excess of $5 million and less than $15 million, the Company or such Subsidiary, as "Affiliate" means, with respect to any specified the case may be, shall have delivered an Officers' person, (i) any other person directly or indirectly Certificate to the Trustee certifying that such controlling or controlled by or under direct or Affiliate Transaction or series of transactions indirect common control with such specified person, complies with clause (y) above (other than the (ii) any spouse, immediate family member or other requirement set forth in such clause (y) that such relative who has the same principal residence of any Affiliate Transaction be in the ordinary course of person described in (i) above, (iii) any trust in which business) and that such Affiliate Transaction has any such person described in clause (i) or (ii) above received the approval of a majority of the has a beneficial interest and (iv) any corporation or disinterested members of the Board of Directors of the other organization of which any such person described Company or the Subsidiary, as the case may be, or, in in clause (i), (ii) or (iii) above collectively owns the absence of any such approval by the disinterested more than 50% of the equity of such entity. For members of the Board of Directors of the Company purposes of
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ this definition, beneficial ownership of 10% or more of or the Subsidiary, as the case may be, that an voting common equity (on a fully diluted basis) or Independent Financial Advisor has reasonably and in warrants to purchase such equity (whether or not good faith determined that the financial terms of such currently exercisable) of a person shall be deemed to Affiliate Transaction are fair to the Company or such be control of such person. 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 has provided written confirmation of such determination to the Board of Directors and (C) with respect to any transaction or series of transactions involving aggregate payments in excess of $15 million, the Company or such Subsidiary, as the case may be, shall have delivered to the New Note Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. The provisions of the foregoing paragraph shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments" herein, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among the Company and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by the New Note Indenture, (v) any agreement in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders of the New Notes in any material respect, (vi) the existence of, or the performance by the Company or any of its Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or New Holdings) is a party as of the Issue Date and any similar agreements which it (or New Holdings) may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any Subsidi- aries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the New Notes in any material respect, (vii) transactions permitted by, and complying with, the provisions of the covenant described under "-- Limitation on Mergers and Certain Other Transactions" herein and (viii) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the New Note Indenture which are fair to the Company, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the New Note
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of the Company or any of its Subsidiaries. "Independent Financial Advisor" means a reputable accounting, appraisal or nationally recognized investment banking or consulting firm that is, in the reasonable judgment of the Board of Directors of the Company, qualified to perform the tasks for which such firm has been engaged and disinterested and indepen- dent with respect to the Company and its Affiliates. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. Limitation on Liens Securing Subordinated Limitation on Liens. The New Note Indenture will Indebtedness. The Old RGC Indentures provide that if provide that the Company shall not and shall not permit RGC or any Subsidiary creates, incurs, assumes or any Subsidiary to create, incur, assume or suffer to suffers to exist any Lien of any kind (i) securing any exist any Liens upon any of their respective assets Subordinated Indebtedness of RGC then RGC will and will unless the New Notes are equally and ratably secured by cause its Subsidiaries, concurrently or immediately the Liens covering such assets, except for (i) Liens on thereafter, to provide that the Old RGC Notes are assets of the Company securing Senior Indebtedness and equally and ratably secured, provided that if such Liens on assets of a Subsidiary Guarantor which, at the Subordinated Indebtedness is expressly subordinated to time of incurrence, secure Guarantor Senior the Old RGC Notes, the Lien securing such Subordinated Indebtedness, (ii) existing and future Liens securing Indebtedness shall be subordinate and junior to the Indebtedness and other obligations of the Company and Lien securing the Old RGC Notes with the same relative its Subsidiaries under the Credit Agreement and related priority as such Subordinated Indebtedness shall have documents or any refinancing or replacement thereof in with respect to the Old RGC Notes, and provided further whole or in part permitted under the New Note that this clause (i) shall not be applicable to any Indenture, (iii) Permitted Liens, (iv) Liens securing Liens securing any such Indebtedness which became Acquired Indebtedness; provided that such Liens (x) are Indebtedness of RGC pursuant to a transaction subject not incurred in connection with, or in contemplation of to the provisions of the Old RGC Indentures described the acquisition of the property or assets acquired and below under "Merger and Sale of Assets, etc." and which (y) do not extend to or cover any property or assets of Liens were in existence at the time of such transaction the Company or any Subsidiary other than the property (unless such Indebtedness was incurred or such Lien or assets so acquired, (v) Liens to secure Capitalized created in connection with, or in contemplation of, Lease Obligations and certain other Indebtedness that such transaction), so long as such Liens do not extend is otherwise permitted under the New Note Indenture; to or cover any property or assets of RGC or any provided that (A) any such Lien is created solely for Subsidiary of RGC other than property or assets the purpose of securing such other Indebtedness acquired in such transaction; or (ii) securing any representing, or incurred to finance, refinance or assumption, guarantee or other liability of any refund, the cost (including sales and excise taxes, Subsidiary of RGC in respect of any Subordinated installation and delivery charges and other direct Indebtedness of RGC, then a substantially similar costs of, and other direct expenses paid or charged in assumption, guarantee or other liability of such connection with, the purchase (whether through stock or Subsidiary in respect of the Old RGC Notes, asset purchase, merger or otherwise) or construction) concurrently or immediately thereafter, shall be or improvement of the property subject thereto (whether equally and ratably secured, provided, that if such real or personal, including fixtures and other Subordinated Indebtedness is expressly subordinated to equipment), (B) the principal amount of the the Old RGC Notes, the Lien securing the assumption, Indebtedness secured by such Lien does not exceed 100% guarantee or other liability of such Subsidiary in of such costs and (C) such Lien does not extend to or respect of such Subordinated Indebtedness shall be cover any other property other than such item of subordinate and junior to the Lien securing the property and any improvements on such item; (vi) Liens assumption, guarantee or other liability of such existing on the Issue Date(after giving effect to the Subsidiary in respect of the Old RGC Notes with the Merger); (vii) Liens in favor of the New Note Trustee same relative priority as such Subordinated under the New Note Indenture and any substantially Indebtedness shall have with respect to the Old RGC equivalent Lien granted to any trustee or similar Notes, and provided further that this clause (ii) shall institution under any Indenture for Indebtedness not be applicable to Liens securing any such permitted to be incurred under the New Note Indenture; assumption, guarantee or other liability which existed and (viii) any replacement, extension or renewal, in at the time such Subsidiary became a Subsidiary of RGC whole or in part, of any Lien described in this or the and which Liens were in existence at the time of such foregoing clauses including in connection with any transaction (unless such assumption, guarantee or other refinancing of the Indebtedness, in whole or in part, liability was incurred or such Lien created in secured by any such Lien provided that to the extent connection with, or in contemplation of, such person any such clause limits the amount secured or the assets becoming a Subsidiary of RGC), so long as such Liens do subject to such Liens, no extension or renewal shall not extend to or cover any property or assets of RGC or increase the amount or the assets subject to such any Subsidiary of RGC other than the assets of such Liens, except to the extent that the Liens associated person. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, with such additional assets are otherwise permitted THE OLD RGC INDENTURES WILL BE AMENDED TO ELIMINATE hereunder. THIS PROVISION. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ security interest, mortgage, pledge or lien, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien under the New Note Indenture. "Permitted Liens" means (i) Liens for taxes, assessments and governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made thereof; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business, deposits made to obtain the release of such Liens and with respect to amounts not yet delinquent for a period of more than 60 days or being contested in good faith by an appropriate process of law, and for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (iii) Liens incurred or pledges or deposits made in the ordinary course of business to secure lease obligations or nondelinquent obligations under workers' compensation, unemployment insurance and other types of social security or similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, zoning or other restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any of its Subsidiaries incurred in the ordinary course of business; (vi) Liens upon specific items of inventory or other goods and proceeds of any person securing such person's obligations in respect of bankers' acceptances issued or created for the account of such person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business; (vii) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of nondelinquent customs duties in connection with the importation of goods; (ix) judgment and attachment Liens not giving rise to a Default or Event of Default; (x) leases or subleases granted to others not interfering in any material respect with the business of the Company or any Subsidiary; (xi) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Swap Obligations and Foreign Exchange Agreements and forward contracts, option futures contracts, futures options or similar arrangements or arrangements designed to protect the Company or any Subsidiary from fluctuations in the price of commodities; (xii) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or its Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (xiii) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Subsidiary in the ordinary course of business in accordance with past practices; (xiv) any interest or title of a lessor in the property subject to any lease, whether characterized as capitalized or operating other than any such interest or title resulting from or arising out of a default by the Company or any Subsidiary of its obligations under such lease; (xv) Liens arising from filing UCC financing
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ statements for precautionary purposes in connection with true leases of personal property that are otherwise permitted under the New Note Indenture and under which the Company or any Subsidiary is lessee; (xvi) Liens on assets of the Company securing Indebtedness which would constitute Senior Indebted- ness 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. Limitation on Other Senior Subordinated Indebtedness. Limitation on Other Senior Subordinated Indebtedness. The Old RGC Indentures provide that RGC will not The New Note Indenture will provide that neither create, incur, assume, guarantee or in any other the Company nor any Subsidiary Guarantor will, manner become liable with respect to any Indebtedness directly or indirectly, incur any Indebtedness that is subordinate in right of payment to any Senior (including Acquired Indebtedness) that is subordinate Indebtedness unless such Indebtedness is also pari in right of payment to any Indebtedness of the Company passu with or subordinate in right of payment to the or such Subsidiary Guarantor, as the case may be, Old RGC Notes, pursuant to subordination provisions unless such Indebtedness is either (a) pari passu in substantially similar to those contained in the right or payment with the New Notes or the Guarantee of Old RGC Indentures. such Subsidiary Guarantor, as the case may be, or (b) subordinate in right of payment to the New Notes or the Guarantee of such Subsidiary Guarantor, as the case may be, in the same manner and at least to the same extent as the New Notes are subordinate to Senior Indebtedness or as such Guarantee is subordinated to Guarantor Senior Indebtedness of such Subsidiary Guarantor, as the case may be. Limitation on Preferred Stock of Subsidiaries. The Limitations on Preferred Stock of Subsidiaries. The New Old RGC Indentures provide that RGC will not permit Note Indenture will provide that the Company will not any of its Subsidiaries to issue any Preferred Stock permit any of its Subsidiaries to issue any Preferred (other than to RGC or a wholly owned Subsidiary of RGC) Stock (other than to the Company or to a wholly-owned or permit any person (other than RGC or a wholly owned Subsidiary) or permit any person (other than the Subsidiary of RGC) to own or hold an interest in any Company or a wholly-owned Subsidiary) to own any Preferred Stock of any such Subsidiary, unless the Preferred Stock of any Subsidiary. Subsidiary would be entitled to incur Indebtedness pursuant to the provisions of "Limitation on Indebtedness" in the aggregate principal amount equal to the aggregate liquidation value of such Preferred Stock. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD RGC INDENTURES WILL BE AMENDED TO ELIMINATE THIS PROVISION. Limitation on Dividends and Other Payment Limitations on Dividends and Other Payment Restrictions Restrictions Affecting Subsidiaries. The Old RGC Affecting Subsidiaries. The New Note Indenture will Indentures provide that RGC will not, and will not provide that the Company shall not, and shall not permit any Subsidiary to, create or otherwise cause or permit any Subsidiary to, directly or indirectly, suffer to exist or become effective any consensual create or suffer to exist, or allow to become effective encumbrance or restriction of any kind, on the ability any consensual Payment Restriction with respect to any of any Subsidiary to (a) pay dividends or make any of its Subsidiaries, except for (a) any such restric- other distribution on its Capital Stock, (b) pay any tions contained in (i) the Credit Agreement and related Indebtedness owed to RGC or any Subsidiary, (c) make documents as in effect on the Issue Date as any such loans or advances to RGC or any Subsidiary, or (d) payment restriction may apply to any present or future transfer any of its property or assets to RGC or any Subsidiary, (ii) the New Note Indenture and any Subsidiary, except (i) any encumbrance or restriction agreement in effect at or entered into on the Issue pursuant to an agreement in effect at or entered into Date, (iii) Indebtedness of a person existing at the on the date of the Old RGC Indentures; (ii) any time such person becomes a Subsidiary (provided that encumbrance or restriction with respect to a Subsidiary (x) such Indebtedness is not incurred in connection that was not a Subsidiary of RGC on the date of the Old with, or in contemplation of, such person becoming a RGC Indentures, in existence at the time such person Subsidiary, (y) such restriction is not applicable to became a Subsidiary of RGC or created on the date it any person, or the properties or assets of any person, becomes a Subsidiary; and (iii) any encumbrance or other than the person so acquired and (z) such restriction pursuant to any agreement that extends, Indebtedness is otherwise permitted to be incurred refinances, renews or replaces any agreement containing pursuant to the provisions of the covenant described any of the restrictions described in the foregoing under "-- Limitation on Incurrences of Additional clauses (i) through (iii); provided that the terms and Indebtedness" herein), (iv) secured Indebtedness conditions of any such restrictions are not materially otherwise permitted to be incurred pursuant to the less favorable to the Holders of the Old RGC Notes than provisions of the covenants described under those under or pursuant to the agreement extended, "-- Limitation on Incurrences of Additional Indebted- refinanced, renewed or replaced. IF THE PROPOSED ness" and "-- Limitation on Liens" herein that limit AMENDMENTS BECOME OPERATIVE, THE OLD RGC INDENTURES the right of the debtor to dispose of the assets WILL BE AMENDED TO ELIMINATE THIS PROVISION. securing such Indebtedness; (b) customary non-assignment provisions restricting subletting
