-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LBFl0nBnV/NHd0gXpnsx1bTpDmPaaNEs8/BlLPH3Xdb01+dJ+K4tCv9DF7KClR35 RXJuc7Ni2mu6R+ZHSjKbVA== 0000950150-97-000880.txt : 19970610 0000950150-97-000880.hdr.sgml : 19970610 ACCESSION NUMBER: 0000950150-97-000880 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970609 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RALPHS GROCERY CO /DE/ CENTRAL INDEX KEY: 0000835676 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954356030 STATE OF INCORPORATION: DE FISCAL YEAR END: 0128 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787 FILM NUMBER: 97620982 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7147382000 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BOULEVARD CITY: LAHABRA STATE: CA ZIP: 90631 FORMER COMPANY: FORMER CONFORMED NAME: FOOD 4 LESS SUPERMARKETS INC DATE OF NAME CHANGE: 19931027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAWFORD STORES INC CENTRAL INDEX KEY: 0000025500 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-01 FILM NUMBER: 97620983 BUSINESS ADDRESS: STREET 1: 1100 WEST ARTESIA BLVD CITY: COMPTON STATE: CA ZIP: 90220 BUSINESS PHONE: 3108849000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALLEYS INC /KS/ CENTRAL INDEX KEY: 0000835678 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FOOD STORES [5400] IRS NUMBER: 480605992 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-02 FILM NUMBER: 97620984 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 2132671501 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALA FOODS INC CENTRAL INDEX KEY: 0000838196 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 941342664 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-03 FILM NUMBER: 97620985 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: RETAIL-GROCERY STORES [5411] IRS NUMBER: 951456805 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-04 FILM NUMBER: 97620986 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: RETAIL-GROCERY STORES [5411] IRS NUMBER: 941569281 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-05 FILM NUMBER: 97620987 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALA CO CENTRAL INDEX KEY: 0000880803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954200005 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-06 FILM NUMBER: 97620988 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA H\SRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS OF CALIFORNIA INC CENTRAL INDEX KEY: 0000880823 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330293011 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-07 FILM NUMBER: 97620989 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LAHABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS MERCHANDISING INC CENTRAL INDEX KEY: 0000880824 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330483193 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-08 FILM NUMBER: 97620990 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS OF SOUTHERN CALIFORNIA INC CENTRAL INDEX KEY: 0000880825 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330483203 STATE OF INCORPORATION: DE FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-09 FILM NUMBER: 97620991 BUSINESS ADDRESS: STREET 1: 777 S HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 BUSINESS PHONE: 7146268776 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HABRA STATE: CA ZIP: 90631 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD 4 LESS GM INC CENTRAL INDEX KEY: 0000886141 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954390407 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-10 FILM NUMBER: 97620992 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: RETAIL-GROCERY STORES [5411] IRS NUMBER: 931087199 STATE OF INCORPORATION: CA FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28787-11 FILM NUMBER: 97620993 BUSINESS ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD CITY: LA HARSERA STATE: CA ZIP: 90631 BUSINESS PHONE: 7147382000 MAIL ADDRESS: STREET 1: 777 SOUTH HARBOR BLVD STREET 2: 777 SOUTH HARBOR BLVD CITY: LA HARSRA STATE: CA ZIP: 90631 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ RALPHS GROCERY COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5411 95-4356030 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) SUBSIDIARY REGISTRANTS ALPHA BETA COMPANY CALIFORNIA 95-1456805 BAY AREA WAREHOUSE STORES, INC. CALIFORNIA 93-1087199 BELL MARKETS, INC. CALIFORNIA 94-1569281 CALA CO. DELAWARE 95-4200005 CALA FOODS, INC. CALIFORNIA 94-1342664 CRAWFORD STORES, INC. CALIFORNIA 95-0657410 FALLEY'S, INC. KANSAS 48-0605992 FOOD 4 LESS OF CALIFORNIA, INC. CALIFORNIA 33-0293011 FOOD 4 LESS GM, INC. CALIFORNIA 95-4390407 FOOD 4 LESS MERCHANDISING, INC. CALIFORNIA 33-0483193 FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. DELAWARE 33-0483203 (EXACT NAME OF REGISTRANT AS (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER SPECIFIED IN ITS CHARTER) OF IDENTIFICATION INCORPORATION OR NUMBER) ORGANIZATION)
1100 WEST ARTESIA BOULEVARD COMPTON, CALIFORNIA 90220 (310) 884-9000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ WAYNE S. BELL ASSISTANT SECRETARY RALPHS GROCERY COMPANY 1100 WEST ARTESIA BOULEVARD COMPTON, CALIFORNIA 90220 (310) 884-9000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPY TO: THOMAS C. SADLER, ESQ. LATHAM & WATKINS 633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071 (213) 485-1234 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE ======================================================================================================= PROPOSED PROPOSED MAXIMUM TITLE OF EACH MAXIMUM AGGREGATE AMOUNT OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE - ------------------------------------------------------------------------------------------------------- 11% Senior Subordinated Notes due 2005................................. $155,000,000 100% $163,525,000 $49,554 Guarantees of the 11% Senior Subordinated Notes due 2005.......... -- -- -- (2) =======================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. (2) Pursuant to Rule 457(n), no separate fee is required. ------------------------ THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 PROSPECTUS OFFER TO EXCHANGE 11% SENIOR SUBORDINATED NOTES DUE 2005 FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2005 OF RALPHS GROCERY COMPANY THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1997 UNLESS EXTENDED. Ralphs Grocery Company (the "Company") is hereby offering (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 11% Senior Subordinated Notes due 2005 (the "Exchange Notes"), which exchange has been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a registration statement of which this Prospectus is a part (the "Registration Statement"), for each $1,000 principal amount of its outstanding 11% Senior Subordinated Notes due 2005 (the "Private Notes"), of which $155,000,000 in aggregate principal amount was issued on March 26, 1997 and is outstanding as of the date hereof. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the exchange will have been registered under the Securities Act, and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Registration Rights Agreement (as defined herein), which rights will terminate upon the consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be entitled to the benefits of an indenture dated as of March 26, 1997 governing the Private Notes and the Exchange Notes (the "Indenture"). The Private Notes and the Exchange Notes are sometimes referred to herein collectively as the "Notes" or the "1997 11% Senior Subordinated Notes." See "The Exchange Offer" and "Description of the Notes." The Exchange Notes will bear interest at the same rate and on the same terms as the Private Notes. Consequently, the Exchange Notes will bear interest at the rate of 11% per annum and the interest thereon will be payable semi-annually on June 15 and December 15 of each year, commencing June 15, 1997. The Exchange Notes will bear interest from the date of the last interest payment on the Private Notes or if no interest has been paid, from the date of original issuance of the Private Notes. Holders whose Private Notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Private Notes. The Notes will be redeemable, in whole or in part, at the option of the Company, at any time on and after June 15, 2000 at the respective redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to an aggregate of 35% of the Notes originally issued at the redemption prices set forth herein plus accrued and unpaid interest to the redemption date. Upon a Change of Control (as defined) each holder of Notes has the right to require the Company to repurchase such holder's 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 Notes at 100% of their principal amount, plus accrued and unpaid interest to the date of repurchase, with the net cash proceeds of certain sales or other dispositions of assets. The terms of the Notes are substantially identical to those of the Company's 11% Senior Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes"), which were issued in a registered offering on June 14, 1995 and of which $524 million aggregate principal amount is outstanding. The 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 Refinanced Credit Facility, the 1996 10.45% Senior Notes, the 1995 10.45% Senior Notes, the 1992 10.45% Senior Notes (each as defined) and capital lease obligations. The Notes will rank pari passu in right of payment with other senior subordinated indebtedness of the Company, including the Company's obligations under the 1995 11% Senior Subordinated Notes. At April 27, 1997, the Company had outstanding $1,436.8 million aggregate principal amount of Senior Indebtedness (not including obligations with respect to letters of credit issued under the Refinanced Credit Facility, of which $89.1 million were outstanding as of April 27, 1997), and $526.2 million of indebtedness ranking pari passu with the Notes (not including $145.0 million of 13.75% Senior Subordinated Notes (as defined), which were redeemed on April 28, 1997 with the proceeds of the Private Placement (as defined) of the Private Notes). The Notes will be unconditionally guaranteed (the "Guarantees") on a senior subordinated unsecured basis by each of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors"). The Company will accept for exchange any and all validly tendered Private Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1997, unless the Exchange Offer is extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. Private Notes may be tendered only in integral multiples of $1,000. The Exchange Offer is subject to certain customary conditions. See "The Exchange Offer -- Conditions." SEE "RISK FACTORS" ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES SHOULD BE CONSIDERED BY POTENTIAL INVESTORS IN THE NOTES. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is , 1997 3 Based on an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act; provided that the holder is acquiring the Exchange Notes in the ordinary course of its business and is not participating, and had no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Registration Rights Agreement, that such conditions have been met. The Company believes that none of the registered holders of the Private Notes is an affiliate (as such term is defined in Rule 405 under the Securities Act) of the Company. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has indicated its intention to make this Prospectus (as it may be amended or supplemented) available to any broker-dealer for use in connection with any such resale for a period of 90 days after the Expiration Date. See "Plan of Distribution." Prior to the Exchange Offer, there has been no public market for the Notes. The Company does not intend to list the Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Notes will develop. To the extent that a market for the Notes does develop, the market value of the Notes will depend on market conditions (such as yields on alternative investments), general economic conditions, the Company's financial condition and certain other factors. Such conditions might cause the Notes, to the extent that they are traded, to trade at a significant discount from face value. See "Risk Factors -- Absence of Public Market." The Company will not receive any proceeds from, and has agreed to bear the expenses of, the Exchange Offer. No underwriter is being used in connection with this Exchange Offer. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. The Exchange Notes will be available initially only in book-entry form. The Company expects that the Exchange Notes issued pursuant to the Exchange Offer will be issued in the form of one or more fully registered global notes that will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or the "Depositary") and registered in its name or in the name of Cede & Co., as its nominee. Beneficial interests in the global note representing the Exchange Notes will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary and its participants. After the initial issuance of such global note, Exchange Notes in certificated form will be issued in exchange for the global note only in accordance with the terms and conditions set forth in the Indenture. See "Description of the Notes -- Book Entry." 2 4 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the Financial Statements and notes thereto, appearing elsewhere in this Prospectus. Unless the context otherwise requires, as used in this Prospectus (i) all references to the "Company" refer to Ralphs Grocery Company subsequent to its merger (the "Merger") with Food 4 Less Supermarkets, Inc. ("Food 4 Less") on June 14, 1995 and refer to Food 4 Less prior to such date, and (ii) all references to "Ralphs" or "RSI" refer to Ralphs Supermarkets, Inc. and all references to "RGC" refer to Ralphs Grocery Company, a wholly owned subsidiary of RSI, in each case prior to the consummation of the Merger. As used herein, references to "fiscal 1996" refer to the 53 week period ended February 2, 1997, which included a 17 week fourth quarter, and references to "fiscal 1995" refer to the 52 week period ended January 28, 1996, which included a 16 week fourth quarter and for the period prior to the date of the Merger reflects only the operations of Food 4 Less. All references to market share and demographic data in this Prospectus are based on the most recent industry publications and, unless otherwise indicated, all references to numbers of stores are as of February 2, 1997. As used herein, "Southern California" means Los Angeles, Orange, Ventura, San Bernardino, Riverside, San Diego, Kern and Santa Barbara counties. THE COMPANY Ralphs Grocery Company (the "Company") is the largest supermarket operator in Southern California with 342 stores and an estimated market share of 26 percent in Los Angeles and Orange Counties. The Company operates the second largest conventional supermarket chain in Southern California under the "Ralphs" name (263 stores) and the largest warehouse supermarket chain in the region under the "Food 4 Less" name (79 stores). The Company also operates in Northern California (27 stores) and the Midwest (36 stores). In Southern California, the Company's two complementary formats allow it to serve a broad customer base and tailor its stores to the market characteristics of individual store locations. The Company's conventional Ralphs stores emphasize a broad selection of merchandise, high quality fresh produce, meat and seafood and service departments, including bakery and delicatessen departments in most stores. The Company's conventional stores also benefit from Ralphs' strong private label program and its strengths in merchandising, store operations and systems. By passing on format-related efficiencies, the Food 4 Less price impact warehouse format stores offer consumers the lowest overall prices while providing product selections comparable to conventional supermarkets. At the beginning of fiscal 1996, the Company streamlined its management structure and implemented several strategic initiatives which have contributed to improving operating trends at the Company. These initiatives have resulted in several notable achievements during fiscal 1996, including: (i) positive comparable store sales for three consecutive quarters, including a 3.5% increase in Southern California comparable store sales in the fourth quarter of fiscal 1996, (ii) an improvement of the Company's EBITDA margin to 6.7% in the fourth quarter of fiscal 1996 from 5.5% in the comparable prior-year period, (iii) the opening of 26 new stores and the remodeling of 20 stores, (iv) the acquisition and integration of a one million square foot, state-of-the-art distribution center, and (v) the launching of a major new marketing program designed to increase sales and market share under the "First in Southern California" theme. In fiscal 1996 Ralphs reported total sales of approximately $5.5 billion and EBITDA (as defined) of $354.6 million. For the 12 week first quarter of fiscal 1997 ending on April 27, 1997, the Company had sales of approximately $1.3 billion and EBITDA (as defined) of $85.0 million (or 6.7 percent of sales) as compared to sales of $1.2 billion and EBITDA (as defined) of $70.1 million (or 5.7 percent of sales) for the first quarter of fiscal 1996. Total Company comparable store sales increased by 4.1% for the first quarter of fiscal 1997 and, EBITDA (as defined) increased by 21.3% over the prior year period. The Company is controlled by The Yucaipa Companies ("Yucaipa"), a private investment group which specializes in the supermarket industry. The principals of Yucaipa have significant expertise in acquiring and managing companies in the supermarket industry, having completed 13 transactions. The other supermarket companies presently controlled or managed by Yucaipa are Dominick's Finer Foods, Inc. (NYSE: DFF) and 3 5 Smith's Food & Drug Centers, Inc. (NYSE: SFD). These companies, together with the Company, operate a total of 655 stores and had aggregate combined sales of approximately $11 billion in their most recent fiscal years. COMPANY STRENGTHS Management and Yucaipa believe that the Company has several competitive advantages, including: (i) a leading market position in Southern California, (ii) a modern store base with attractive locations, (iii) technologically advanced warehouse and distribution systems, and (iv) an experienced management team. - - LEADING MARKET POSITION IN SOUTHERN CALIFORNIA. The Company is the largest supermarket operator in Southern California with a 26% market share in Los Angeles and Orange Counties. The Company believes that, as a result of its strong market share in Southern California, it will benefit from the improving economic conditions in the region. Management believes that the Southern California economy, which experienced a significant downturn beginning in 1991, has stabilized, with employment growth remaining relatively constant since 1995 and retail spending experiencing a recovery since 1994. - - MODERN STORE BASE WITH ATTRACTIVE LOCATIONS. The Company has a modern store base with 60.7% of its stores having been either opened or remodeled in the last five years. Since the Merger, the Company has closed 74 smaller, underperforming stores, opened 37 stores, and expanded or remodeled 23 stores. These improvements to its store base have resulted in an increase in Southern California average store size of approximately 11.6%. In addition, as a result of Ralphs' 124-year history in Southern California, the Company has valuable and well established store locations, many which are in densely populated metropolitan areas. - - TECHNOLOGICALLY ADVANCED WAREHOUSE AND DISTRIBUTION SYSTEMS. The Company has what it believes to be among the newest and most technologically advanced warehousing and distribution systems in the industry. These include: (i) a one million square foot, state-of-the-art manufacturing and distribution center located in Riverside, California (the "Riverside Facility"), which was originally opened in 1994 and which contains a creamery and an integrated warehouse for dry grocery, dairy/deli and frozen food storage; (ii) a 17 million cubic foot high-rise automated storage and retrieval system warehouse in the Glendale, California vicinity (the "Glendale Facility") for non-perishable items, on which the Company completed a major renovation in March 1997; and (iii) a 5.4 million cubic foot perishable service center in Compton, California (the "Compton Facility") built in 1992 and designed for the processing, storage and distribution of perishable items. The acquisition of the Riverside facility allowed the Company to eliminate certain of its smaller and less efficient warehouse facilities, and to consolidate its distribution operations into the modern, efficient facilities located in Compton, Glendale and Riverside, California. The consolidation allowed the Company to improve its inventory management and reduce transportation costs between facilities, management overhead and outside storage costs. - - EXPERIENCED MANAGEMENT TEAM. The executive officers of the Company have extensive experience in the supermarket industry. The Company's management expertise combines the strengths of the former management teams of both Ralphs and Food 4 Less, including strong store operations experience, a reputation for quality and service, and demonstrated effectiveness in cost control and in the acquisition and integration of supermarket companies. 