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; and (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole than those provided for in such Indebtedness being refinanced, refunded, extended or renewed and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" herein; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances), and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect on the Issue Date. "Payment Restriction" means, with respect to a subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person or (c) transfer any of its properties or assets to such person or any other subsidiary of such persons, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) transfer of properties or assets. Limitation on Mergers and Sales of Assets, etc. The Limitation on Mergers and Certain Other Transactions. Old RGC Indentures provide that RGC shall not The New Note Indenture will provide that the Company, consolidate with or merge with or into any other person in a single transaction or through a series of or sell, assign, convey, transfer, lease or otherwise related transactions, shall not (i) consolidate dispose of all or substantially all of its properties with or merge with or into any other person, and assets substantially as an entirety to any person or transfer (by lease, assignment, sale or otherwise) or group of affiliated persons unless at the time and all or substantially all of its properties and after giving effect thereto (i) either (a) RGC shall be assets as an entirety or substantially as an the continuing corporation, or (b) the person (if other entirety to another person or group of affiliated than RGC) formed by such consolidation or into which persons or (ii) adopt a Plan of Liquidation, unless, in RGC is merged or the person which acquires by sale, either case, (1) either the Company shall be the assignment, conveyance, transfer, lease or disposition continuing person, or the person (if other than the the properties and assets of RGC, substantially as an Company) formed by such consolidation or into which the entirety (the "Surviving Entity") shall be a Company is merged or to which all or substantially all corporation duly organized and validly existing under of the properties and assets of the Company as an the laws of the United States of America, any state entirety or substantially as an entirety are thereof or the District of Columbia and shall, in transferred (or, in the case of a Plan of Liquidation, either case, expressly assume, by a supplemental any person to which assets are transferred) (the indenture, executed and delivered to the applicable Old Company or such other person being hereinafter referred RGC Note Trustee, in form satisfactory to such Old RGC to as the "Surviving Person") shall be a corporation Note Trustee, all the obligations of RGC under the Old organized and validly existing under the laws of the RGC Notes and the applicable Old RGC Note Indenture and United States, any state thereof or the District of the applicable Old RGC Note Indenture shall remain in Columbia, and shall expressly assume, by an indenture full force and effect; (ii) immediately prior to such supplement, all the obligations of the Company under transaction, and immediately after giving effect to the New Note Indenture and the New Notes; (2) immedi- such transaction on a pro forma basis, no Default or ately after and giving effect to such transaction and Event of Default shall have occurred and be continuing; the assumption contemplated by clause (1) above and the and (iii) immediately after giving effect to such incurrence or anticipated incurrence of any transaction on a pro forma basis, the Consolidated Indebtedness to be incurred in connection therewith, Interest Coverage Ratio of RGC (or the Surviving Entity (A) the Surviving Person shall have a Consolidated Net if RGC is not the continuing obligor under such Old RGC Worth equal to or greater than the Consolidated Net Indenture), for RGC's four most recently completed full Worth of the Company immediately preceding the fiscal quarters exceeds 1.8 to 1.0. IF THE PROPOSED transaction and (B) the Surviving Person could incur at AMENDMENTS BECOME OPERATIVE, THE OLD RGC INDENTURES least $1.00 of additional Indebtedness (other than WILL BE AMENDED TO ELIMINATE THE REQUIREMENT THAT RGC Permitted Indebtedness) pursuant to the provisions of OR THE SURVIV- the covenant described under "-- Limitation on Incurrences of Additional Indebted-
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ ING ENTITY MEET THE CONSOLIDATED INTEREST COVERAGE ness" herein; (3) immediately before and immediately RATIO TEST. after and giving effect to such transaction and the assumption of the obligations as set forth in clause The Old RGC Indentures provide that in connection (1) above and the incurrence or anticipated incurrence with any consolidation, merger, transfer or lease of any Indebtedness to be incurred in connection contemplated thereby, RGC shall deliver, or cause to be therewith, no Default or Event of Default shall have delivered, to the Old RGC Note Trustees, in form and occurred and be continuing; and (4) each Subsidiary substance reasonably satisfactory to the Old RGC Note Guarantor, unless it is the other party to the Trustees, an officer's certificate and an opinion of transaction, shall have by supplemental indenture counsel, each stating that such consolidation, merger, confirmed that its Guarantee of the obligations of the transfer or lease and the supplemental indenture in Company under the New Notes and the New Note Indenture respect thereto comply with the provisions described shall apply, without alteration or amendment such herein and that all conditions precedent herein Guarantee applies on the date it was granted under the provided for relating to such transaction have been New Note Indenture to the obligations of the Company complied with. under the New Note Indenture and the New Notes to the obligations of the Company or such Person, as the case The Old RGC Notes Indentures provide that upon any may be, under the New Note Indenture and the New Notes, consolidation or merger or any transfer of all or after the consummation of such transaction. substantially all of the assets of RGC in accordance with the foregoing, the successor corporation formed by Notwithstanding the foregoing, the consummation of the such a consolidation or into which RGC is merged or to Merger on the Issue Date need only comply with clauses which such transfer is made shall succeed to, and be (1) and (3) of the foregoing paragraph. substituted for, and may exercise every right and power of, RGC under the Old RGC Indentures with the same The New Note Indenture will provide that upon any effect as if such successor corporation had been named consolidation or merger or any transfer of all or as RGC therein. substantially all of the assets of the Company or any adoption of a Plan of Liquidation by the Company in The Old RGC Indentures provide that in the event of accordance with the foregoing, the surviving person any transaction (other than a lease) described in and formed by such consolidation or into which the Company complying with the conditions listed in the immediately is merged or to which such transfer is made (or, in the preceding paragraphs in which RGC is not the continuing case of a Plan of Liquidation, to which assets are transferred) corporation, the successor person formed or remaining shall succeed to, and be substituted for, and may shall succeed to, and be substituted for, and may exercise every right and power of, the Company under exercise every right and power of, RGC and RGC would be the New Note Indenture with the same effect as if such discharged from all obligations and covenants under the surviving person had been named as the Company therein; Old RGC Indentures and the Old RGC Notes. provided, however, that solely for purposes of computing amounts described in subclause (c) of the first paragraph of the covenant described under "-- Limitation on Restricted Payments" herein, any such surviving person shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates, or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Merger" means (i) the merger of Food 4 Less Supermarkets, Inc. into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of Ralphs Grocery Company into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc.
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). Limitation on Asset Sales. There is no corresponding Limitation on Asset Sales. The New Note Indenture will provision in the Old RGC Note Indenture. provide that neither the Company nor any of its Subsidiaries shall consummate an Asset Sale unless (a) the Company or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold and (b) upon consummation of an Asset Sale, the Company will within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (A) a Related Business Investment, (B) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale or (C) an investment in properties and assets that will be used in the business of the Company and its Subsidiaries existing on the Issue Date or in businesses reasonably related thereto; (ii) apply or cause to be applied such Net Cash Proceeds to the permanent repayment of Pari Passu Indebtedness or Senior Indebtedness; provided, however, that the repayment of any revolving loan (under the Credit Agreement or otherwise) shall result in a permanent reduction in the commitment thereunder; (iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of New Notes tendered to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued interest to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets or equipment which are acquired or constructed by the Company or a Subsidiary subsequent to the Issue Date, provided that such sale and substantially concurrent lease-back occurs within 270 days following such acquisition or the completion of such construction, as the case may be. Pending the utilization of any Net Cash Proceeds in the manner (and within the time period) described above, the Company may use any such Net Cash Proceeds to repay revolving loans (under the Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. Each Net Proceeds Offer will be mailed to record Holders of New Notes as shown on the register of Holders not less than 325 nor more than 365 days after the relevant Asset Sale, with a copy to the New Note Trustee, shall specify the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed) and shall otherwise comply with the procedures set forth in the New Note Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their New Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender New Notes in an amount exceeding the Net Proceeds Offer, New Notes of tendering Holders will be repurchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of New Notes pursuant to a Net Proceeds Offer. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consoli-
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ dation or by exchange of assets and whether by operation of law or otherwise) made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than the Company or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of related sales, transfers or other dispositions (i) involving only Excluded Assets; (ii) resulting in Net Proceeds to the Company of $500,000 or less; (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company with a Lien on such assets, which Lien is permitted under the New Note Indenture, provided that such foreclosure or other remedy is converted in a commercially reasonable manner or in accordance with any Bankruptcy Law; (iv) involving only Cash Equivalents or inventory in the ordinary course of business or obsolete equipment in the ordinary course of business consistent with past practices of the Company; (v) involving only the lease or sub-lease of any real or personal property in the ordinary course of business; or (vi) the proceeds of such Asset Sale which are not applied as contemplated in "-- Certain Covenants -- Limitation on Asset Sales" and which, together with all other such Asset Sale Proceeds, do not exceed $20 million. "Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in the form of cash or Cash Equivalents. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii), (v) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500 million, and (c) has the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc. and (vi) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment, in each case reasonably related to the business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ thereafter evolve or change. "Pari Passu Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in right of payment to the New Notes or the Guarantee of such Subsidiary Guarantor, as the case may be. "Letter of Credit Obligations" means Indebtedness of the Company or any of its Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and, for purposes of the definition of the term "Permitted Indebtedness" herein, the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. Guarantees of Certain Indebtedness. There is no Guarantees of Certain Indebtedness. The New Note corresponding provision in the Old RGC Note Indenture. Indenture will provide that the Company shall not permit any of its Subsidiaries to (a) incur, guarantee or secure through the granting of Liens the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof or (b) pledge any intercompany notes representing obligations of any of its Subsidiaries, to secure the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof, in each case unless such subsidiary, the Company and the New Note Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Guarantee. EVENTS OF DEFAULT EVENTS OF DEFAULT An "Event of Default" will occur under the Old RGC Pursuant to the New Note Indenture the following events Indentures upon: constitute "Events of Default": (i) failure to make any interest payment on the New Notes when due and the (a) default in the payment of any interest on any Old continuance of such default for a period of 30 days; RGC Note when it becomes due and payable, and (ii) failure to pay principal of, or premium, if any, continuance of such default for a period of 30 days; or on the New Notes when due, whether at maturity, upon acceleration, redemption, required (b) default in the payment of the principal of (or repurchase or otherwise; (iii) failure to comply with premium, if any, on) any Old RGC Note at its Stated any other agreement contained in the New Notes or the Maturity; or New Note Indenture, if such failure continues unremedied for 30 days after written notice given by (c) default in the performance, or breach, of any the New Note Trustee or the holders of at least 25% in covenant or warranty of RGC under the Old RGC principal amount of the New Notes then outstanding Indentures (other than a default in the performance, or (except in the case of a default with respect to the breach, of a covenant or warranty that is specifically covenants described under "Limitation on Restricted dealt with elsewhere herein), and continuance of such Payments," "Limitations on Assets Sales," "Change of default or breach for a period of 60 days after there Control," and "Limitations on Merger and Certain Other has been given, by registered or certified mail, to RGC Transactions," which shall constitute Events of Default by the Old RGC Note Trustee thereunder or to RGC and with notice but without passage of time); (iv) a such Old RGC Note Trustee by the holders of at least default under any Indebtedness of the Company or its 25% in principal amount of the outstanding Old RGC subsidiaries, whether such Indebtedness now exists or Notes, a written notice specifying such default or shall hereinafter be created, if both (A) such default breach and stating that such notice is a "Notice of either (1) results from the failure to pay any such Default" thereunder; or Indebtedness at its stated final maturity or (2) relates to an obligation other than the obligation to (d) an event of default as defined in any mortgage, pay such Indebtedness at its stated final maturity and bond, indenture, loan agreement or other evidence of results in the holder or holders of such Indebtedness Indebtedness under which there may be issued or by causing such Indebtedness to become due prior to its which there may be secured or evidenced any stated maturity and (B) the principal amount of such Indebtedness of RGC or any Material Subsidiary for Indebtedness, together with the principal amount of any money borrowed, in each case in excess of $15 million other such Indebtedness in default for failure to pay in the aggregate, shall occur and shall result in such principal at stated final maturity or the maturity of Indebtedness becoming or being declared due and payable which has been so accelerated, aggregate $20 million or prior to the date on which it would otherwise become more at any one time outstanding; (v) any final due and payable; or judgment or order for payment of money in excess of $20 million shall be entered against the Company or any (e) final judgments or orders are rendered against RGC Significant Subsidiary and shall not be discharged for or any Material Subsidiary which require the payment in a period of 60 days after such judgment becomes final money, either individually or in an aggregate amount, and nonappealable; (vi) either the Company or any that is more than $10 million and such judgment or Significant Subsidiary pursuant to or within the order shall remain unsatisfied or unstayed for 60 days; meaning of any Bankruptcy Law: (a) commences a or voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary (f) the entry of a decree or order by a court having case or proceeding; (c) consents to the appointment jurisdiction