4 6 OPERATING STRATEGY AND GROWTH Management is continuing to implement its strategic plan designed to increase sales and profitability which consists of the following principal elements: (i) aggressive new store and store remodeling programs, (ii) continued implementation of cost savings initiatives, and (iii) innovative marketing and merchandising programs. - - AGGRESSIVE NEW STORE AND STORE REMODELING PROGRAMS. Management believes that substantial opportunities exist to increase sales and profitability through the opening of new stores and the remodeling of existing stores. During fiscal 1996, the Company opened 26 new stores. Average weekly sales at such stores were over 33% higher than the overall chain average. The Company performed remodels on 20 stores during fiscal 1996, and realized an average increase in weekly sales of over 10%. The Company believes its new store and remodel programs can continue to achieve positive results in the future. The Company plans to open approximately eight new Ralphs stores, four new Food 4 Less stores and to remodel, on a combined basis, approximately 57 stores in fiscal 1997. - - CONTINUED IMPLEMENTATION OF COST SAVINGS INITIATIVES. At the time of the Merger, management estimated that approximately $90 million of net annual cost savings could be achieved by the end of the fourth full year of combined operations following the Merger. Although the Company experienced delays in the realization of certain of the cost savings anticipated at the time of the Merger, the Company believes that the full amount of the $90 million in net annual cost savings will still be realized within such time frame. To date, the Company has realized the projected cost savings from the reduction in advertising expenses and the consolidation of administrative functions. The Company has achieved portions of and expects to achieve the remaining amount of the originally anticipated cost savings through volume purchasing efficiencies, improved warehouse and distribution efficiencies, consolidating manufacturing facilities, and reducing store operations expenses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." - - INNOVATIVE MARKETING AND MERCHANDISING PROGRAMS. The Company utilizes innovative and aggressive marketing programs in an effort to increase sales, market share and profitability. In September 1996 the Company launched its "First in Southern California" marketing program, which emphasizes Ralphs' lower regular retail prices in conjunction with its premier quality, wide selection and enhanced customer service. The new marketing campaign also highlights the Company's belief that more shoppers are choosing Ralphs than any other supermarket in the region. Management believes that consumers' favorable response to the "First in Southern California" marketing campaign has resulted in increased customer traffic at its stores and has contributed to an increase in fiscal 1996 fourth quarter comparable store sales in Southern California of 3.5%. The Company continues to emphasize its successful merchandising programs and exceptional product mix, including its strong private label program and home meal replacement programs. The Company's private label program provides quality comparable to that of national brands at significantly lower prices, while the Company's gross margins on private label products are generally higher than on national brands. The Company believes it has one of the most successful private label programs in the industry, with private label sales equal to approximately 18% of total grocery sales. The Company intends to continue to expand its home meal replacement program in its conventional supermarkets. The Company's home meal replacement program offers a wide range of pre-packaged fresh, refrigerated and frozen food items. REFINANCING OF CREDIT FACILITY AND OLD SENIOR SUBORDINATED NOTES On April 17, 1997, the Company amended and restated (the "Refinanced Credit Facility") its existing credit facilities (the "1995 Credit Facility"). The Refinanced Credit Facility has lower interest rates and a longer average life than the 1995 Credit Facility. The Refinanced Credit Facility consists of a $325.0 million Revolving Credit Facility, a $200.0 million Term Loan A Facility and a $350.0 million Term Loan B Facility. On April 17, 1997 immediately prior to the effectiveness of the amendment and restatement, the outstanding term loans under the 1995 Credit Facility were $540.4 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 5 7 On March 26, 1997 the Company issued $155 million aggregate principal amount of Private Notes at a premium price of 105.5% resulting in gross proceeds of $163.5 million (the "Private Placement"). The Private Notes were sold by the Company to BT Securities Corporation ("BT Securities"), CIBC Wood Gundy Securities Corp. ("CIBC Wood Gundy"), Credit Suisse First Boston ("CS First Boston") and Donaldson, Lufkin, Jenrette Securities Corporation ("DLJ") as Initial Purchasers in a transaction exempt from registration requirements of the Securities Act (the "Private Placement"). The net proceeds of the Private Notes were used to (i) redeem, on April 28, 1997, $140.2 million aggregate principal amount of the Company's outstanding 13.75% Senior Subordinated Notes due 2005 (the "1995 13.75% Senior Subordinated Notes") at a price of 106.111%, plus accrued interest to the date of redemption and $4.8 million aggregate principal amount of the Company's outstanding 13.75% Senior Subordinated Notes due 2001 (the "1991 13.75% Senior Subordinated Notes," and together with the 1995 13.75% Senior Subordinated Notes, the "13.75% Senior Subordinated Notes") at a price of 106.111%, plus accrued interest to the date of redemption and (ii) pay fees and expenses related to the Private Placement. It is anticipated that the refinancing of the 1995 Credit Facility, together with the lower interest cost associated with the replacement of the 13.75% Senior Subordinated Notes with the Notes, will reduce the Company's annual interest expense by approximately $12 million. See Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." 6 8 THE EXCHANGE OFFER THE EXCHANGE OFFER......The Company is hereby offering to exchange $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Private Notes that are properly tendered and accepted. The Company will issue Exchange Notes on or promptly after the Expiration Date. As of the date hereof, there is $155,000,000 aggregate principal amount of Private Notes outstanding. See "The Exchange Offer." Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act; provided that the holder is acquiring Exchange Notes in the ordinary course of its business and is not participating, and had no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "The Exchange Offer -- Resale of the Exchange Notes." REGISTRATION RIGHTS AGREEMENT.............The Private Notes were sold by the Company on March 26, 1997 to the Initial Purchasers pursuant to a Purchase Agreement, dated March 21, 1997, between the Company, the Subsidiary Guarantors and the Initial Purchasers (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company, the Subsidiary Guarantors and the Initial Purchasers entered into a Registration Rights Agreement, dated as of March 26, 1997 (the "Registration Rights Agreement"), which grants the holders of the Private Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such rights, which will terminate upon the consummation of the Exchange Offer. The holders of the Exchange Notes will not be entitled to any exchange or registration rights with respect to the Exchange Notes. See "The Exchange Offer -- Termination of Certain Rights." EXPIRATION DATE.........The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997 unless the Exchange Offer is extended by the Company in its sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." ACCRUED INTEREST ON THE EXCHANGE NOTES AND THE PRIVATE NOTES.........The Exchange Notes will bear interest from the date of the last interest payment on the Private Notes or if no interest has been paid, from the date of original issuance of the Private Notes. Holders whose Private Notes are accepted for exchange will be deemed to have waived the right to receive any 7 9 interest accrued on the Private Notes. See "The Exchange Offer -- Interest on the Exchange Notes." CONDITIONS TO THE EXCHANGE OFFER..........The Exchange Offer is subject to certain customary conditions that may be waived by the Company. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Private Notes being tendered for exchange. See "The Exchange Offer -- Conditions." PROCEDURES FOR TENDERING PRIVATE NOTES.........Each holder of Private Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Private Notes and any other required documentation to United States Trust Company of New York, as exchange agent (the "Exchange Agent"), at the address set forth herein. By executing the Letter of Transmittal, the holder will represent to and agree with the Company that, among other things, (i) the Exchange Notes to be acquired by such holder of Private Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of its business, (ii) such holder has no arrangement or understanding with any person to participate in a distribution of the Exchange Notes, (iii) that if such holder is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing the Exchange Notes, such holder will comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in no-action letters (see "The Exchange Offer -- Resale of the Exchange Notes"), (iv) such holder understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by such holder in exchange for Private Notes acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "The Exchange Offer -- Procedures for Tendering." SPECIAL PROCEDURES FOR BENEFICIAL OWNERS.....Any beneficial owner whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender such Private Notes in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private Notes in 8 10 such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. See "The Exchange Offer -- Procedures for Tendering." GUARANTEED DELIVERY PROCEDURES............Holders of Private Notes who wish to tender their Private Notes and whose Private Notes are not immediately available or who cannot deliver their Private Notes, the Letter of Transmittal or any other documentation required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Private Notes according to the guaranteed delivery procedures set forth under "The Exchange Offer -- Guaranteed Delivery Procedures." ACCEPTANCE OF THE PRIVATE NOTES AND DELIVERY OF THE EXCHANGE NOTES........Subject to the satisfaction or waiver of the conditions to the Exchange Offer, the Company will accept for exchange any and all Private Notes that are properly tendered in the Exchange Offer prior to the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered on the earliest practicable date following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." WITHDRAWAL RIGHTS.......Tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. See "The Exchange Offer -- Withdrawal of Tenders." CERTAIN FEDERAL INCOME TAX CONSIDERATIONS....The exchange of Private Notes for Exchange Notes will be treated as a "non-event" for federal income tax purposes because the Exchange Notes will not be considered to differ materially from the Private Notes. As a result, no material federal income tax consequences will result to holders exchanging Private Notes for Exchange Notes. See "Certain Federal Income Tax Considerations." EXCHANGE AGENT..........United States Trust Company of New York is serving as the Exchange Agent in connection with the Exchange Offer. THE EXCHANGE NOTES The Exchange Offer applies to $155,000,000 aggregate principal amount of the Private Notes. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the exchange will have been registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Registration Rights Agreement, which rights will terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be issued under, and be entitled to the benefits of, an indenture governing the Private Notes and the Exchange Notes dated March 26, 1997 (the "Indenture") among the Company, the Subsidiary Guarantors and United States Trust Company, as Trustee (the "Trustee"). The Exchange Notes and the Private Notes are sometimes collectively referred to herein as the "Notes." The terms of the Private Notes and the Exchange Notes are substantially identical to those of the Company's 11% Senior Subordinated Notes due 2005 (the "1995 Senior Subordinated Notes"), which were issued in a registered offering on June 14, 1995 and of which $524 million aggregate principal amount is outstanding. For further information and for definitions of certain capitalized terms used below, see "Description of the Notes." 9 11 ISSUER..................Ralphs Grocery Company. NOTES OFFERED...........$155,000,000 aggregate principal amount of 11% Senior Subordinated Notes due 2005. MATURITY DATE...........June 15, 2005. INTEREST RATE...........The Exchange Notes will bear interest at the rate of 11% per annum. INTEREST PAYMENT DATES...................June 15 and December 15, commencing on June 15, 1997. OPTIONAL REDEMPTION.....The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after June 15, 2000, at the following redemption prices if redeemed during the twelve-month period commencing on June 15 of the year set forth below:
REDEMPTION YEAR PRICE -------------------------------------------------------- ---------- 2000.................................................... 105.500% 2001.................................................... 103.667% 2002.................................................... 101.833% 2003 and thereafter..................................... 100.000%
in each case plus accrued and unpaid interest to the date of redemption. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds from one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Notes originally issued, at a redemption price equal to 109.429% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1996 and 107.857% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid interest to the redemption date. RANKING.................The 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 Refinanced Credit Facility, the 1996 Senior Notes, the 1995 Senior Notes, and the 1992 Senior Notes. At April 27, 1997, the aggregate amount of Senior Indebtedness of the Company was $1,436.8 million (not including obligations with respect to letters of credit issued under the Refinanced Credit Facility, of which $89.1 million were outstanding as of April 27, 1997), the aggregate amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) was $9.0 million, the Company had $124.4 million available to be borrowed under the Revolving Facility, net of outstanding standby letters of credit of $89.1 million, and the aggregate amount of indebtedness ranking pari passu with the Notes was $526.2 million (not including $145.0 million of 13.75% Senior Subordinated Notes, which were redeemed on April 28, 1997 with the proceeds of the Private Placement of the Private Notes). GUARANTEES..............Pursuant to the Indenture, the Notes will be unconditionally guaranteed (the "Guarantees") on a senior subordinated unsecured basis by each of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantees (as defined) will be general unsecured obligations of the Subsidiary Guarantors and will be subordinated in right of payment to all existing and future Senior Debt of the Subsidiary Guarantors. 10 12 CHANGE OF CONTROL.......Upon a Change of Control (as defined), each holder of the Notes has the right to require the Company to repurchase such holder's Notes at a price equal to 101% of the principal amount plus accrued and unpaid interest to the date of repurchase. CERTAIN COVENANTS.......The Indenture contains certain covenants, including, but not limited to, covenants with respect to the following: (i) limitation on restricted payments; (ii) limitation on incurrences of additional indebtedness; (iii) limitation on liens; (iv) limitation on asset sales; (v) limitation on dividend and other payment restrictions affecting subsidiaries; (vi) guarantees of certain indebtedness; (vii) limitation on transactions with affiliates; (viii) limitation on mergers and certain other transactions; and (ix) limitations on preferred stock of subsidiaries. 11 13 SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY The following table sets forth summary historical financial data of the Company and its predecessor Food 4 Less as of and for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997 which have been derived from the financial statements of the Company and Food 4 Less audited by Arthur Andersen LLP, independent public accountants. Certain prior period amounts in the financial data presented below have been reclassified to conform to the fiscal 1997 presentation. The summary historical financial data of the Company presented below as of and for the 12 weeks ended April 21, 1996 and April 27, 1997 have been derived from unaudited financial statements of the Company which, in the opinion of management, reflect all material adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus.
12 WEEKS 12 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED APRIL APRIL JUNE 27, JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, 21, 27, 1992 1993 1994(A) 1995(B) 1996(C) 1997 1996 1997 -------- -------- -------- ----------- ----------- ----------- -------- -------- (IN MILLIONS, EXCEPT STORE DATA) (UNAUDITED) OPERATING DATA: Sales............... $2,913.5 $2,742.0 $2,585.2 $ 1,556.5 $ 4,335.1 $ 5,516.3 $1,230.8 $1,276.2 Gross profit(d)..... 483.8 468.9 458.9 259.7 808.0 1,136.0 237.9 263.0 Selling, general and administrative expenses.......... 432.7 419.6 378.4 219.7 744.4 933.4 206.6 209.8 Interest expense(e)........ 70.2 69.7 68.3 42.2 178.8 248.4 56.1 57.0 Net (loss)(f)....... (33.8) (27.4) (2.7) (11.5) (283.2) (93.8) (32.0) (60.0) Ratio of earnings to fixed charges(g)........ -- (g) -- (g) 1.0 x --(g) --(g) --(g) -- (g) -- (g) BALANCE SHEET DATA (end of period)(h): Working capital surplus (deficit)......... $ (66.3) $ (19.2) $ (54.9) $ (74.8) $ (178.5) $ (182.6) $(230.2) $(167.8) Total assets........ 998.5 957.8 980.1 1,000.7 3,188.1 3,132.0 3,144.8 3,233.6 Total debt(i)....... 525.3 538.1 517.9 533.8 2,082.3 2,093.2 2,059.7 2,271.6 Stockholder's equity (deficit)......... 50.8 72.9 69.0 57.8 59.1 (35.6) 27.1 (95.5) OTHER DATA: Depreciation and amortization(j)... $ 54.9 $ 57.6 $ 57.1 $ 36.6 $ 125.3 169.7 $ 36.7 $ 37.8 Capital expenditures...... 60.3 53.5 57.5 49.0 122.4 123.6 34.2 31.0 Stores open at end of period......... 249 248 258 267 408 405 407 405 EBITDA (as defined)(k)....... $ 101.7 $ 103.8 $ 130.6 $ 76.9 $ 245.1 $ 354.6 $ 70.1 $ 85.0 EBITDA margin(l).... 3.5 % 3.8 % 5.1 % 4.9% 5.7% 6.4% 5.7 % 6.7 %
- --------------- (a) Operating data for the 52 weeks ended June 25, 1994 include the results of 10 Food Barn stores, which were not material, from March 29, 1994, the date of the Food Barn acquisition. (b) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week period which ends on the last Saturday in June to the 52 or 53-week period which ends on the Sunday closest to January 31, resulting in a 31-week transition period. (c) Operating data for the 52 weeks ended January 28, 1996 reflects the acquisition of Ralphs on June 14, 1995. (d) Cost of sales has been principally determined using the last-in, first-out ("LIFO") method of valuing inventory. If cost of sales had been determined using the first-in, first-out ("FIFO") method, gross profit would have been greater by $3.6 million, $4.4 million, $0.7 million, $2.7 million, $2.2 million, $5.6 million, $1.3 million (unaudited) and $1.7 million (unaudited) for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997 and the 12 weeks ended April 21, 1996 and April 27, 1997, respectively. (e) Interest expense includes non-cash charges related to the amortization of deferred financing costs and self-insurance discount of $11.3 million for the 52 weeks ended June 27, 1992, $10.8 million for the 52 weeks ended June 26, 1993, $11.3 million for the 12 14 52 weeks ended June 25, 1994, $6.9 million for the 31 weeks ended January 29, 1995, $18.5 million for the 52 weeks ended January 28, 1996, $21.5 million for the 53 weeks ended February 2, 1997, $5.3 million for the 12 weeks ended April 21, 1996 and $4.4 million for the 12 weeks ended April 27, 1997. (f) 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 $51.1 million, $43.9 million, $25.7 million, $9.8 million, $32.6 million, $29.2 million, $10.6 million and $9.5 million for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997, respectively. Included in the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996 are reduced employer contributions of $8.1 million, $14.3 million and $26.1 million, respectively, related to union health and welfare benefit plans. Included in the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997 are reduced employer contributions of $17.8 million, $1.0 million and $2.7 million, respectively, related to union pension and health and welfare benefit plans. (g) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of loss before provision for income taxes and extraordinary charges plus fixed charges. "Fixed charges" consist of interest on all indebtedness, amortization of deferred debt financing costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 52 weeks ended June 27, 1992 and June 26, 1993, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997, by approximately $25.6 million, $25.9 million, $11.5 million, $259.6 million, $93.8 million, $32.0 million and $12.0 million, respectively. However, such earnings included non-cash charges of $61.2 million for the 52 weeks ended June 27, 1992, $62.5 million for the 52 weeks ended June 26, 1993, $40.0 million for the 31 weeks ended January 29, 1995, $202.5 million for the 52 weeks ended January 28, 1996, $180.3 million for the 53 weeks ended February 2, 1997, $40.0 million for the 12 weeks ended April 21, 1996 and $40.6 million for the 12 weeks ended April 27, 1997, primarily consisting of depreciation and amortization and the write-off of property and equipment associated with stores closed as a result of the Merger, stores closed due to under-performance, stores closed in connection with the acquisition of the nine stores from Smith's, and warehouses to be closed as a result of the acquisition of the Riverside Facility. In addition, earnings for the 52 weeks ended January 28, 1996 were reduced by cash restructuring charges of $54.1 million. (h) Balance sheet data as of June 25, 1994 reflect the acquisition of 10 Food Barn stores. Balance sheet data as of January 28, 1996 relate to the Company and reflect the Merger and the financings associated therewith. (i) Total debt includes long-term debt, current maturities of long-term debt and capital lease obligations. (j) For the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997, depreciation and amortization includes amortization of goodwill of $7.8 million, $7.6 million, $7.7 million, $4.6 million, $21.8 million, $38.7 million, $7.2 million and $8.1 million, respectively. (k) "EBITDA (as defined)," as presented historically by the Company, represents income before interest expense, depreciation and amortization expense, the LIFO provision, provision for income taxes, provision for earthquake losses, provision for restructuring, a one-time charge in the 1995 transition period for Teamsters Union sick pay benefits, $75.0 million of one-time costs incurred in connection with the Merger in fiscal year 1995 and $13.5 million of one-time costs incurred in connection with the acquisition of the Riverside Facility and nine former Smith's stores in fiscal year 1996. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. EBITDA as presented may not be comparable to EBITDA of other companies that do not calculate EBITDA in the same manner as the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (l) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 13 15 SUMMARY HISTORICAL FINANCIAL DATA OF RSI The following table sets forth 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 audited by KPMG Peat Marwick LLP, independent certified public accountants. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of RSI and related notes thereto included elsewhere in this Prospectus.