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ in the premises (A) for relief in respect of RGC or any of a custodian of it or for all or substantially all of Material Subsidiary in an involuntary case or its property; or (d) makes a general assignment for the proceeding under the Federal Bankruptcy Code or any benefit of its creditors; (vii) a court of competent other federal or state bankruptcy, insolvency, jurisdiction enters an order or decree under any reorganization or similar law or (B) adjudging RGC or Bankruptcy Law that: (a) is for relief against the any Material Subsidiary a bankrupt or insolvent, or Company or any Significant Subsidiary, in an approving as properly filed a petition seeking involuntary case or proceeding; (b) appoints a reorganization, arrangement, adjustment or composition custodian of the Company or any Significant Subsidiary, of or in respect of RGC or any Material Subsidiary or for all or any substantial part of their respective under the Federal Bankruptcy Code or any other properties; or (c) orders the liquidation of the Com- applicable federal or state law, or appointing a pany or any Significant Subsidiary, and in each case custodian, receiver, liquidator, assignee, trustee, the order or decree remains unstayed and in effect for sequestrator (or other similar official) of RGC or any 60 days; (viii) the lenders under the Credit Agreement Material Subsidiary of any substantial part of any of shall commence judicial proceedings to foreclose upon their properties, or ordering the winding up or any material portion of the assets of the Company and liquidation of any of their affairs, and the its Subsidiaries; or (ix) any of the guarantees issued continuance of any such decree or order unstayed and in under the New Note Indenture shall be declared or effect for a period of 60 consecutive days; or adjudged unenforceable or invalid in a final judgment or order issued by any court of governmental authority. (g) the institution by RGC or any Material Subsidiary In the event of a declaration of acceleration because of a voluntary case or proceeding under the Federal an Event of Default set forth in clause (iv) above has Bankruptcy Code or any other applicable federal or occurred and is continuing, such declaration of state law or any other case or proceedings to be acceleration shall be automatically rescinded and adjudicated a bankrupt or insolvent, or the consent by annulled if either (i) the holders of the Indebtedness RGC or any Material Subsidiary to the entry of a decree which is the subject of such Event of Default have or order for relief in respect of RGC or any Material waived such failure to pay at maturity or have Subsidiary in any involuntary case or proceeding under rescinded the acceleration in respect of such the Federal Bankruptcy Code or any other applicable Indebtedness within 90 days of such maturity or federal or state law or to the institution of declaration of acceleration, as the case may be, and no bankruptcy or insolvency proceedings against RGC or any other Event of Default has occurred during such 90-day Material Subsidiary, or the filing by RGC or any period which has not been cured or waived, or (ii) such Material Subsidiary of a petition or answer or consent Indebtedness shall have been discharged or the maturity seeking reorganization or relief under the Federal thereof shall have been extended such that it is not Bankruptcy Code or any other applicable federal or then due and payable, or the underlying default has state law, or the consent by it to the filing of any been cured, within 90 days of such maturity or such petition or to the appointment of or taking declaration of acceleration, as the case may be. possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar Under the terms of the New Note Indenture, if an Event official) or any of RGC or any Material Subsidiary or of Default (other than an Event of Default resulting of any substantial part of its property, or the making from bankruptcy, insolvency, receivership or by it of an assignment for the benefit of creditors, or reorganization of the Company or a Subsidiary the admission by it in writing of its inability to pay Guarantor) occurs and is continuing, the New Note its debts generally as they become due or taking of Trustee or the holders of at least 25% in principal corporate action by RGC or any Material Subsidiary in amount of the then outstanding New Notes issued under furtherance of any such action; or (h) default in the the New Indenture may declare immediately due and performance of breach of the provisions of "Merger and payable all unpaid principal and interest accrued and Sale of Assets, etc." unpaid on the then outstanding New Notes by notice in writing to the Company, the administrative If an Event of Default (other than as specified in agent under the Credit Agreement and the New Note clauses (f) and (g) above) shall occur and be Trustee specifying the Event of Default and that continuing under the Old RGC Indentures, the Old RGC it is a "notice of acceleration" (the "Acceleration Note Trustee thereunder or the holders of not less than Notice"), and the same (i) shall become immediately 25% in aggregate principal amount of either the Old RGC due and payable or (ii) if there are any amounts Notes issued thereunder then outstanding, as the case outstanding under the Credit Agreement, shall may be, may declare such Old RGC Notes due and payable become due and payable upon the first to occur of immediately at their principal amount together with an acceleration under the Credit Agreement, or five accrued interest to the date such Old RGC Notes become business days after receipt by the Company and the due and payable; provided that so long as the 1992 Credit administrative agent under the Credit Agreement of such Agreement shall be in force and effect, if any such Acceleration Notice. If an Event of Default resulting Event of Default shall have occurred and be continuing, from certain events of bankruptcy, insolvency, any such acceleration shall not be effective until the receivership or reorganization of the Company or a earlier of (a) five Business Days following a notice of Subsidiary Guarantor that is a Significant Subsidiary acceleration given to RGC and the Agent under the 1992 shall occur, all unpaid principal of and accrued Credit Agreement and only if upon such fifth Business interest on all then outstanding New Notes shall be Day such Event of Default shall be continuing or (b) immediately due and payable without any declaration or the acceleration of any Indebtedness under the 1992 other act on the part of the New Note Trustee or any of Credit Agreement. Thereupon such Old RGC Note Trustee the holders. After a declaration of acceleration, may, at its discretion, proceed to protect and enforce subject to certain conditions, the holders of a the rights of the holders of such Old RGC Notes by majority in principal amount of the then outstanding appropriate judicial proceeding. If an Event of Default New Notes, by notice to the New Note Trustee, may specified in clause (f) or (g) above occurs and is rescind such declaration if all existing Events of continuing, then the principal of and accrued interest Default are remedied. In certain cases the holders of a on all Old RGC Notes shall ipso facto become and be majority in principal amount of outstanding New Notes immediately due and payable without any declaration or may waive a past default under the New Note Indenture other act on the part of the Old RGC Note Trustee or and its consequences, except a default in the payment any holder. of or interest on any of the New Notes. After a declaration of acceleration of Old RGC Notes, The New Note Indenture provides that if a Default or but before a judgment or decree for payment of the Event of Default occurs and is continuing thereunder money due has been obtained by the applicable Old RGC and if it is known to the New Note Trustee, the New Note Trustee, the Holders of a majority in aggregate Note Trustee shall mail to each holder of New Notes principal amount of such Old RGC Notes outstanding, by notice of the Default or Event of Default within 90 written notice to RGC and the applicable Old RGC Note days after such Default or Event of Default occurs; Trustee, may annul such declaration if
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ (a) RGC has paid or deposited with the applicable Old provided, however, that, except in the case of a RGC Note Trustee a sum sufficient to pay (i) all sums Default or Event of Default in the payment of the paid or advanced by the Old RGC Note Trustee under the principal of or interest on any New Note, including the indenture and the reasonable compensation, expenses, failure to make payment on a Change of Control Payment disbursements and advances of the Old RGC Note Trustee, Date pursuant to a Change of Control Offer or payment its agents and counsel, (ii) all overdue interest on when due pursuant to a Proceeds Offer the New Note all such Old RGC Notes, (iii) the principal of and Trustee may withhold such notice if it in good faith premium, if any, on any such Old RGC Notes which have determines that withholding such notice is in the become due otherwise than by such declaration of interest of the holders. acceleration and interest thereon at the applicable rate borne by such Old RGC Notes, and (iv) to the The New Note Indenture provides that no holder of New extent that payment of such interest is lawful, Notes may pursue any remedy thereunder unless the New interest upon overdue interest at the rate borne by Note Trustee (i) shall have failed to act for a period such Old RGC Notes; and (b) all Events of Default, of 60 days after receiving written notice of a other than the non-payment of principal of such Old RGC continuing Event of Default by such holder and a Notes which have become due solely by the declaration request to act by holders of at least 25% in principal of acceleration, have been cured or waived. amount of New Notes and (ii) has received indemnification satisfactory to it; provided, however, The Holders of not less than a majority in principal that such provision does not affect the right of any amount of either the Old RGC 10 1/4% Notes or the Old holder to sue for enforcement of any overdue payment of RGC 9% Notes then outstanding may on behalf of the New Notes. holders of the respective Old RGC Notes waive any past defaults under the applicable Old RGC Indenture, except Under the New Note Indenture, two officers of the a default in the payment of the principal of, premium, Company are required to certify to the New Note Trustee if any, or interest on any such Old RGC Note, or in within 120 days after the end of each fiscal year of respect of a covenant or provision which under the Ralphs Grocery whether or not they know of any Default applicable Old RGC Indenture cannot be modified or that occurred during such fiscal year and, if amended without the consent of the Holder of each such applicable, describe such Default and the status Old RGC Note affected. thereof. RGC is also required to notify the Old RGC Note Trustees within five business days of the occurrence of any Default. MODIFICATION AND AMENDMENT MODIFICATION AND AMENDMENT Modifications and amendments of the Old RGC 9% The New Note Indenture and the New Notes may be amended Indenture and the Old RGC 10 1/4% Indenture may be or supplemented (and compliance with any provision made by RGC and the applicable Old RGC Note Trustee thereof, may be waived) by the Company, the Subsidiary with the consent of the Holders of not less than a Guarantors, the New Note Trustee and the Holders of not majority in aggregate principal amount of the less than a majority in aggregate principal amount of outstanding Old RGC 9% Notes and the Old RGC 10 1/4% New Notes then outstanding, except that (i) without the Notes, as the case may be; provided, however, that no consent of each Holder of New Notes affected, no such such modification or amendment may, without the consent amendment, supplement or waiver may (1) change the of the Holder of each outstanding Old RGC Note affected principal amount of the New Notes the Holders of which thereby: (i) change the Stated Maturity of the must consent to an amendment, supplement or waiver of principal of, or any installment of interest on, any any provision of the New Note Indenture, the New Notes Old RGC Note or reduce the principal amount thereof or or the Guarantees, (2) reduce the rate or extend the the rate of interest thereon or any premium payable time for payment of interest on any New Notes, (3) upon the redemption thereof, or change the coin or reduce the principal amount of any New Notes, (4) currency in which the principal of any Old RGC Note or change the Maturity Date of any New Notes or alter the any premium or the interest thereon is payable, or redemption provisions in the New Note Indenture or the impair the right to institute suit for the enforcement New Notes in a manner adverse to any Holder, (5) make of any such payment after the Stated Maturity thereof any changes in the provisions concerning waivers of (or, in the case of redemption, on or after the Defaults or Events of Default by Holders or the rights redemption date) or modify the obligation of RGC to of Holders to recover the principal of, interest on or purchase the Old RGC Notes upon a Change of Control redemption payment with respect to any New Notes, (6) Triggering Event; or (ii) reduce the percentage in make the principal of, or interest on, any New Notes principal amount of outstanding Old RGC Notes, the payable with anything or in any manner other than as consent of whose Holders is required for any such provided for in the New Note Indenture, the New Notes supplemental indenture or the consent of whose Holders and the Guarantees or (7) modify the subordination is required for any waiver; or (iii) modify any of the provisions of the New Note Indenture (including the provisions relating to supplemental indentures related definitions) so as to adversely affect the requiring the consent of Holders or relating to the ranking of any New Note or Guarantee, provided, waiver of past defaults or relating to the waiver of however, that it is understood that any amendment the certain covenants, except to increase the percentage of purpose of which is to permit the incurrence of outstanding Old RGC Notes required for such actions or additional Indebtedness under the New Note Indenture to provide that certain other provisions of the Old RGC shall not be construed as adversely affecting the Indenture cannot be modified or waived without the ranking of any New Note or Guarantee, (ii) without the consent of the holder of each Old RGC Note affected consent of Holders of not less than 75% in aggregate thereby; or (iv) modify any of the provisions of the principal amount of New Notes then outstanding, no such Old RGC Indenture relating to the subordination of the amendment, supplement or waiver may change the Change Old RGC Notes in a manner adverse to the Holders of Control Payment Date or the purchase price in thereof. connection with any repurchase of New Notes pursuant to the covenant described under "-- Change of Control" The Holders of a majority in aggregate principal above in a manner adverse to any Holder or waive a amount of the Old RGC 9% Notes or Old RGC 10 1/4% Notes Default or Event of Default resulting from a failure to outstanding, as the case may be, may waive compliance comply with the covenant described under "-- Change of with certain restrictive covenants and provisions of Control" above and (iii) without the consent of Holders the Old RGC Indentures. of not less than two-thirds in aggregate principal amount of New Notes then outstanding, no such
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OLD RGC NOTES NEW NOTES - ------------------------------------------------------ ------------------------------------------------------ amendment, supplement or waiver may release any Subsidiary Guarantor from any of its Obligations under its Guarantee or the New Note Indenture other than in accordance with the terms of such Guarantee and the New Note Indenture. In addition, the New Note Indenture, the New Notes and the related Guarantees may be amended by the Company, the Subsidiary Guarantors and the New Note Trustee (a) to cure any ambiguity, defect or inconsistency therein; provided that such amendment or supplement does not adversely affect the rights of any Holder thereof or (b) to make any other change that does not adversely affect the rights of any Holder thereunder in any material respect.
A-27 239 Facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. Letters of Transmittal, certificates for the Old RGC Notes and any other required documents should be sent by each holder or its broker, dealer, commercial bank, trust company or other nominee to the Exchange Agent at one of its addresses set forth below. The Exchange Agent is: BANKERS TRUST COMPANY Facsimile Transmission Number: (212) 250-6275 (212) 250-3290 By Mail: (For Eligible Institutions Only) By Hand/Overnight Delivery: Bankers Trust Company Bankers Trust Company Corporate Trust and Agency Group Confirm by Telephone: Corporate Trust and Agency Group Reorganization Dept. (212) 250-6270 Receipt & Delivery Window P.O. Box 1458 123 Washington Street, 1st Floor Church Street Station New York, New York 10006 New York, New York 10008-1458
Any questions or requests for assistance or additional copies of this Amended and Restated Prospectus and Solicitation Statement, the Letter of Transmittal and the Notices of Guaranteed Delivery may be directed to the Information Agent or one of the Dealer Managers at their respective telephone numbers and locations set forth below. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offers and the Solicitation. The Information Agent is: D.F. KING & CO., INC. Call Toll Free: (800) 669-5550 77 Water St. New York, NY 10005 (212) 269-5550 (collect) The Dealer Managers are: BT SECURITIES CS FIRST BOSTON DONALDSON, LUFKIN CORPORATION 55 East 52nd Street & JENRETTE One Bankers Trust Plaza New York, New York 10055 SECURITIES CORPORATION 130 Liberty Street (212) 909-2873 140 Broadway New York, New York 10006 New York, New York 10005 (212) 775-2166 (212) 504-4753
240 EDGAR APPENDIX This EDGAR Appendix is filed in compliance with Item 304 of Regulation S-T regarding graphic and image information. It describes material appearing on pages 8 and 9 of the Amended and Restated Prospectus and Solicitation Statement. PAGE 8 The chart consists of two columns which graphically illustrate the respective corporate structures of Food 4 Less and Ralphs before the Merger. Food 4 Less' corporate structure illustrates that Food 4 Less, Inc. ("FFL") owns Food 4 Less Holdings, Inc. ("Holdings"), which, in turn, owns Food 4 Less Supermarkets, Inc. ("Food 4 Less") which, in turn, owns several other Food 4 Less subsidiaries. The Ralphs' corporate structure illustrates that Ralphs Supermarkets, Inc. ("RSI"), owns Ralphs Grocery Company ("RGC") which, in turn, owns Crawford Stores, Inc. A dotted arrow has been drawn from the box representing Food 4 Less to the box representing RSI to simulate the RSI Merger. A dotted arrow has been drawn from the box representing RGC to the box representing RSI to simulate the RGC Merger. A dotted arrow has been drawn to the box representing Holdings from the box representing FFL to simulate the FFL Merger. PAGE 9 The chart illustrates the corporate structure of the Company after the Merger and the FFL Merger. The corporate structure illustrates that New Holdings owns the Company which, in turn, is the parent of all other subsidiaries of the Company. The anticipated debt obligations of New Holdings are placed in order of ranking next to the box representing New Holdings and the anticipated debt obligations of the Company are placed in order of ranking next to the box representing the Company. 241 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Food 4 Less and its subsidiaries Cala Foods, Inc. and Food 4 Less of Southern California, Inc., are Delaware corporations and their Certificates of Incorporation and Bylaws provide for indemnification of their officers and directors to the fullest extent permitted by law. Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") eliminates the liability of a corporation's directors to a corporation or its stockholders, except for liabilities related to breach of duty of loyalty, actions not in good faith, and certain other liabilities. Section 145 of the DGCL provides for the indemnification by a Delaware corporation of its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against liabilities and expenses incurred in any such action, suit or proceeding. Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Food 4 Less of California, Inc., Food 4 Less GM, Inc. and Food 4 Less Merchandising, Inc. are California corporations and their Certificates of Incorporation and Bylaws provide for indemnification of their officers and directors to the fullest extent permitted by law. Section 204(10) of the California General Corporation Law (the "CGCL") eliminates the liability of a corporation's directors for monetary damages to the fullest extent permissible under California law. Pursuant to Section 204(11) of the CGCL, a California corporation may indemnify Agents (as defined in Section 317 of the CGCL), subject only to the applicable limits set forth in Section 204 of the CGCL with respect to actions for breach of duty to the corporation and its shareholders. As permitted by Section 317 of the CGCL, indemnification may be provided by a California corporation of its Agents (as defined in Section 317 of the CGCL), to the maximum extent permitted by the CGCL, in connection with any proceeding arising by reason of the fact that such person is or was such a director or officer, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in any such proceeding. Falley's, Inc. is a Kansas corporation and its Bylaws provide for indemnification of its officers and directors to the fullest extent permitted by law. Section 17-6305(a) of the Kansas General Corporation Code (the "KGCC") provides for the indemnification by a Kansas corporation of its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against liabilities and expenses incurred in any such action, suit or proceeding. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits A list of exhibits filed with this Registration Statement on Form S-4 is set forth in the Index to Exhibits on page E-1, and is incorporated herein by reference. (b) Financial Statement Schedules (i) Ralphs Schedule II -- Valuation and Qualifying Accounts
(ii) Food 4 Less Schedule II -- Valuation and Qualifying Accounts
II-1 242 ITEM 22. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (d) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this II-2 243 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-3 244 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Post-effective Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on May 11, 1995. FOOD 4 LESS SUPERMARKETS, INC. By: /s/ MARK A. RESNIK ------------------------------------ Mark A. Resnik Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-effective Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ----------------------------- ------------------- * Chief Executive Officer and May 11, 1995 - --------------------------------------------- Director (Principal Ronald W. Burkle Executive Officer) * Executive Vice President -- May 11, 1995 - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) * Director May 11, 1995 - --------------------------------------------- Joe S. Burkle /s/ MARK A. RESNIK Director May 11, 1995 - --------------------------------------------- Mark A. Resnik * Director May 11, 1995 - --------------------------------------------- George G. Golleher * Power of Attorney by /s/ MARK A. RESNIK - --------------------------------------------- Mark A. Resnik Vice President and Secretary
II-4 245 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrants have duly caused this Post-effective Amendment No. 2 to the Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on May 11, 1995. BAY AREA WAREHOUSE STORES, INC. BELL MARKETS, INC. CALA CO. CALA FOODS, INC. FOOD 4 LESS OF CALIFORNIA, INC. FOOD 4 LESS GM, INC. FOOD 4 LESS MERCHANDISING, INC. FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. By: /s/ MARK A. RESNIK ---------------------------------- Mark A. Resnik Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-effective Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- -------------------------------- -------------- * Director and Chairman of the May 11, 1995 - --------------------------------------------- Board of each Registrant Ronald W. Burkle * Chief Executive Officer and May 11, 1995 - --------------------------------------------- Director (Principal Executive George G. Golleher Officer) of each Registrant * Executive Vice President -- May 11, 1995 - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) of each Registrant * Power of Attorney by /s/ MARK A. RESNIK - --------------------------------------------- Mark A. Resnik Vice President and Secretary
II-5 246 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Post-effective Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on May 11, 1995. ALPHA BETA COMPANY BY: /S/ MARK A. RESNIK ------------------------------------ Mark A. Resnik Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-effective Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ---------------------------- ------------------ * Director and Chief Executive May 11, 1995 - --------------------------------------------- Officer (Principal Ronald W. Burkle Executive Officer) * Director May 11, 1995 - --------------------------------------------- George G. Golleher * Executive Vice President -- May 11, 1995 - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) * Power of Attorney by /s/ MARK A. RESNIK - --------------------------------------------- Mark A. Resnik Vice President and Secretary
II-6 247 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Post-effective Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on May 11, 1995. FALLEY'S, INC. By: /s/ MARK A. RESNIK ------------------------------------ Mark A. Resnik Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-effective Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------- --------------- * Director May 11, 1995 - --------------------------------------------- Ronald W. Burkle * Director May 11, 1995 - --------------------------------------------- George G. Golleher * Chief Executive Officer May 11, 1995 - --------------------------------------------- (Principal Executive Officer) Joe S. Burkle * Director May 11, 1995 - --------------------------------------------- Michael Saltman * Executive Vice President -- May 11, 1995 - --------------------------------------------- Finance/Administration and Greg Mays Chief Financial Officer (Principal Financial and Accounting Officer) * Power of Attorney by /s/ MARK A. RESNIK - --------------------------------------------- Mark A. Resnik Vice President and Secretary
II-7 248 ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES Board of Directors and Stockholders Ralphs Supermarkets, Inc.: The audits referred to in our report dated March 9, 1995 included the related financial statement schedule as of January 30, 1994 and January 29, 1995, and for each of the fiscal years in the three-year period ended January 29, 1995, included in the registration statement. This financial statement schedule is the responsibility of Ralphs management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the headings "Summary Historical Financial Data of Ralphs," "Selected Historical Financial Data of Ralphs" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Los Angeles, California May 10, 1995 S-1 249 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS 52 WEEKS ENDED JANUARY 29, 1995, 52 WEEKS ENDED JANUARY 30, 1994 AND 52 WEEKS ENDED JANUARY 31, 1993 (IN THOUSANDS)
BALANCE CHARGED TO BALANCE BEGINNING COSTS AND CHARGED TO DEDUCTIONS AT END OF PERIOD EXPENSES OTHER ACCOUNTS(B) (PAYMENTS) OF PERIOD --------- ---------- ----------------- ---------- --------- JANUARY 29, 1995: Self-Insurance Reserves(a)............. $ 80,010 $ 14,003 $ 5,976 $(27,483) $ 72,506 Store Closure Reserves................. $ 9,514 $ -- $ -- $ (764) $ 8,750 JANUARY 30, 1994: Self-Insurance Reserves(a)............. $ 72,979 $ 30,323 $ 5,953 $(29,245) $ 80,010 Store Closure Reserves................. $ 10,277 $ -- $ -- $ (763) $ 9,514 JANUARY 31, 1993: Self-Insurance Reserves(a)............. $ 64,523 $ 25,950 $10,902 $(28,396) $ 72,979 Store Closure Reserves................. $ 14,244 $ 1,838 $ -- $ (5,805) $ 10,277
- --------------- (a) Includes short-term portion. (b) Amortization of discount on self-insurance reserves to interest expense. S-2 250 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Food 4 Less Supermarkets, Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Food 4 Less Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25, 1994, and the related consolidated statements of operations, stockholder's equity and cash flows for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994 and have issued our report thereon dated July 29, 1994 (except with respect to the matter discussed in Note 14, as to which the date is October 14, 1994, and with respect to the matter discussed in Note 15, as to which the date is April 13, 1995). Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule on page S-4 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California July 29, 1994 (except with respect to the matter discussed in Note 14, as to which the date is October 14, 1994, and with respect to the matter discussed in Note 15, as to which the date is April 13, 1995) S-3 251 FOOD 4 LESS SUPERMARKETS, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS 52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED JUNE 27, 1992 (IN THOUSANDS)
BALANCE AT PROVISIONS CHARGED TO BALANCE AT BEGINNING CHARGED TO INTEREST OTHER END OF OF PERIOD EXPENSE EXPENSE(B) PAYMENTS CHANGES PERIOD ----------- ----------- ----------- --------- -------- ---------- SELF-INSURANCE LIABILITIES: 52 weeks ended June 25, 1994...... $85,494 $19,880 $ 5,836 $29,506 $ -- $ 81,704 ======== ======== ========= ======= ====== ======= 52 weeks ended June 26, 1993...... $82,559 $38,040 $ 5,865 $40,970 $ -- $ 85,494 ======== ======== ========= ======= ====== ======= 52 weeks ended June 27, 1992...... $59,525 $46,140 $ 4,960 $36,066 $8,000(a) $ 82,559 ======== ======== ========= ======= ====== =======
- --------------- (a) Reflects self-insurance reserve related to Alpha Beta resulting from the acquisition of Alpha Beta. (b) Amortization of discount on self-insurance reserves charged to interest expense. S-4 252 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 1.1 Form of Dealer Manager Agreement among Food 4 Less, Food 4 Less Holdings, Inc., the subsidiary guarantors named therein, BT Securities Corporation, CS First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation dated as of January , 1995 (incorporated herein by reference to Exhibit 1.1 to Amendment No. 2 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)........ 1.1.1 Form of Amendment No. 1 to Dealer Manager Agreement among Food 4 Less Supermarkets, Inc., Food 4 Less Holdings, Inc., the subsidiary guarantors named therein, BT Securities Corporation, CS First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation dated as of April , 1995 (incorporated herein by reference to Exhibit 1.1.1 to Post-effective Amendment No. 1 to Holdings' Registration Statement on Form S-4, No. 33-86356)..................... 2.1 Agreement and Plan of Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less, Ralphs Supermarkets, Inc. and the Stockholders of Ralphs Supermarkets, Inc. (incorporated herein by reference to Exhibit 99 to Food 4 Less' Form 8-K dated September 14, 1994)................................................................. 2.1.1 Amendment No. 1 dated as of January 12, 1995 to the Agreement and Plan of Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less Holdings, Inc. (a Delaware corporation), Food 4 Less, Ralphs Supermarkets, Inc. and the stockholders of Ralphs Supermarkets, Inc. (incorporated herein by reference to Exhibit 2.1.1 to Amendment No. 2 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)............................................................. 2.1.2 Amendment No. 2 dated as of February 24, 1995, to the Agreement and Plan of Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less Holdings, Inc. (a Delaware corporation), Food 4 Less, Ralphs Supermarkets, Inc. and the stockholders of Ralphs Supermarkets, Inc. (incorporated herein by reference to Exhibit 2.1.2 to Post-effective Amendment No. 1 to Holdings' Registration Statement on Form S-4, No. 33-86356)............................................ 2.1.3 Amendment No. 3 dated as of April 26, 1995, to the Agreement and Plan of Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less Holdings, Inc. (a Delaware corporation), Food 4 Less, Ralphs Supermarkets, Inc. and the stockholders of Ralphs Supermarkets, Inc. (incorporated herein by reference to Exhibit 2.1.3 to Post-effective Amendment No. 1 to Holdings' Registration Statement on Form S-4, No. 33-86356)............................................... 3.1 Certificate of Incorporation of Food 4 Less, as amended (incorporated herein by reference to Exhibit 3.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 25, 1994).................... 3.2 Bylaws of Food 4 Less, as amended (incorporated herein by reference to Exhibit 3.2 to Food 4 Less's Registration Statement on Form S-1, No. 33-31152)............................................................. 4.1 Form of Senior Note Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and Norwest Bank Minnesota, N.A., as trustee, with respect to its Senior Notes due 2004 (incorporated herein by reference to Exhibit 4.1 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)........ 4.2 Form of Senior Subordinated Note Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee, with respect to its 13.75% Senior Subordinated Notes due 2005 (incorporated herein by reference to Exhibit 4.2 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)..................... 4.3 Form of Senior Subordinated Note Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee, with respect to its Senior Subordinated Notes due 2005+......
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EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 4.4.1 Form of First Supplemental Indenture dated as of , 1995 by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee, with respect to its 10 1/4% Senior Subordinated Notes due 2002+....................................................... 4.4.2 Form of Second Supplemental Indenture dated as of , 1995 by and between Ralphs Grocery Company (as successor by merger to Food 4 Less) and United States Trust Company of New York, as trustee, with respect to its 10 1/4% Senior Subordinated Notes due 2002+............ 4.5.1 Form of Second Supplemental Indenture dated as of , 1995 by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee, with respect to its 9% Senior Subordinated Notes due 2003+............................................................. 4.5.2 Form of Third Supplemental Indenture dated as of , 1995 by and between Ralphs Grocery Company (as successor by merger to Food 4 Less) and United States Trust Company of New York, as trustee, with respect to its 9% Senior Subordinated Notes due 2003+................. 4.6 Senior Note Indenture dated as of April 15, 1992 by and among Food 4 Less, the subsidiary guarantors identified therein and Norwest Bank Minnesota, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to Food 4 Less' Registration Statement on Form S-1, No. 33-46750)............................................................. 4.6.1 First Supplemental Indenture dated as of July 24, 1992 by and among Food 4 Less, Bay Area Warehouse Stores, Inc., and Norwest Bank Minnesota, N.A., as trustee (incorporated herein by reference to Exhibit 4.1.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)...................................... 4.6.2 Form of Second Supplemental Indenture dated as of , 1995 by and among Food 4 Less, the subsidiary guarantors identified therein and Norwest Bank Minnesota, N.A., as trustee, with respect to its 10.45% Senior Notes due 2000 (incorporated herein by reference to Exhibit 4.6.2 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451).................................. 4.6.3 Form of Third Supplemental Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and Norwest Bank Minnesota, N.A., as trustee, with respect to its 10.45% Senior Notes due 2000 (incorporated herein by reference to Exhibit 4.6.3 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)......................................................... 4.7 Senior Subordinated Note Indenture dated as of June 15, 1991 by and among Food 4 Less, the subsidiary guarantors identified therein and United States Trust Company of New York as trustee (incorporated herein by reference to Exhibit 4.1 to Food 4 Less's Annual Report on Form 10-K for the fiscal year ended June 29, 1991).................... 4.7.1 First Supplemental Indenture dated as of April 8, 1992 by and among Food 4 Less, Food 4 Less GM, Inc. and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992).................................................. 4.7.2 Second Supplemental Indenture dated as of May 18, 1992 by and among Food 4 Less, the Subsidiary Guarantors and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.2 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992).................................................. 4.7.3 Third Supplemental Indenture dated as of July 24, 1992 by and among Food 4 Less, Bay Area Warehouse Stores, Inc. and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2.3 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)...................................... 4.7.4 Form of Fourth Supplemental Indenture dated as of , 1995, by and among Food 4 Less, the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee, with respect to its 13 3/4% Senior Subordinated Notes due 2001 (incorporated herein by reference to Exhibit 4.7.4 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451).....
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EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 4.7.5 Form of Fifth Supplemental Indenture dated as of , 1995 by and among Ralphs Grocery Company (as successor by merger to Food 4 Less), the subsidiary guarantors identified therein and the United States Trust Company of New York, as trustee, with respect to its 13 3/4% Senior Subordinated Notes due 2001 (incorporated herein by reference to Exhibit 4.7.5 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)..................... 4.8 Credit Agreement dated as of June 17, 1991 by and among Food 4 Less and the subsidiaries named therein, as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Initial Lenders and the Designated Issuers, all as identified therein (incorporated herein by reference to Exhibit 4.4 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 29, 1991)............................................................. 4.8.1 First Modification Agreement dated as of January 24, 1992 by and among Food 4 Less and the subsidiaries named therein, as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.5.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)...................................... 4.8.2 Second Modification Agreement dated as of April 13, 1992 by and among Food 4 Less, and the subsidiaries named therein, as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.5.2 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)...................................... 4.8.3 Third Modification Agreement dated as of September 15, 1992 by and among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.5.3 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)........................................................ 4.8.4 Fourth Modification Agreement dated as of October 9, 1992 by and among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.5.4 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 27, 1992)................................................................. 4.8.5 Fifth Modification Agreement dated as of December 21, 1992 by and among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America, Inc., Bankers Trust Company and Chemical Bank (as successor in interest to Manufacturers Hanover Trust Company), as Co-Agents, Citicorp North America, Inc. as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 19.1 to Food 4 Less' Quarterly Report on Form 10-Q for the quarter ended April 3, 1993).... 4.8.6 Sixth Modification Agreement dated as of November 22, 1994 by and among Food 4 Less, the subsidiaries named therein, as borrowers, and Bankers Trust Company, Citicorp North America, Inc. and Chemical Bank as Co-Agents, Citicorp North America, Inc., as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.8.6 to Amendment No. 2 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451).........................................................
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EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 4.8.7 Seventh Modification Agreement dated as of January 23, 1995 by and among Food 4 Less, the subsidiaries named therein, as borrowers, and Bankers Trust Company, Citicorp North America, Inc. and Chemical Bank as Co-Agents, Citicorp North America, Inc., as Administrative Agent and the Required Lenders and the other Loan Parties, all as identified therein (incorporated herein by reference to Exhibit 4.8.7 to Amendment No. 2 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)......................................................... 4.9 Bank commitment letter by and among Food 4 Less, the guarantors named therein, Bankers Trust Company, as agent, and the financial institutions identified therein (incorporated herein by reference to Exhibit 4.9 to Amendment No. 2 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)............................................ 4.9.1 Form of Amendment No. 1 to bank commitment letter by and among Food 4 Less, the guarantors named therein, Bankers Trust Company, as agent, and the financial institutions identified therein (incorporated herein by reference to Exhibit 4.10.2 to Post-effective Amendment No. 1 to Holdings' Registration Statement on Form S-4, No. 33-86356)........... 5.1 Opinion of Latham & Watkins regarding the legality of the Senior Subordinated Notes due 2005, the 9% Senior Subordinated Notes due 2003, as amended, and the 10 1/4% Senior Subordinated Notes due 2002 and the guarantees of the Subsidiary Guarantors, as amended, including consent............................................................... 5.2 Opinion of Irwin, Clutter & Severson regarding the guarantee of Falley's Inc.......................................................... 8.1 Opinion of Latham & Watkins regarding certain tax matters with respect to the Senior Subordinated Notes due 2005, the 9% Senior Subordinated Notes due 2003, as amended, and the 10 1/4 Senior Subordinated Notes due 2002, as amended, including consent............................... 10.1 Lease dated as of June 17, 1991 by and between Food 4 Less and American Food and Drug, Inc. relating to La Habra, California property (incorporated herein by reference to Exhibit 10.4 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 29, 1991)... 10.2 Stockholders Agreement dated as of June 23, 1989 by and among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by reference to Exhibit 10.16 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152)............................................... 10.2.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by reference to Exhibit 10.58 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152).................................. 10.2.2 Letter Agreement dated as of June 27, 1990 by and among Peter J. Sodini, The Boys Markets, Inc., and certain affiliates, officers, directors and employees of Food 4 Less (incorporated herein by reference to Exhibit 10.39.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 30, 1990)......................... 10.2.3 Assignment and Assumption Agreement dated as of August 22, 1990 by and between Peter J. Sodini and Ronald W. Burkle with respect to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by reference to Exhibit 10.16.2 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 30, 1990)........................................................ 10.2.4 Amendment dated as of December 31, 1992 by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less and Ronald W. Burkle to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by reference to Exhibit 10.6.2 to Food 4 Less Holdings, Inc.'s Registration Statement on Form S-4, No. 33-59214)............................................................. 10.3 Stockholders Agreement dated as of June 23, 1989 by and among Food 4 Less, Food 4 Less, Inc. and George G. Golleher (incorporated herein by reference to Exhibit 10.17 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152)............................................... 10.3.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and George G. Golleher (incorporated herein by reference to Exhibit 10.59 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152).....................
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EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 10.3.2 Amendment dated as of December 31, 1992 by and among Food 4 Less Holdings, Inc., Food 4 Less, Food 4 Less, Inc. and George G. Golleher to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and George G. Golleher (incorporated herein by reference to Exhibit 10.8.2 to Food 4 Less Holdings, Inc.'s Registration Statement on Form S-4, No. 33-59214).................................................... 10.4 Letter Agreement dated as of September 14, 1994 by and among FFL Partners, Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less and Falley's Inc. relating to certain obligations arising under the Falley's, Inc. Stock Ownership Plan and Trust, as amended (incorporated herein by reference to Exhibit 10.4 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 25, 1994)... 10.5 Consulting Agreement dated as of June 27, 1988 by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.38 to Food 4 Less' Registration Statement on Form S-1, No. 33-31152)............................................................. 10.5.1 Letter Agreement dated as of December 10, 1990 amending Consulting Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.17.1 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 29, 1991)... 10.6 Employment Agreement dated as of July 1, 1994 between Food 4 Less and Harley DeLano (incorporated herein by reference to Exhibit 10.9 to Food 4 Less' Annual Report on Form 10-K dated June 25, 1994).......... 10.7 Employment Agreement dated as of July 1, 1994 between Food 4 Less and Greg Mays (incorporated herein by reference to Exhibit 10.10 to Food 4 Less' Annual Report on Form 10-K dated June 25, 1994)................. 10.8 Amended and Restated Tax Sharing Agreement dated as of June 17, 1991 by and among Food 4 Less, Inc., Food 4 Less and the subsidiaries of Food 4 Less (incorporated herein by reference to Exhibit 10.20 to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June 29, 1991)................................................................. 12.1 Statements regarding computations of ratios of earnings to fixed charges+.............................................................. 21.1 Subsidiaries of Food 4 Less (incorporated herein by reference to Exhibit 22.1 to Food 4 Less' Annual Report on Form 10-K dated June 25, 1994)................................................................. 23.1 Consent of KPMG Peat Marwick LLP, independent certified public accountants........................................................... 23.2 Consent of Arthur Andersen LLP, independent public accountants........ 23.3 Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1 to the Registration Statement).................................... 23.4 Consent of Director Nominee Byron E. Allumbaugh+...................... 23.5 Consent of Director Nominee Alfred A. Marasca+........................ 23.6 Consent of Director Nominee Patrick L. Graham+........................ 23.7 Consent of Irwin, Clutter & Severson (included in the opinion filed as Exhibit 5.2 to the Registration Statement)............................ 24 Power of Attorney of directors and officers of Food 4 Less (included in the signature pages in Part II of the Registration Statement)+..... 25.1 Statement of Eligibility and Qualification on Form T-1 of United States Trust Company of New York, as Trustee, under the Indenture for the Senior Subordinated Notes due 2005+............................... 25.2 Statement of Eligibility and Qualification on Form T-1 of United States Trust Company of New York, as trustee, under the Indenture for the 13.75% Senior Subordinated Notes due 2005 (incorporated herein by reference to Exhibit 25.2 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)..................... 25.3 Statement of Eligibility and Qualification on Form T-1 of Norwest Bank Minnesota, N.A., as Trustee, under the Indenture for the Senior Notes due 2004 (incorporated herein by reference to Exhibit 25.1 to Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4, No. 33-56451)......................................................... 99.1 Letter of Transmittal and Consent with respect to the Offers and the Solicitation.......................................................... 99.2 Notice of Guaranteed Delivery with respect to the Offers and the Solicitation.......................................................... 99.3 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees with respect to the Offers and the Solicitation........
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EXHIBIT NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------------------------- ---- 99.4 Letter to Clients with respect to the Offers and the Solicitation..... 99.5 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9...................................................
- --------------- + Previously filed. E-6 EX-5.1 2 OPINION OF LATHAM & WATKINS 1 EXHIBIT 5.1 [LATHAM & WATKINS LETTERHEAD] May 11, 1995 Food 4 Less Supermarkets, Inc. Alpha Beta Company Bay Area Warehouse Stores, Inc. Bell Markets, Inc. Cala Co. 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. 33-56445) Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (File No. 33-56445) (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 $450 million principal amount of Senior Subordinated Notes due 2005 (the "New RGC Notes") to be issued in exchange for the issued and outstanding 9% Senior Subordinated Notes due 2003 (the "Old RGC 9% Notes") and the 10 1/4% Senior Subordinated Notes due 2002 (the "Old RGC 10 1/4% Notes"), in each case, of Ralphs Grocery Company, (ii) guarantees of the New RGC 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 (iii) the Old RGC 9% Notes, as amended, and the Old RGC 10 1/4% Notes, as amended, in each case, that are not exchanged for New RGC Notes (collectively, the "Amended Notes"). 2 [Letterhead] Food 4 Less Supermarkets, Inc. May 11, 1995 Page 2 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 RGC Notes, the Amended Notes, the Guarantees, the indenture pursuant to which the New RGC Notes and the Guarantees are to be issued and the indenture, as amended by the Supplemental Indentures (as defined in the Dealer Manager Agreement), 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 Supplemental Indentures and the New Note Indenture and the authentication and delivery of the New RGC Notes and the issuance thereof in the manner described in the Registration Statement, the Amended Notes and the New RGC Notes will be legally valid and binding obligations of the Company and the Guarantees will be legally valid and binding obligations of the Guarantors, in each case except as may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; 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 3 OPINION OF IRWIN, CLUTTER & SEVERSON 1 EXHIBIT 5.2 IRWIN, CLUTTER & SEVERSON 2201 S.W. 29TH STREET P.O. BOX 5514 TOPEKA, KANSAS 66605-0514 May 11, 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. 33-56445) Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (File No. 33-56445) (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 the guarantee (the "Guarantee") by Falley's, and the other Subsidiary Guarantors, of up to $450 million principal amount of Senior Subordinated Notes due 2005 to be issued in exchange for the issued and outstanding 9% Senior Subordinated Notes due 2003 and the 10 1/4% Senior Subordinated Notes due 2002 of Ralphs Grocery Company. We have examined such matters of fact and questions of law as we have considered appropriate for purposes of this opinion. We have examined, among other things, the terms of the Guarantee and the indenture pursuant to which the Guarantee is to be issued. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We are opining herein as to the effect on the subject transaction only of the internal laws of the State of Kansas, and we express no opinion with respect to the applicability thereto, or the effect thereon, of any other laws. 2 Falley's, Inc. May 11, 1995 Page 2 Based upon the foregoing, we are of the opinion that, upon issuance thereof in the manner described in the Registration Statement, the Guarantee will be a legally valid and binding obligation of Falley's, except as may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; and the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy. We consent to your filing this opinion as an exhibit to the Registration Statement. Very truly yours, IRWIN, CLUTTER & SEVERSON EX-8.1 4 OPINION OF LATHAM & WATKINS RE: CERTAIN TAX 1 EXHIBIT 8.1 [LATHAM & WATKINS LETTERHEAD] May 11, 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 33-56445) Ladies/Gentlemen: You have requested our opinion concerning the material federal income tax consequences of (i) the offers to exchange (a) 9% Senior Subordinated Notes due April 1, 2003 of Ralphs Grocery Company ("RGC") (the "Old RGC 9% Notes") for new Senior Subordinated Notes due 2005 of Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.) (the "Company") and cash, and (b) 10 1/4% Senior Subordinated Notes due July 15, 2002 or RGC (the "Old RGC 10 1/4% Notes," and, together with the Old RGC 9% Notes, the "Old RGC Notes") for new 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 RGC 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. 33-56445), as amended by Amendment No. 1 filed with the Commission on January 6, 1995, as further amended by Amendment No. 2 filed with the Commission on January 24, 1995, as further amended by Post-effective Amendment No. 1 filed with the Commission on April 27, 1995, and as further amended by Post-effective Amendment No. 2 filed with the Commission on May 11, 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 1 EX-23.1 5 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 March 9, 1995, included the related financial statement schedule as of January 30, 1994 and January 29, 1995, and for each of the fiscal years in the three-year period ended January 29, 1995, included in the registration statement. This financial statement schedule is the responsibility of Ralphs management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, 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 May 10, 1995 EX-23.2 6 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 May 10, 1995 EX-99.1 7 LETTER OF TRANSMITTAL AND CONSENT 1 EXHIBIT 99.1 CONSENT AND LETTER OF TRANSMITTAL TO TENDER AND TO CONSENT TO CERTAIN INDENTURE AMENDMENTS WITH RESPECT TO THE 10 1/4% SENIOR SUBORDINATED NOTES DUE 2002 AND THE 9% SENIOR SUBORDINATED NOTES DUE 2003 OF RALPHS GROCERY COMPANY PURSUANT TO THE AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT DATED MAY 12, 1995 THE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 25, 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 AMENDED AND RESTATED 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 Corporate Trust & Agency Group (212) 250-3290 Bankers Trust Company Reorganization Department Confirm by Telephone: Corporate Trust & Agency Group Receipt & Delivery Window (212) 250-6270 Reorganization Department 123 Washington St., First Floor P.O. Box 1458 New York, NY 10006 Church Street Station 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 RGC NOTES - ------------------------------------------------------------------------------------------------------------------------------ You must consent to the Proposed Amendments with respect to the Old RGC Notes tendered hereby. The tender of Old RGC Notes hereby will constitute a Consent to the Proposed Amendments with respect to such Old RGC Notes. If you are not the registered holder of your Old RGC Notes, you must either have the Old RGC 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 RGC Notes to tender them. - ------------------------------------------------------------------------------------------------------------------------------ CERTIFICATE(S) TENDERED (ATTACH ADDITIONAL SCHEDULE IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------ (1) (2) (3) (4) (5) AGGREGATE PRINCIPAL AGGREGATE AMOUNT PRINCIPAL INDICATE TENDERED AMOUNT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CLASS BEING IN EXCHANGE TENDERED (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) TENDERED CERTIFICATE FOR NEW FOR PURCHASE APPEAR(S) ON OLD RGC NOTES) 10 1/4 OR 9% NUMBER(S)(*) NOTES(**) FOR CASH(**) - ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ TOTAL: - ------------------------------------------------------------------------------------------------------------------------------ * Need not be completed by Book-Entry Holders (see below). ** If you wish to accept the applicable Offer with respect to any Old RGC 9% Notes or any Old RGC 10 1/4% Notes you must tender all of such Old RGC 9% Notes or Old RGC 10 1/4% Notes beneficially owned by you, as the case may be.
- -------------------------------------------------------------------------------- 2 The undersigned acknowledges receipt of the Amended and Restated Prospectus and Solicitation Statement dated May 12, 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 offers (the "Offers") 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"), (A) to holders of 10 1/4% Senior Subordinated Notes due 2002 of Ralphs Grocery Company ("RGC") (the "Old RGC 10 1/4% Notes") (i) to exchange for each $1,000 principal amount of Old RGC 10 1/4% Notes $1,000 principal amount of new Senior Subordinated Notes due 2005 (the "New Notes") plus $20.00 in cash (the "10 1/4% Exchange Payment"), plus accrued and unpaid interest to the date of the exchange, and (ii) to purchase for $1,010.00 (the "10 1/4% Cash Consideration") per $1,000 principal amount of Old RGC 10 1/4% Notes, plus accrued and unpaid interest to the date of purchase, any or all of the Old RGC 10 1/4% Notes (the "10 1/4% Offer") and (B) to holders of the 9% Senior Subordinated Notes due 2003 of RGC (the "Old RGC 9% Notes," and together with the Old RGC 10 1/4% Notes, the "Old RGC Notes") (i) to exchange for each $1,000 principal amount of Old RGC 9% Notes $1,000 principal amount of New Notes plus $20.00 in cash (the "9% Exchange Payment," and together with the 10 1/4% Exchange Payment, the "Exchange Payment"), plus accrued and unpaid interest to the date of the exchange, and (ii) to purchase for $1,010.00 (the "9% Cash Consideration," and together with the 10 1/4% Cash Consideration, the "Cash Consideration") per $1,000 principal amount of Old RGC 9% Notes, plus accrued and unpaid interest to the date of purchase, any or all of the Old 9% Notes (the "9% Offer," and together with the 10 1/4% Offer, the "Offers," each of which is sometimes referred to herein individually as the applicable "Offer") and (b) Food 4 Less' solicitation (the "Solicitation") of consents (the "Consents") from holders of the Old RGC Notes ("Noteholders") to the proposed amendments (the "Proposed Amendments") to the respective indentures under which the Old RGC Notes were issued (as described in the Prospectus under the captions "The Proposed Amendments" and "Appendix A -- Comparison of Old RGC Notes and New Notes.") Holders of Old RGC Notes who desire to accept the applicable Offer will be required to consent to the Proposed Amendments with respect to such Old RGC Notes. The tender of Old RGC Notes under this Letter of Transmittal will constitute such consent. Noteholders who do not tender Old RGC Notes pursuant to the Offers will not be eligible to consent to the Proposed Amendments. Each Noteholder who desires to accept the applicable Offer with respect to any Old RGC 9% Notes or any Old RGC 10 1/4% Notes must tender all of such Noteholders' Old RGC 9% Notes or Old RGC 10 1/4% 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. THE OFFERS AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE SURRENDER OF OLD RGC NOTES FOR EXCHANGE OR PURCHASE BE ACCEPTED FROM OR ON BEHALF OF) NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF SUCH OFFERS AND 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 RGC Notes are to be physically delivered herewith or (ii) if delivery of Old RGC 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 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 RGC 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 RGC Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Offers and Solicitation -- Guaranteed Delivery Procedure." See Instruction 2 herein. Noteholders who wish to tender their Old RGC Notes pursuant to the applicable Offer, and consent to the Proposed Amendments must complete the box entitled "DESCRIPTION OF OLD RGC NOTES" and sign below. 2 3 METHOD OF DELIVERY - -------------------------------------------------------------------------------- / / CHECK HERE IF CERTIFICATES FOR TENDERED OLD RGC NOTES ARE ENCLOSED HEREWITH. / / CHECK HERE IF TENDERED OLD RGC 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 RGC 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 RGC 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 RGC 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 RGC Notes indicated above and tenders to Food 4 Less the Old RGC Notes indicated above. Tendering Noteholders will be deemed to have Consented to the Proposed Amendments with respect to all Old RGC Notes tendered. Subject to and effective upon acceptance of the Old RGC 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 RGC 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 RGC 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 RGC Notes, or transfer ownership of such Old RGC 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 RGC Notes for transfer on the register, (c) deliver the Consent contained herein to RGC and the applicable Trustee under the Old Indentures and (d) receive all benefits and otherwise exercise all right of beneficial ownership of such Old RGC Notes all in accordance with the terms of the Prospectus and this Letter of Transmittal. The undersigned hereby represents and warrants that the undersigned accepts the terms and conditions contained in the Prospectus and this Letter of Transmittal, owns the Old RGC 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 RGC 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 RGC 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 RGC Notes pursuant to the Offers may be withdrawn and Consents may be revoked, subject to the procedures described in the Prospectus under "The 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 such time as the Requisite Consents (as defined under Instruction 3 herein) with respect to the applicable issue of Old RGC Notes have been received and the Supplemental Indenture (as defined) for such issue has been executed. Thereafter, such tenders may be withdrawn and consents may be revoked if the applicable Offer with respect to such Old RGC Notes is terminated without any Old RGC Notes being accepted for exchange and/or for purchase thereunder. Food 4 Less shall be deemed to have accepted for exchange or for purchase, and to have exchanged and/or purchased validly tendered and not properly withdrawn Old RGC Notes in the 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 RGC 9% Notes or holders of Old RGC 10 1/4% Notes, Food 4 Less will certify in writing to the Old RGC 9% Note Trustee or the Old RGC 10 1/4% Note Trustee (together, the "Old Trustees"), as the case may be, that the Requisite Consents to the adoption of the Proposed Amendments have been received with respect to such issue of Old RGC Notes. Except as set forth under Instruction 2 herein and in the Prospectus under "The Offers and Solicitation -- Guaranteed Delivery Procedure," Consents from tendering holders of Old RGC Notes will not be counted towards determining whether Food 4 Less has received the Requisite Consents unless Food 4 Less is prepared to accept the tender of Old RGC Notes to which such Consents relate. In addition, Consents with respect to any Old RGC Notes will not be counted if the tender of such holders' Old RGC Notes is defective, unless Food 4 Less waives such defect. After receipt by the Old RGC 9% Note Trustee or the Old RGC 10 1/4% Note Trustee of, among other things, certification by Food 4 Less that the Requisite Consents with respect to the Old RGC 9% Notes or the Old RGC 10 1/4% Notes, as the case may be, have been received, RGC and the applicable Old Trustee will execute a supplemental indenture to evidence the adoption of the Proposed Amendments relating to the applicable indenture under which such Old RGC Notes were issued (each a "Supplemental Indenture"). Upon the acceptance by Food 4 Less of the Requisite Consents from holders of Old RGC 9% Notes or Old RGC 10 1/4% Notes and the execution of the applicable Supplemental Indenture, such Supplemental Indenture will immediately become effective. Although the Proposed Amendments relating to an issue of Old RGC Notes will become effective upon certification that the Requisite Consents 4 5 from holders of the applicable Old RGC Notes have been received, such Proposed Amendments will not be operative until Food 4 Less has accepted for exchange or purchase all Old RGC Notes validly tendered and not withdrawn. Food 4 Less will not be obligated pursuant to the Offers to issue the New Notes and pay the Exchange Payment or pay the Cash Consideration unless, among other things, the Requisite Consents to the adoption of the Proposed Amendments have been received from both the Old RGC 9% Noteholders and the Old RGC 10 1/4% Noteholders. The withdrawal of Old RGC Notes in accordance with the procedures set forth in the Prospectus under "The 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 RGC Notes to which such Consents relate defective and Food 4 Less will have the right, which it may waive, to reject such tender as invalid and ineffective. 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 RGC Notes tendered (as described in the Prospectus under the caption "The Offers and Solicitation -- Conditions"). Old RGC 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 Notes and the Exchange Payment or Cash Consideration (each as appropriate) (and, if applicable, return Old RGC Notes for any principal amount of Old RGC Notes not accepted for exchange or purchase) to the undersigned at the address set forth above. The undersigned understands that holders who tender Old RGC Notes by book-entry transfer ("Book-Entry Holders") may request that any Old RGC Notes not accepted for exchange or purchase 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 RGC Notes from the name of the registered holder thereof if Food 4 Less does not accept for exchange or purchase any of such Old RGC Notes. See Instruction 5. The undersigned understands that tenders of Old RGC Notes pursuant to any one of the procedures described under "The 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 RGC NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED SUCH OLD RGC NOTES, CONSENTED TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH OLD RGC NOTES AND MADE CERTAIN REPRESENTATIONS AS DESCRIBED HEREIN AND IN THE PROSPECTUS. ONLY REGISTERED HOLDERS OF OLD RGC NOTES ARE ENTITLED TO CONSENT TO THE PROPOSED AMENDMENTS. IF THE UNDERSIGNED IS NOT THE REGISTERED HOLDER OF THE OLD RGC NOTES TENDERED PURSUANT HERETO, THE UNDERSIGNED MUST EITHER HAVE THE OLD RGC 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 RGC Notes as their name(s) appear(s) on certificates for Old RGC 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 RGC 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 Address of beneficial holder(s): ---------------------------------------- ---------------------------------------- - -------------------------------------------------------------------------------- 6 7 IF THIS LETTER OF TRANSMITTAL IS SIGNED BY A HOLDER OF OLD RGC NOTES WHO IS NOT THE REGISTERED HOLDER THEREOF, THEN THE REGISTERED HOLDER MUST SIGN THE FOLLOWING CONSENT OR A VALID PROXY: Pursuant to the Offers and the Solicitation of Consents to the Proposed Amendments, the undersigned hereby consents to the Proposed Amendments with respect to the Old RGC Notes tendered hereby and with respect to the related indentures. This consent shall not be deemed to be effective if the above-described Old RGC Notes are not accepted for exchange or purchase pursuant to the 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 RGC 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 Notes and the Exchange Payment or the Cash Consideration (each as appropriate) 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 RGC NOTES" above in this Letter of Transmittal or if Old RGC 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 RGC 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 or the Cash Consideration (each as appropriate), certificates evidencing New Notes and/or certificates evidencing Old RGC Notes for amounts not accepted for exchange or purchase 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 RGC 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 OFFERS AND THE SOLICITATION 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates for Old RGC Notes, or any book-entry transfer into the Exchange Agent's account at DTC, MSTC or PDTC of Old RGC 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 Offers and the Solicitation, except as otherwise provided in Instruction 2, "Guaranteed Delivery Procedures." Tenders of Old RGC Notes into the 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 RGC 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 RGC 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 RGC 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 RGC 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 RGC Notes. Food 4 Less' interpretation of the terms and conditions of the 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 RGC 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 RGC 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 RGC 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 RGC Notes desires to tender such Old RGC Notes and consent to the Proposed Amendments, and such holder's Old RGC Notes are not immediately available, or if time will not permit such holder's Old RGC Notes or any other required documents to be delivered to the Exchange Agent prior to 12:00 Midnight, New York City time, on the Expiration Date, then such Old RGC Notes may nevertheless be tendered and Consents may be effected if all of the following guaranteed delivery procedure conditions are met: (i) the tender and Consent is made by or through an Eligible Institution; (ii) prior to 12:00 Midnight, New York City time, on the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or hand delivery) substantially in the form provided by Food 4 Less 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 RGC Notes and the principal amount of Old RGC Notes tendered for exchange and/or purchase, 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 RGC 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 RGC Notes, or a confirmation of a book-entry transfer of such Old RGC Notes into the Exchange Agent's applicable account at a Book-Entry Transfer Facility, as 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 ORANGE Notice of Guaranteed Delivery provided herewith shall be used in connection with tenders of all Old RGC Notes. Notwithstanding any other provision hereof, the exchange of Old RGC Notes and/or the purchase of Old RGC Notes pursuant to the Offers will in all cases be made only after timely receipt by the Exchange Agent of certificates for such Old RGC Notes and 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 RGC 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 RGC Notes pursuant to the Offers will not be eligible to Consent to the Proposed Amendments. Tendering holders who sign this Letter of Transmittal and tender any Old RGC Notes shall be deemed to have Consented to the Proposed Amendments with respect to such Old RGC Notes tendered. Tenders of Old RGC Notes pursuant to an Offer may be withdrawn and Consents may be revoked at any time until the "Consent Date," which shall be such time as the Requisite Consents (Consents of holders representing at least a majority in aggregate principal amount of the outstanding Old RGC 9% Notes or Old RGC 10 1/4% Notes, as the case may be, held by persons other than RGC and its affiliates) have been delivered by Food 4 Less to the applicable Old Trustee and the Supplemental Indenture for such issue has been executed. Thereafter, such tenders may be withdrawn and Consents may be revoked if the Offer with respect to such Old RGC Notes is terminated without any Old RGC Notes being accepted thereunder. A different Consent Date may be established with respect to the 9% Offer and the 10 1/4% Offer. The withdrawal of Old RGC 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 RGC Notes to which such Consents relate defective and Food 4 Less will have the right, which it may waive, to reject such tender as invalid and ineffective. Any holder of Old RGC Notes who has tendered Old RGC Notes or who succeeds to the record ownership of Old RGC Notes in respect of which such tenders or Consents previously have been given may withdraw such Old RGC Notes or revoke such Consents prior to the applicable Consent Date by delivery of a written notice of withdrawal or revocation, subject to the limitations described herein. To be effective, a written telegraphic, telex or facsimile transmission (or delivered by hand or by mail) notice of withdrawal of a tender or revocation of a Consent must (i) be timely received by the Exchange Agent at one of its addresses set forth on the front cover hereof or prior to the applicable time provided herein with respect to the applicable issue of Old RGC Notes, (ii) specify the name of the person having tendered the Old RGC Notes to be withdrawn or as to which Consents are revoked, the principal amount of such Old RGC Notes to be withdrawn and, if certificates for Old RGC Notes have been tendered, the name of the registered holder(s) of such Old RGC Notes as set forth in such certificates, if different from that of the person who tendered such Old RGC Notes, (iii) identify the Old RGC Notes to be withdrawn or to which the notice of revocation relates and (iv)(a) be signed by the holder in the same manner as the original signature on this Letter of Transmittal or Notice of Guaranteed Delivery (as the case may be) by which such Old RGC Notes were tendered (including any required signature guarantees) or (b) be accompanied by evidence satisfactory to Food 4 Less and the Exchange Agent that the holder withdrawing such tender or revoking such Consents has succeeded to beneficial ownership of such Old RGC Notes. If certificates representing Old RGC Notes to be withdrawn or Consents to be revoked have been delivered or otherwise identified to the Exchange Agent, then the name of the registered holder and the serial numbers of the particular certificate evidencing the Old RGC Notes to be withdrawn or Consents to be revoked and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, except in the case of Old RGC Notes tendered by an Eligible Institution (in which 10 11 case no signature guarantee shall be required), must also be so furnished to the Exchange Agent as aforesaid prior to the physical release of the certificates for the withdrawn Old RGC Notes. If Old RGC Notes have been tendered or if Consents have been delivered pursuant to the procedures for book-entry transfer as set forth herein, any notice of withdrawal or revocation of 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 RGC Notes. Food 4 Less reserves the right to contest the validity of any revocation. A purported notice of revocation which is not received by the Exchange Agent in a timely fashion will not be effective to revoke a Consent previously given. Any permitted withdrawals of tenders of Old RGC Notes and revocation of Consents may not be rescinded, and any Old RGC Notes properly withdrawn will thereafter be deemed not validly tendered and any Consents revoked will be deemed not validly delivered for purposes of the Offers and the Solicitation; provided, however, that withdrawn Old RGC Notes may be retendered and revoked Consents may be redelivered by again following one of the appropriate procedures described herein at any time prior to 12:00 Midnight, New York City time, on the Expiration Date. If Food 4 Less shall decide to decrease the amount of Old RGC Notes being sought in either Offer or to increase or decrease the consideration offered to the Old RGC Noteholders, and if, at the time that notice of such increase or decrease is first published, sent or given to Old RGC Noteholders in the manner specified in the Prospectus, such Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth Business Day from and including the date that such notice is first so published, sent or given such Offer will be extended for such purposes until the expiration of such period of ten Business Days. As used in 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 of the Offers or the Solicitation is amended in a manner determined by Food 4 Less to constitute a material adverse change to the Old RGC Noteholders, Food 4 Less promptly will disclose such amendment in a public announcement and will extend the relevant Offer or the Solicitation for a period deemed by it to be adequate to permit the Old RGC Noteholders to properly deliver or withdraw their Old RGC Notes and give or revoke Consents. If Food 4 Less extends an Offer, is delayed in its acceptance for exchange or purchase of Old RGC Notes or is unable to exchange or purchase Old RGC Notes pursuant to an Offer, for any reason, then, without prejudice to Food 4 Less' rights under such Offer, the Exchange Agent may, subject to applicable law, retain tendered Old RGC Notes on behalf of Food 4 Less, and such Old RGC Notes may not be withdrawn (subject to Rule 14e-1 under the Exchange Act, which requires that Food 4 Less deliver the consideration offered or return the Old RGC Notes deposited by or on behalf of the Noteholders promptly after the termination or withdrawal of an Offer), except to the extent that tendering holders are entitled to withdrawal rights as described herein. All questions as to the validity, form and eligibility (including the time of receipt) of notices of withdrawal or revocations of Consents will be determined by Food 4 Less, whose determination will be final and binding on all parties. None of Food 4 Less, the Exchange Agent, the Dealer Managers, 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 RGC 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 RGC 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 RGC 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 RGC Notes are registered. If tendered Old RGC Notes are registered in the name of a person other than the person signing this Letter of Transmittal, the tendered Old RGC Notes must be endorsed or accompanied by appropriate bond powers, signed by the registered holder or holders of the Old RGC 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 RGC 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 RGC 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 RGC Notes) of Old RGC 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 RGC 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 RGC Notes are to be issued or returned to a person other than the registered holder, then the Old RGC Notes must be endorsed by the registered 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 Notes, the Exchange Payment, the Cash Consideration or Old RGC Notes for principal amounts not accepted for exchange or purchase (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 Notes, the Exchange Payment, the Cash Consideration or Old RGC Notes not accepted for exchange or purchase (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 or purchase of Old RGC Notes pursuant to the Offers. If, however, New Notes, the Exchange Payment, the Cash Consideration or Old RGC Notes not accepted for exchange or purchase (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 RGC Notes, or if tendered Old RGC 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 or purchase of Old RGC Notes pursuant to an Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such tax or exemption therefrom is not submitted, then the amount of such transfer tax will be deducted from the Exchange Payment or the Cash Consideration, as the case may be, 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 Offers in the case of any Old RGC Notes tendered. 12 13 9. MUTILATED, LOST, STOLEN OR DESTROYED OLD RGC NOTES. If a Noteholder desires to tender Old RGC Notes pursuant to an Offer, but any such Old RGC 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 RGC Note was issued, at the address listed below, concerning the procedures for obtaining replacement certificates for such Old RGC Note, arranging for indemnification or any other matter that requires handling by such Old Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036-1532 Attention: Corporate Trust Department (212) 852-1000 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 RGC Notes are accepted for exchange or purchase 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 an 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 RGC Notes or in respect of the New Notes may be subject to backup withholding. Certain holders of Old RGC 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 RGC Notes. If the certificates for Old RGC 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 RGC NOTES (SEE INSTRUCTION 6) - -------------------------------------------------------------------------------- PAYOR'S NAME: BANKERS TRUST COMPANY - -------------------------------------------------------------------------------- SUBSTITUTE FORM W-9 Social Security Number PART I -- PLEASE DEPARTMENT OF THE TREASURY PROVIDE YOUR TAX- ----------------------- INTERNAL REVENUE SERVICE PAYER IDENTIFICATION OR NUMBER IN THE BOX AT PAYOR'S REQUEST FOR TAXPAYER THE RIGHT AND CERTIFY Employer Identification IDENTIFICATION NUMBER (TIN) BY SIGNING AND DATING Number BELOW. -----------------------
----------------------------------------------------- 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 OFFERS. 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 RGC 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 Offers 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 8 NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY TO TENDER AND TO CONSENT TO CERTAIN INDENTURE AMENDMENTS WITH RESPECT TO THE 10 1/4% SENIOR SUBORDINATED NOTES DUE 2002 AND THE 9% SENIOR SUBORDINATED NOTES DUE 2003 OF RALPHS GROCERY COMPANY PURSUANT TO THE AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT DATED MAY 12, 1995 As set forth in the Amended and Restated Prospectus and Solicitation Statement dated May 12, 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 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' offers (the "Offers"), upon the terms and subject to the conditions set forth in the Prospectus and Letter of Transmittal, (A) to holders of the 10 1/4% Senior Subordinated Notes due 2002 of Ralphs Grocery Company ("RGC") (the "Old RGC 10 1/4% Notes") (i) to exchange for each $1,000 principal amount of Old RGC 10 1/4% Notes $1,000 principal amount of its new Senior Subordinated Notes due 2005 (the "New Notes") plus $20.00 in cash, plus accrued and unpaid interest to the date of the exchange, and (ii) to purchase for $1,010.00 (the "10 1/4% Cash Consideration") per $1,000 principal amount of Old RGC 10 1/4% Notes, plus accrued and unpaid interest to the date of purchase, any or all of the Old RGC 10 1/4% Notes (the "10 1/4% Offer") and (B) to holders of the 9% Senior Subordinated Notes due 2003 of RGC (the "Old RGC 9% Notes" and, together with the Old RGC 10 1/4% Notes, the "Old RGC Notes") (i) to exchange for each $1,000 principal amount of Old RGC 9% Notes $1,000 principal amount of New Notes plus $20.00 in cash, plus accrued and unpaid interest to the date of the exchange, and (ii) to purchase for $1,010.00 (the "9% Cash Consideration," and together with the 10 1/4% Cash Consideration, the "Cash Consideration") per $1,000 principal amount of Old RGC 9% Notes, plus accrued and unpaid interest to the date of purchase, any or all of the Old 9% Notes (the "9% Offer," and together with the 10 1/4% Offer, the "Offers" each of which is sometimes referred to herein individually as the applicable "Offer") and (b) deliver consents pursuant to Food 4 Less' solicitation (the "Solicitation") of consents (the "Consents") from holders of the Old RGC Notes ("Noteholders") to the proposed amendments (the "Proposed Amendments") to the respective indentures under which the Old RGC Notes were issued (as described in the Prospectus under the captions "The Proposed Amendments" and "Appendix A -- Comparison of Old RGC Notes and New Notes"), if (i) certificates representing the Old RGC 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. THE OFFERS AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE SURRENDER OF OLD RGC NOTES FOR EXCHANGE OR PURCHASE BE ACCEPTED FROM OR ON BEHALF OF) NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF SUCH OFFERS AND THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. THE OFFERS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 25, 1995 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED OLD RGC 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 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 RGC Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Offers and Solicitation -- Guaranteed Delivery Procedure." Subject to and effective upon acceptance of the Old RGC 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 RGC 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 evidence of the undersigned's Consent to the Proposed Amendments with respect to the Old RGC Notes tendered hereby and as certification that Requisite Consents to the Proposed Amendments with respect to such Old RGC Notes have been received. In the event of a termination of either Offer the Old RGC 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 RGC 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 RGC 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 RGC 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 - --------------------------------------------------------------------------------
AGGREGATE PRINCIPAL AMOUNT TENDERED AGGREGATE PRINCIPAL CLASS BEING CERTIFICATE NUMBERS IN EXCHANGE AMOUNT TENDERED TENDERED (IF AVAILABLE) FOR NEW NOTES* FOR PURCHASE FOR CASH* ------------------ ------------------------- ------------------------- ------------------------- Old RGC 10 1/4% Notes........... $ $ ------------------------- ------------------------- ------------------------- $ $ ------------------------- ------------------------- ------------------------- Old RGC 9% 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 RGC 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 RGC Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Old RGC 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 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 RGC NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD RGC 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 RGC Notes or on a security position listing as the owner of Old RGC 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: Name: ______________________________________ (Please Type or Print) Capacity: __________________________________ Address: ___________________________________ ___________________________________ (Zip Code) 4 EX-99.3 9 LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS 1 EXHIBIT 99.3 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 1/4% SENIOR SUBORDINATED NOTES DUE 2002 AND THE 9% SENIOR SUBORDINATED NOTES DUE 2003 OF RALPHS GROCERY COMPANY PURSUANT TO THE AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT DATED MAY 12, 1995 THE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 25, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF 10 1/4% SENIOR SUBORDINATED NOTES DUE 2002 AND 9% SENIOR SUBORDINATED NOTES DUE 2003 MAY ONLY BE WITHDRAWN AND THE CORRESPONDING CONSENTS MAY ONLY BE REVOKED, UNDER THE CIRCUMSTANCES DESCRIBED IN THE AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT AND THE CONSENT AND LETTER OF TRANSMITTAL. May 12, 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 the Food 4 Less' offer (the "Offers"), upon the terms and subject to the conditions set forth in the Amended and Restated Prospectus and Solicitation Statement dated May 12, 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 (A) holders of 10 1/4% Senior Subordinated Notes due 2002 of Ralphs Grocery Company ("RGC") (the "Old RGC 10 1/4% Notes") (i) to exchange for each $1,000 principal amount of Old RGC 10 1/4% Notes $1,000 principal amount of new Senior Subordinated Notes due 2005 (the "New Notes") plus $20.00 in cash (the "10 1/4% Exchange Payment"), plus accrued and unpaid interest to the date of the exchange and (ii) to purchase for $1,010.00 (the "10 1/4% Cash Consideration") per $1,000 principal amount of Old RGC 10 1/4% Notes plus accrued and unpaid interest to the date of purchase, any or all of the Old RGC 10 1/4% Notes (the "10 1/4% Offer") and (B) holders of the 9% Senior Subordinated Notes due 2003 of RGC (the "Old RGC 9% Notes" and, together with the Old RGC 10 1/4% Notes, the "Old RGC Notes") to exchange for each $1,000 principal amount of Old RGC 9% Notes $1,000 principal amount of New Notes plus $20.00 in cash (the "9% Exchange Payment," and, together with the 10 1/4% Exchange Payment, the "Exchange Payment"), plus accrued and unpaid interest to the date of the exchange and (ii) to purchase for $1,010.00 (the "9% Cash Consideration," and together with the 10 1/4% Cash Consideration, the "Cash Consideration") per $1,000 principal amount of Old RGC 9% Notes, plus accrued and unpaid interest to the date of purchase, any or all of the Old RGC 9% Notes (the "9% Offer," and together with the 10 1/4% Offer, the "Offers," each of which is sometimes referred to herein individually as the applicable "Offer"). Food 4 Less is also soliciting (the "Solicitation") consents (the "Consents") from holders of the Old RGC Notes ("Noteholders") to certain proposed amendments (the "Proposed Amendments") to the respective indentures under which the Old RGC Notes were issued (as described in the Prospectus under the captions "The Proposed Amendments" and "Comparison of Old RGC Notes and New Notes"). Upon consummation of the 2 Offers and the Solicitation, Food 4 Less will deliver New Notes and make payments in cash (including accrued interest in cash on the Old RGC Notes and the corresponding Exchange Payment or Cash Consideration, as appropriate) to the holders of Old RGC Notes whose Old RGC Notes are accepted by Food 4 Less pursuant to the applicable Offer. Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Prospectus. THE OFFERS AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE SURRENDER OF OLD RGC NOTES FOR EXCHANGE OR PURCHASE BE ACCEPTED FROM OR ON BEHALF OF) NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF SUCH OFFERS AND THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. Enclosed herewith are copies of the following documents: 1. The Amended and Restated 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 Offer and the Solicitation if the Old RGC 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 RGC Notes in your name or in the name of a nominee, with space provided for obtaining such clients' instructions with regard to the Offers; and 5. A return envelope addressed to the Exchange Agent. PLEASE NOTE THAT THE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 25, 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 RGC Notes pursuant to the Offers. 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 OFFERS AND THE SOLICITATION NOT CONTAINED IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. EX-99.4 10 LETTER TO CLIENTS 1 EXHIBIT 99.4 TO TENDER AND TO CONSENT TO CERTAIN INDENTURE AMENDMENTS WITH RESPECT TO THE 10 1/4% SENIOR SUBORDINATED NOTES DUE 2002 AND THE 9% SENIOR SUBORDINATED NOTES DUE 2003 OF RALPHS GROCERY COMPANY PURSUANT TO THE AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT DATED MAY 12, 1995 THE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 25, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF 10 1/4% SENIOR SUBORDINATED NOTES DUE 2002 AND 9% SENIOR SUBORDINATED NOTES DUE 2003, MAY ONLY BE WITHDRAWN AND THE CORRESPONDING CONSENTS MAY ONLY BE REVOKED UNDER THE CIRCUMSTANCES DESCRIBED IN THE AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT AND THE CONSENT AND LETTER OF TRANSMITTAL. TO OUR CLIENTS: Enclosed for your consideration is the Amended and Restated Prospectus and Solicitation Statement dated May 12, 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 (the "Offers") by Food 4 Less Supermarkets, Inc. ("Food 4 Less"), to (A) holders of 10 1/4% Senior Subordinated Notes due 2002 of Ralphs Grocery Company ("RGC") (the "Old RGC 10 1/4% Notes") (i) to exchange for each $1,000 principal amount of Old RGC 10 1/4% Notes $1,000 principal amount of new Senior Subordinated Notes due 2005 (the "New Notes") plus $20.00 in cash (the "10 1/4% Exchange Payment"), plus accrued and unpaid interest to the date of the exchange and (ii) to purchase for $1,010.00 (the "10 1/4% Cash Consideration") per $1,000 principal amount of Old RGC 10 1/4% Notes, plus accrued and unpaid interest to the date of purchase, any or all of the Old RGC 10 1/4% Notes (the "10 1/4% Offer") and (B) holders of the 9% Senior Subordinated Notes due 2003 of RGC (the "Old RGC 9% Notes" and, together with the Old RGC 10 1/4% Notes, the "Old RGC Notes") (i) to exchange for each $1,000 principal amount of Old RGC 9% Notes $1,000 principal amount of New Notes plus $20.00 in cash (the "9% Exchange Payment," and together with the 10 1/4% Exchange Payment, the "Exchange Payment"), plus accrued and unpaid interest to the date of the exchange, and (ii) to purchase for $1,010.00 (the "9% Cash Consideration," and together with the 10 1/4% Cash Consideration, the "Cash Consideration") per $1,000 principal amount of Old RGC 9% Notes, plus accrued and unpaid interest to the date of purchase, any or all of the Old 9% Notes (the "9% Offer," and together with the 10 1/4% Offer, the "Offers," each of which is sometimes referred to herein individually as the applicable "Offer") and (b) Food 4 Less' solicitation (the "Solicitation") of consents (the "Consents") from holders of the Old RGC Notes ("Noteholders") to certain proposed amendments (the "Proposed Amendments") to the respective indentures under which the Old RGC Notes were issued (as described in the Prospectus under the captions "The Proposed Amendments" and "Appendix A -- Comparison of Old RGC Notes and New Notes.") Consummation of the Offers and the Solicitation are subject to certain conditions described in the Prospectus under the caption "The Offers and Solicitation -- Conditions." Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Prospectus. WE ARE THE REGISTERED HOLDER OF THE OLD RGC NOTES HELD BY US FOR YOUR ACCOUNT. A TENDER OF ANY SUCH OLD RGC NOTES AND DELIVERY OF CONSENTS WITH RESPECT THERETO CAN BE MADE ONLY BY US AS THE REGISTERED HOLDER AND PURSUANT TO YOUR 2 INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER OLD RGC NOTES, OR DELIVER A CONSENT WITH RESPECT TO SUCH OLD RGC NOTES, HELD BY US FOR YOUR ACCOUNT. Accordingly, we request instructions as to whether you wish us to tender such Old RGC Notes held by us for your account, and deliver Consents with respect to all of such Old RGC Notes so tendered, pursuant to the terms and conditions 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 RGC Notes and to deliver Consents with respect to Old RGC Notes. Unless otherwise indicated, references herein to the 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 RGC Notes and deliver Consents with respect to Old RGC Notes on your behalf in accordance with the provisions of the Prospectus and Letter of Transmittal. The Offers will expire at 12:00 Midnight, New York City time, on May 25, 1995. Old RGC Notes tendered pursuant to the applicable 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 RGC 9% Note Trustee or the Old RGC 10 1/4% Note Trustee of, among other things, certification by Food 4 Less that the Requisite Consents with respect to the Old RGC 9% Notes or the Old RGC 10 1/4% Notes, as the case may be, have been received, RGC 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 RGC Notes (each a "Supplemental Indenture"). Upon the acceptance by Food 4 Less of the Requisite Consents from holders of Old RGC 9% Notes or Old RGC 10 1/4% Notes and the execution of the applicable Supplemental Indenture, such Supplemental Indenture will immediately become effective. Although the Proposed Amendments relating to an issue of Old RGC Notes will become effective upon certification that the Requisite Consents from holders of the applicable Old RGC Notes have been received, such Proposed Amendments will not be operative until Food 4 Less has accepted for exchange all Old RGC Notes validly tendered and not withdrawn. Your attention is directed to the following: 1. The Offers are for all of the aggregate principal amount of the outstanding Old RGC Notes. 2. The Offers and the Solicitation are not being made to (nor will the surrender of Old RGC Notes for exchange or purchase be accepted from or on behalf of) Noteholders in any jurisdiction in which the making or acceptance of such Offer and the Solicitation would not be in compliance with the laws of such jurisdiction. 3. A holder of Old RGC Notes who desires to tender into the applicable Offer with respect to any Old 10 1/4% RGC Notes or any Old 9% RGC Notes must tender all such Old RGC 10 1/4% Notes or Old 9% RGC Notes beneficially owned by such holder, as the case may be. The tender of Old RGC Notes pursuant to the applicable Offer will constitute the Consent of such tendering holder to the Proposed Amendments with respect to such Old RGC Notes. Noteholders who desire to accept the applicable Offer must consent to the Proposed Amendments. Noteholders do not have the option to consent to the Proposed Amendments without tendering into the applicable Offer. 4. The acceptance for exchange purchase of Old RGC Notes validly tendered and not validly withdrawn and the delivery of New Notes and the payment of the Exchange Payment or Cash Consideration 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 RGC Notes or to terminate either Offer or the Solicitation and not accept for exchange or purchase any Old RGC Notes not theretofore accepted if any of the conditions set forth in the Prospectus under the caption "The Offers and Solicitation -- Conditions" shall not have been satisfied or waived by Food 4 Less. Food 4 Less will deliver New Notes and make payments in cash (including accrued interest in cash on the Old RGC Notes, the accompanying Exchange Payment and payment of the Cash Consideration, as applicable) for Old RGC Notes tendered pursuant to the Offers promptly following acceptance of the Old RGC Notes. 5. Consummation of the Offers is subject to, among other things, satisfaction or waiver of certain conditions, including (i) satisfaction of the Minimum Exchange (i.e., at least a majority of the aggregate principal amount of the outstanding Old RGC Notes being validly tendered and not withdrawn pursuant to the 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 RGC 9% Notes and Old RGC 10 1/4% Notes held by persons other than RGC and its affiliates) on or prior to the Expiration Date, (iii) satisfaction or waiver in Food 4 Less' sole discretion, of all conditions precedent to the RSI Merger, (iv) the prior or contemporaneous successful completion of the Other Debt Financing Transactions (including the Public Offerings), (v) the prior or contemporaneous consummation of the Bank Financing and the New Equity Investment and (vi) certain other conditions. In addition, consummation of each Offer is subject to the consummation of each other Offer. There can be no assurance 2 3 that such conditions will be satisfied or waived. Food 4 Less reserves the right to waive certain limitations, to extend, terminate, cancel or otherwise modify or amend each Offer in any respect. See "The Offers and Solicitation -- Conditions" in the Prospectus. 6. Food 4 Less expressly reserves the right, subject to applicable law and the terms of the Offers and to the extent not inconsistent with the terms of the Merger, the Other Debt Financing Transactions, the Bank Financing, the Public Offerings or the New Equity Investment, (i) to delay acceptance for exchange or purchase of any Old RGC Notes or, regardless of whether such Old RGC Notes were theretofore accepted for exchange or purchase, to delay exchange or purchase of any Old RGC Notes pursuant to either Offer and to terminate such Offer and not accept for exchange or purchase any Old RGC Notes not theretofore accepted for exchange or purchase, upon the failure of any of the conditions to such Offer specified herein to be satisfied, by giving oral or written notice of such delay or termination to the Exchange Agent and (ii) at any time, or from time to time, to amend either of the Offers in any respect. Except as otherwise provided in the Prospectus, withdrawal rights with respect to Old RGC Notes tendered pursuant to an Offer will not be extended or reinstated as a result of an extension or amendment of such Offer. The reservation by Food 4 Less of the right to delay acceptance for exchange or purchase of Old RGC Notes is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires that Food 4 Less (or the Company as successor by Merger) pay the consideration offered or return the Old RGC Notes deposited by or on behalf of holders thereof promptly after the termination or withdrawal of an Offer. 7. Consummation of the 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 RGC Indentures and that the reduced amount of outstanding Old RGC Notes as a result of the Offers may adversely affect the trading market, liquidity and market price of the Old RGC Notes. If the Requisite Consents are received and accepted, the Proposed Amendments will be binding on all non-tendering Noteholders. 8. Any transfer taxes incident to the transfer of Old RGC 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 RGC Notes held by us for your account, and deliver your Consent to the Proposed Amendments with respect to all of such Old RGC 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 Offers 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 OFFERS AND THE SOLICITATION WITH RESPECT TO THE 10 1/4% SENIOR SUBORDINATED NOTES DUE 2002 AND THE 9% SENIOR SUBORDINATED NOTES DUE 2003 OF RALPHS GROCERY COMPANY The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Offers by Food 4 Less Supermarkets, Inc. This will instruct you whether to tender the principal amount of Old RGC 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 RGC Notes, pursuant to the terms and conditions set forth in the Prospectus and the Letter of Transmittal.
AGGREGATE PRINCIPAL AMOUNT AGGREGATE TENDERED IN PRINCIPAL AMOUNT EXCHANGE FOR NEW TENDERED FOR CLASS BEING TENDERED NOTES* PURCHASE FOR CASH* - -------------------- ---------------------- ---------------------- Old RGC 10 1/4% Notes $ $ ---------------------- ---------------------- (please fill in blank) (please fill in blank) Old RGC 9% Notes $ $ ---------------------- ---------------------- (please fill in blank) (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 11 GUIDELINES FOR CERTIFICATES OF TAXPAYER ID. (W-9) 1 EXHIBIT 99.5 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 WHAT NAME AND NUMBER TO GIVE THE REQUESTER - --------------------------------------------------------- GIVE THE NAME AND FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF -- - --------------------------------------------------------- 1. Individual The individual 2. Two or more individuals The actual owner of (joint account) the 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- savings trust (grantor is trustee(1) 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 FOR THIS TYPE OF ACCOUNT: EMPLOYER IDENTIFICATION 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, The organization religious, 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. ------------------------ 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. (continued on back) 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 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, below, 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 nonresident 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. 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 this 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. -----END PRIVACY-ENHANCED MESSAGE-----