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN MILLIONS, EXCEPT STORE DATA) OPERATING DATA: Sales....................................................... $ 2,843.8 $ 2,730.2 $ 2,724.6 Gross profit................................................ 626.6 636.5 623.6 Selling, general and administrative expenses(a)............. 470.0 471.0 467.0 Interest expense(b)......................................... 125.6 108.8 112.7 Net earnings (loss)(c)...................................... (76.1) 138.4(i) 32.1 Ratio of earnings to fixed charges(d)....................... 1.02x 1.24x 1.24x BALANCE SHEET DATA (end of period): Working capital surplus (deficit)........................... $ (122.0) $ (73.0) $ (119.5) Total assets................................................ 1,388.5 1,483.7 1,509.9 Total debt(e)............................................... 1,029.8 998.9 1,018.5 Stockholders' equity (deficit).............................. (133.3) 5.1 27.2 OTHER DATA: Depreciation and amortization(f)............................ $ 76.9 $ 74.5 $ 76.0 Capital expenditures........................................ 102.7 62.2 64.0 Stores open at end of period................................ 159 165 173 EBITDA (as defined)(g)...................................... $ 227.3 $ 230.2 $ 230.2 EBITDA margin(h)............................................ 8.0% 8.4% 8.4%
- --------------- (a) Includes provision for post retirement benefits other than pensions of $3.3 million, $3.4 million and $2.6 million for the 52 weeks ended 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 $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 the 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 $36.9 million, $36.3 million, and $20.0 million, for 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, 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). (e) Total debt includes long-term debt, current maturities of long-term debt, short-term debt and capital lease obligations. (f) For the 52 weeks ended January 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 and $11.0 million, respectively. (g) "EBITDA," as defined and presented historically by RSI, represents earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, provision for postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses, a one-time charge for Teamsters Union sick pay benefits, transition expense and gains and losses on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Ralphs' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (h) EBITDA margin represents EBITDA (as defined) as a percentage of sales. (i) Includes recognition of $109.1 million of deferred income tax benefit and $1.1 million current income tax expense for the 52 weeks ended January 30, 1994 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.). 14 16 RISK FACTORS Prospective investors should carefully consider the following factors, in addition to the other matters described in this Prospectus, before purchasing Notes. LEVERAGE AND DEBT SERVICE The Company is highly leveraged. At April 27, 1997, the Company's total indebtedness (including current maturities) was $2,271.6 million (including $145.0 million of 13.75% Senior Subordinated Notes, which were redeemed on April 28, 1997 with the proceeds of the Private Placement) and Stockholder's deficit was $95.5 million, and the Company had an additional $124.4 million available to be borrowed under the $325 million Revolving Facility portion of the Refinanced Credit Facility (the "Revolving Facility") (net of $89.1 million in standby letters of credit outstanding). On April 28, 1997, the 13.75% Senior Subordinated Notes were redeemed at a price of 106.1 percent of their principal amount, plus accrued interest thereon. $161.2 million of the proceeds of the Private Placement, which was included in Restricted Cash at April 27, 1997, was used to redeem the 13.75% Senior Subordinated Notes. In addition, as of February 2, 1997, scheduled payments under operating leases of the Company and its subsidiaries for the twelve months following such date were $145.7 million. For the 53 weeks ended February 2, 1997, after giving pro forma effect to the Private Placement and the application of the proceeds therefrom and the issuance of $100 million aggregate principal amount of 10.45% Senior Notes due 2004 issued on June 6, 1996 (the "1996 Senior Notes"), the Company's earnings before fixed charges were inadequate to cover fixed charges by $108.4 million. However, such earnings included non-cash charges of $186.3 million primarily consisting of depreciation and amortization. For the 12 weeks ended April 27, 1997, the Company's earnings before fixed charges were inadequate to cover fixed charges by $12.0 million. However, such earnings included non-cash charges of $40.7 million primarily consisting of depreciation and amortization. The Company's parent, Food 4 Less Holdings, Inc. ("Holdings") will be required to make semi-annual cash payments of interest on its outstanding debt issued in connection with the Merger commencing in December 2000 in the amount of approximately $61 million per annum. The Indenture permits the Company (in the absence of a default or event of default thereunder) to pay cash dividends to Holdings in an amount sufficient to allow Holdings to pay interest on such Indebtedness when due. The Company's ability to make scheduled payments of the principal of, or interest on, or to refinance its Indebtedness (including the Notes) and to make scheduled payments under its operating leases depends on its future performance, which to a certain extent is subject to economic, financial, competitive and other factors beyond its control. Based upon the current level of operations and anticipated future growth, the Company believes that its cash flow from operations, together with available borrowings under the Revolving Facility and its other sources of liquidity (including leases), will be adequate to meet its anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments over the next several years. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that future cost savings and growth can be achieved. If the Company is unable to generate sufficient cash flow from operations in the future to service its debt and make necessary capital expenditures, or if its future earnings growth is insufficient to meet all required principal payments out of internally generated funds, the Company may be required to refinance all or a portion of its existing debt, sell assets or obtain additional financing. There can be no assurance that any such refinancing or asset sales would be possible or that any additional financing could be obtained, particularly in view of the Company's high level of debt and the fact that substantially all of its assets are pledged to secure the borrowings under the Refinanced Credit Facility and other secured obligations. The Company's high level of debt will have several significant 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 Refinanced Credit Facility and other agreements relating to the Company's indebtedness and in the Indenture will require the Company to meet certain financial tests and will restrict its ability to borrow additional funds, to dispose of 15 17 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 effort and, therefore, its inability to finance capital expenditures through borrowed funds could have a material adverse effect on the Company's future operations. Moreover, any default under the documents governing the indebtedness of the Company could have a significant adverse effect on the market value of the Notes. SUBORDINATION OF THE NOTES The payment of principal, premium, if any, and interest on, and any other amounts owing in respect of, the Notes will be subordinated to the prior payment in full of all existing and future Senior Indebtedness, including indebtedness under the Refinanced Credit Facility, the 1996 Senior Notes, the 1995 Senior Notes and the 1992 Senior Notes. Each Subsidiary Guarantor's Senior Subordinated Note 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 Refinanced Credit Facility, the 1996 Senior Notes, the 1995 Senior Notes and the 1992 Senior Notes. As of April 27, 1997, the aggregate outstanding amount of Senior Indebtedness of the Company was $1,436.8 million and the aggregate outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of the Company) was $9.0 million and the Company had $124.4 million available to be borrowed under the Revolving Facility, net of $89.1 million in outstanding standby letters of credit issued. The Indenture limits, but does not prohibit, the issuance by the Subsidiary Guarantors of additional indebtedness which is Guarantor Senior Indebtedness. See "Description of the 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 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 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 Notes, or purchase, redeem or otherwise retire the 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 Note Trustee (as defined). See "Description of the Notes -- Subordination of the Notes." 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. One of the Company's primary competitors in Southern California was recently acquired by a major multi-regional supermarket chain which may increase competitive pressures for the Company. See "Business -- Competition." ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS At the time of the Merger, management of the Company 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) could be achieved over a four year period as a result of integrating the operations of Ralphs and Food 4 Less. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." The cost savings estimates were prepared solely by members of the management of the Company. The estimates necessarily made numerous assumptions as to future sales levels and other operating results, the 16 18 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 were premised on the assumption that certain levels of efficiency formerly maintained by either Food 4 Less or Ralphs could continue to be achieved by the combined Company for all periods following the Merger. Other estimates were 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. Estimates of potential cost savings are forward looking statements that are inherently uncertain. Except for savings already realized, actual cost savings, if any, could differ materially from those projected. All of these forward looking statements are based on estimates and assumptions made by management of the Company, which although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such estimates. There can be no assurance that the savings anticipated in these forward looking statements will be achieved. The following important factors, (as well as the factors set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview -- Forward Looking Statements") among others, could cause the Company not to achieve the cost savings contemplated herein or otherwise cause the Company's results of operations to be adversely affected in future periods: (i) increased competitive pressures from existing competitors and new entrants, including price-cutting strategies, store openings and remodels; (ii) inability to negotiate more favorable terms with suppliers;(iii) inability to achieve future sales levels or other operating results that support the cost savings; (iv) increases in labor costs; (v) inability to control inventory levels; and (vi) operational inefficiencies in distribution or other Company systems. Many of such factors are beyond the control of the Company. In addition, there can be no assurance that unforeseen costs and expenses or other factors will not offset the estimated cost savings or other components or the Company's plan in whole or in part. Following the Merger, the Company experienced certain unanticipated costs and delays in the realization of certain projected cost savings. There can be no assurance that new or additional unforeseen costs or delays will not arise either in connection with the integration or the Company's operations or the ongoing conduct of its business. GEOGRAPHIC CONCENTRATION A substantial percentage of the Company's business (representing approximately 90% of sales) is conducted in Southern California. Southern California began to experience a significant economic downturn in 1991. 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 had resulted in declining sales levels in recent periods. Although management believes that the economy in Southern California has recently stabilized, an economic downturn in Southern California could have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." CONTROL OF THE COMPANY All of the Company's outstanding common stock is held by Holdings. Affiliates of Yucaipa and Apollo Advisors, L.P. have beneficial ownership of approximately 40.3% (assuming that certain warrants which are not presently exercisable were exercised in full) and 32.6%, respectively, of the outstanding capital stock of Holdings. Pursuant to a stockholders' agreement (the "1995 Stockholders Agreement") which was entered into by the 1995 Equity Investors (as defined herein) and certain other stockholders and warrantholders of the Company, Holdings and the Company have boards consisting of nine and ten members, respectively, and (i) Yucaipa has the right to elect six directors to the board of Holdings and seven directors to the board of the Company, (ii) Apollo has the right to elect two directors to the board of each of Holdings and the Company and (iii) the other 1995 Equity Investors have the right to elect one director to the board of each of Holdings and the Company. Under the 1995 Stockholders Agreement, unless and until Holdings has effected an initial public offering of its equity securities meeting certain criteria, Holdings and its subsidiaries, including the Company, may not take certain actions without the approval of the Holdings directors which the 1995 Equity Investors are entitled to elect, including but not limited to certain mergers, sale transactions, transactions with affiliates, issuances of capital stock and payments of dividends on or repurchases of capital stock. As a result of the ownership structure of the Company and the contractual rights described above, the voting and management control of the Company is highly concentrated. Yucaipa, acting with the consent of the directors 17 19 elected by the 1995 Equity Investors, has the ability to direct the actions of the Company with respect to matters such as the payment of dividends, material acquisitions and dispositions and other extraordinary corporate transactions. Yucaipa is a party to a consulting agreement with the Company, pursuant to which Yucaipa renders certain management and advisory services to the Company, and receives fees for such services. Yucaipa also received certain fees in connection with the consummation of the Merger, including an advisory fee of $21.5 million, of which $17.5 million was paid through the issuance of New Discount Debentures by Holdings. See "Certain Relationships and Related Transactions," "Principal Stockholders" and "Description of Capital Stock." FRAUDULENT CONVEYANCE RISKS Various fraudulent conveyance laws have been enacted for the protection of creditors and may be utilized by a court to subordinate or avoid the Notes or any Guarantee in favor of other existing or future creditors of the Company or a Subsidiary Guarantor. If a court in a lawsuit on behalf of any unpaid creditor of the Company or a representative of the Company's creditors were to find that, at the time the Company issued the Notes, the Company (x) intended to hinder, delay or defraud any existing or future creditor or contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (y) did not receive fair consideration or reasonably equivalent value for issuing such Notes and the Company (i) was insolvent, (ii) was rendered insolvent by reason of such distribution, (iii) was engaged or about to engage in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court could void such Notes and void such transactions. Alternatively, in such event, claims of the holders of such Notes could be subordinated to claims of the other creditors of the Company. The Company's obligations under the Notes will be guaranteed by the Subsidiary Guarantors. To the extent that a court were to find that (x) a Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay or defraud any present or future creditor or the Subsidiary Guarantor contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (y) such Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for issuing its Guarantee and such Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the issuance of such Guarantee, (iii) was engaged or about to engage in a business or transaction for which the remaining assets of such Subsidiary Guarantor constituted unreasonably small capital to carry on its business, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, the court could void or subordinate such Guarantee in favor of the Subsidiary Guarantor's creditors. Among other things, a legal challenge of a Guarantee on fraudulent conveyance grounds may focus on the benefits, if any, realized by the Subsidiary Guarantor as a result of the issuance by the Company of the applicable Notes. To the extent any Guarantees were avoided as a fraudulent conveyance or held unenforceable for any other reason, holders of the Notes would cease to have any claim in respect of such Subsidiary Guarantor and would be creditors solely of the Company and any Subsidiary Guarantor whose Guarantee was not avoided or held unenforceable. In such event, the claims of the holders of the applicable Notes against the issuer of an invalid Guarantee would be subject to the prior payment of all liabilities and preferred stock claims of such Subsidiary Guarantor. There can be no assurance that, after providing for all prior claims and preferred stock interests, if any, there would be sufficient assets to satisfy the claims of the holders of the applicable Notes relating to any voided portions of any of the Guarantees. Based upon financial and other information currently available to it, management of the Company believes that the Notes and the Guarantees are being incurred for proper purposes and in good faith and that the Company and each Subsidiary Guarantor (i) is solvent and will continue to be solvent after issuing the Notes or its Guarantees, as the case may be, (ii) will have sufficient capital for carrying on its business after such issuance, and (iii) will be able to pay its debts as they mature. See "Management's Discussions and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 18 20 In addition, if a court were to avoid the Guarantees under fraudulent conveyance laws or other legal principles or, by the terms of such Guarantees, the obligations thereunder were reduced as necessary to prevent such avoidance, or the Guarantees were released, the claims of other creditors of the Subsidiary Guarantors, including trade creditors, would to such extent have priority as to the assets of such Subsidiary Guarantors over the claims of the holders of the Notes. The Guarantees of the Notes by any Subsidiary Guarantor will be released upon the sale of such Subsidiary Guarantor or upon the release by the lenders under the Credit Facility of such Subsidiary Guarantor's Guarantee of the Company's obligation under the Credit Facility. The Indenture limits the ability of the Company and its subsidiaries to incur additional indebtedness and to enter into agreements that would restrict the ability of any subsidiary to make distributions, loans or other payments to the Company. However, these limitations are subject to certain exceptions. See "Description of the Notes." NET LOSSES The Company reported net losses of $93.8 million for the 53 weeks ended February 2, 1997 and $60.0 million for the 12 weeks ended April 27, 1997. The Company reported net losses of $11.5 million for the 31 weeks ended January 29, 1995, $2.7 million for the 52 weeks ended June 25, 1994, $27.4 million for the 52 weeks ended June 26, 1993, and $33.8 million for the 52 weeks ended June 27, 1992. Ralphs reported net earnings of $32.1 million for the 52 weeks ended January 29, 1995, $138.4 million for the 52 weeks ended January 30, 1994 and a net loss of $76.1 million for the 52 weeks ended January 31, 1993. There can be no assurance that the Company will not continue to report net losses in the future. ABSENCE OF PUBLIC MARKET The Private Notes have not been registered under the Securities Act and are subject to significant restrictions on resale. The Exchange Notes have no established trading market. The Company does not intend to list the Notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Company has been advised by the Initial Purchasers that they currently intend to make a market in the Notes. However, the Initial Purchasers are not obligated to do so and any market making may be discontinued at any time without notice. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may be limited during the Exchange Offer. If a trading market does not develop or is not maintained, holders of the Notes may experience difficulty in reselling the Notes or may be unable to sell them at all. If a market for the Notes develops, any such market may be discontinued at any time. If a public trading market develops for the Notes, future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. FAILURE TO EXCHANGE PRIVATE NOTES Exchange Notes will be issued in exchange for Private Notes only after timely receipt by the Exchange Agent of such Private Notes, a properly completed and duly executed Letter of Transmittal and all other required documentation. Therefore, holders of Private Notes desiring to tender such Private Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor the Company is under any duty to give notification of defects or irregularities with respect to tenders of Private Notes for exchange. Private Notes that are not tendered or are tendered but not accepted will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof. In addition, any holder of Private Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or any other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. To the extent that Private Notes are tendered and accepted in the Exchange Offer, the trading market 19 21 for untendered and tendered but unaccepted Private Notes could be adversely affected due to the limited amount, or "float," of the Private Notes that are expected to remain outstanding following the Exchange Offer. Generally, a lower "float" of a security could result in less demand to purchase such security and could, therefore, result in lower prices for such security. For the same reason, to the extent that a large amount of Private Notes are not tendered or are tendered and not accepted in the Exchange Offer, the trading market for the Exchange Notes could be adversely affected. See "Plan of Distribution" and "The Exchange Offer." THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The Private Notes were sold by the Company on March 26, 1997 (the "Closing Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchaser subsequently sold the Private Notes to (i) "qualified institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule 144A"), in reliance on Rule 144A. As a condition to the sale of the Private Notes, the Company, the Subsidiary Guarantors and the Initial Purchasers entered into the Registration Rights Agreement on March 26, 1997. Pursuant to the Registration Rights Agreement, the Company agreed that, unless the Exchange Offer is not permitted by applicable law or Commission policy, it would (i) file with the Commission a Registration Statement under the Securities Act with respect to the Exchange Notes within 75 days after the Closing Date, (ii) use its best efforts to cause such Registration Statement to become effective under the Securities Act within 120 days after the date on which the Registration Statement was required to be filed and (iii) use its best efforts to consummate the Exchange Offer prior to the 60th day following the date on which the Registration Statement is declared effective. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement. The Registration Statement is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement and the Purchase Agreement. RESALE OF THE EXCHANGE NOTES With respect to the Exchange Notes, based upon an interpretation by the staff of the Commission set forth in certain no-action letters issued to third parties, the Company believes that a holder (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchanges Private Notes for Exchange Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement with any person to participate, in a distribution of the Exchange Notes, will be allowed to resell Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in the distribution of the Exchange Notes or is a broker-dealer, such holder cannot rely on the position of the staff of the Commission enumerated in certain no-action letters issued to third parties and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes where such Private Notes were acquired by such broker-dealer as a result of market-making or other trading activities. Pursuant to the Registration Rights Agreement, the Company and the Subsidiary Guarantors have agreed to make this Prospectus, as it may be amended or supplemented from time to time, available to broker-dealers and other 20 22 persons, if any, with similar prospectus delivery requirements for use in connection with any resale for a period of 90 days after consummation of the Exchange Offer. See "Plan of Distribution." TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Private Notes validly tendered and not withdrawn prior to the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Private Notes surrendered pursuant to the Exchange Offer. Private Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the exchange will be registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to any of the rights of holders of Private Notes under the Registration Rights Agreement, which rights will terminate upon the consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be issued under, and be entitled to the benefits of, the Indenture, which also authorized the issuance of the Private Notes, such that both series of Notes will be treated as a single class of debt securities under the Indenture. As of the date of this Prospectus, $155,000,000 in aggregate principal amount of the Private Notes are outstanding and registered in the name of Cede & Co., as nominee for DTC. Only a registered holder of the Private Notes (or such holder's legal representative or attorney-in-fact) as reflected on the records of the Trustee under the Indenture may participate in the Exchange Offer. There will be no fixed record date for determining registered holders of the Private Notes entitled to participate in the Exchange Offer. Holders of the Private Notes do not have any appraisal or dissenters' rights under the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Private Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Private Notes for the purposes of receiving the Exchange Notes from the Company. Holders who tender Private Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Private Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time on , 1997, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will (i) notify the Exchange Agent of any extension by oral or written notice, (ii) mail to the registered holders an announcement thereof and (iii) issue a press release or other public announcement which shall include disclosure of the approximate number of Private Notes deposited to date, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Company may choose to make a public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. 21 23 The Company reserves the right, in its sole discretion, (i) to delay accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any conditions set forth below under "-- Conditions" shall not have been satisfied, to terminate the Exchange Offer by giving oral or written notice of such delay, extension or termination to the Exchange Agent. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest at a rate equal to 11% per annum. Interest on the Exchange Notes will be payable semi-annually on each June 15 and December 15, commencing June 15, 1997. Holders of Exchange Notes will receive interest on June 15, 1997 from the date of initial issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Private Notes from the date of the last interest payment thereon or if no interest has been paid, from the date of original issuance of the Private Notes (March 26, 1997) to the date of exchange thereof for Exchange Notes. Holders of Private Notes that are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Private Notes. PROCEDURES FOR TENDERING Only a registered holder of Private Notes may tender such Private Notes in the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile to the Exchange Agent at the address set forth below under "-- Exchange Agent" for receipt prior to the Expiration Date. In addition, either (i) certificates for such Private Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such procedure is available, into the Exchange Agent's account at the Depositary pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. The tender by a holder that is not withdrawn prior to the Expiration Date will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner(s) of the Private Notes whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. 22 24 Signatures on a Letter of Transmittal or a notice of withdrawal described below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Private Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box titled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be made by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Private Notes listed therein, such Private Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Private Notes. If the Letter of Transmittal or any Private Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Exchange Agent and the Depositary have confirmed that any financial institution that is a participant in the Depositary's system may utilize the Depositary's Automated Tender Offer Program to tender Private Notes. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Private Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Private Notes not properly tendered or any Private Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Private Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Private Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Private Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Private Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. While the Company has no present plan to acquire any Private Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any Private Notes that are not tendered pursuant to the Exchange Offer, the Company reserves the right in its sole discretion to purchase or make offers for any Private Notes that remain outstanding subsequent to the Expiration Date or, as set forth below under "--Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Private Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each holder of Private Notes will represent to the Company that, among other things, (i) Exchange Notes to be acquired by such holder of Private Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of business of such holder, (ii) such holder has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iii) such holder acknowledges and agrees that any person who is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (iv) such holder understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by 23 25 such holder in exchange for Private Notes acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for such holder's own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. RETURN OF PRIVATE NOTES If any tendered Private Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Private Notes are withdrawn or are submitted for a greater principal amount than the holders desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be returned without expense to the tendering holder thereof (or, in the case of Private Notes tendered by book-entry transfer into the Exchange Agent's account at the Depositary pursuant to the book-entry transfer procedures described below, such Private Notes will be credited to an account maintained with the Depositary) as promptly as practicable. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Private Notes at the Depositary for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Depositary's systems may make book-entry delivery of Private Notes by causing the Depositary to transfer such Private Notes into the Exchange Agent's account at the Depositary in accordance with the Depositary's procedures for transfer. However, although delivery of Private Notes may be effected through book-entry transfer at the Depositary, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address set forth below under "-- Exchange Agent" on or prior to the Expiration Date or pursuant to the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Private Notes and (i) whose Private Notes are not immediately available or (ii) who cannot deliver their Private Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Private Notes and the principal amount of Private Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or a facsimile thereof), together with the certificate(s) representing the Private Notes in proper form for transfer or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Private Notes in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Private Notes according to the guaranteed delivery procedures set forth above. 24 26 WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. To withdraw a tender of Private Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn (including the certificate number or numbers and principal amount of such Private Notes) and (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Private Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole discretion, whose determination shall be final and binding on all parties. Any Private Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Private Notes so withdrawn are validly retendered. Properly withdrawn Private Notes may be retendered by following one of the procedures described above under "The Exchange Offer -- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange the Exchange Notes for, any Private Notes, and may terminate the Exchange Offer as provided herein before the acceptance of such Private Notes, if the Exchange Offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the Commission. If the Company determines in its sole discretion that any of these conditions are not satisfied, the Company may (i) refuse to accept any Private Notes and return all tendered Private Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Private Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Private Notes that have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders of the Private Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. TERMINATION OF CERTAIN RIGHTS All rights under the Registration Rights Agreement (including registration rights) of holders of the Private Notes eligible to participate in the Exchange Offer will terminate upon consummation of the Exchange Offer except with respect to the Company's continuing obligations (i) to indemnify such holders (including any broker-dealers) and certain parties related to such holders against certain liabilities (including liabilities under the Securities Act), (ii) to provide, upon the request of any holder of a transfer-restricted Private Note, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Private Notes pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration Statement effective to the extent necessary to ensure that it is available for resales of transfer-restricted Private Notes by broker-dealers for a period of up to 90 days from the Expiration Date and (iv) to provide copies of the latest version of the Prospectus to broker-dealers upon their request for a period of up to 90 days after the Expiration Date. SHELF REGISTRATION In the event that applicable interpretations of the staff of the Commission do not permit the Company and the Subsidiary Guarantors to effect the Exchange Offer, or if for any other reason the Exchange Offer is not consummated within 240 days after the Closing Date, or, under certain circumstances, if the Initial 25 27 Purchaser shall so request, each of the Company and the Subsidiary Guarantors, jointly and severally, will at its cost, (a) as promptly as practicable, file a shelf registration statement covering resales of the Notes (a "Shelf Registration Statement"), (b) use its best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act and (c) use its best efforts to keep effective such Shelf Registration Statement until the earlier of three years after the Closing Date and such time as all of the applicable Notes have been sold thereunder. The Company will, in the event of the filing of a Shelf Registration Statement, provide to each holder of the Notes copies of the prospectus which is a part of such Shelf Registration Statement, notify each such holder when such Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Notes (and the related guarantees). A holder that sells its Notes pursuant to a Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). LIQUIDATED DAMAGES If the Company and the Subsidiary Guarantors fail to fulfill their obligations under the Registration Rights Agreement, then the Company shall pay, as liquidated damages ("Liquidated Damages"), to the holders of the Notes as follows: (i) if the Registration Statement or Shelf Registration Statement is not filed within 75 days following the Closing Date, Liquidated Damages shall accrue at a rate of .50% per annum of the principal amount of the Notes for the first 90 days commencing on the 31st day after the Closing Date, such Liquidated Damages rate increasing by an additional .25% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; (ii) if the Registration Statement or Shelf Registration Statement is not declared effective within 120 days following the date on which such registration statement is required to be filed, then, commencing on the 121st day after the date on which such registration statement is required to be filed, Liquidated Damages shall accrue at a rate of .50% per annum of the principal amount of the Notes for the first 90 days immediately following the 121st day after the date on which such registration statement is required to be filed, such Liquidated Damages rate increasing by an additional .25% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period or; (iii) if (A) the Company and the Subsidiary Guarantors have not exchanged Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to 60 days after the date on which the Registration Statement was declared effective or (B) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the third anniversary of the Closing Date (unless all the Notes have been sold thereunder), then Liquidated Damages shall accrue at a rate of .50% per annum of the principal amount of the Notes for the first 90 days commencing on (x) the 61st day after such effective date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective in the case of (B) above, such Liquidated Damages rate increasing by an additional .25% per annum of the principal amount of the Notes at the beginning of each subsequent 90-day period; provided, however that the Liquidated Damages rate may not exceed in the aggregate 1.0% per annum of the principal amount of the Notes; and provided, further, that (1) upon the filing of the Registration Statement or Shelf Registration Statement (in the case of clause (i) above), (2) upon the effectiveness of the Registration Statement or Shelf Registration Statement (in the case of clause (ii) above), or (3) upon the exchange of Exchange Notes for all Private Notes tendered (in the case of clause (iii)(A) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (iii)(B) above), Liquidated Damages as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. Any amounts of Liquidated Damages due pursuant to clauses (i), (ii) or (iii) above will be payable in cash, on the same original interest payment dates as the Notes. The amount of Liquidated Damages will be 26 28 determined by multiplying the applicable Liquidated Damages rate by the principal amount of the Notes multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, all the provisions of the Registration Rights Agreement, a copy of which will be available upon request to the Company. EXCHANGE AGENT United States Trust Company of New York has been appointed as Exchange Agent of the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Registered or Certified Mail: In Person: United States Trust Company of New York United States Trust Company of New York P.O. Box 843 111 Broadway Cooper Station New York, New York 10006 New York, New York 10276 Attention: Lower Level Corporate Trust Window Attention: Corporate Trust Services By Hand or Overnight Courier: By Facsimile (for Eligible Institutions only): United States Trust Company of New York 212-420-6152 770 Broadway, 13th Floor New York, New York 10003 Confirm Receipt of Notice of Attention: Corporate Trust Unit Guaranteed Delivery by Telephone: 1-800-548-6565 Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately [ ]. Such expenses include registration fees, fees and expenses of the Exchange Agent and the Trustee, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Private Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. 27 29 CONSEQUENCE OF FAILURES TO EXCHANGE Participation in the Exchange Offer is voluntary. Holders of the Private Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. The Private Notes that are not exchanged for the Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Private Notes may be resold only (i) to a person whom the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting the requirements of Rule 144 under the Securities Act, (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, (iv) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (v) to the Company or (vi) pursuant to an effective registration statement and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. ACCOUNTING TREATMENT For accounting purposes, the Company will recognize no gain or loss as a result of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Private Notes in like principal amount, the terms of which are identical to the Exchange Notes. The issuance of the Exchange Notes in exchange for the surrender of Private Notes will not result in any increase in the indebtedness of the Company. 28 30 CAPITALIZATION The following table sets forth the actual cash, short-term and current portion of long-term debt and capitalization of the Company as of April 27, 1997 which includes the issuance of the Notes and the application of the proceeds therefrom on March 26, 1997. The table should be read in conjunction with the historical consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus.
ACTUAL AT APRIL 27, 1997 --------------------- (DOLLARS IN MILLIONS) Cash........................................................................ $ 57.9 ======== Restricted cash(a).......................................................... $ 161.2 ======== Short-term and current portion of long-term debt: Term Loans................................................................ $ 3.5 1995 13.75% Senior Subordinated Notes(a)(b)............................... 140.2 1991 13.75% Senior Subordinated Notes(a)(c)............................... 4.8 Other indebtedness........................................................ 0.3 Capital leases............................................................ 29.0 -------- Total short-term and current portion of long-term debt............ $ 177.8 ======== Long-term debt: Term Loans(d)............................................................. $ 546.5 Revolving Facility(d)(e).................................................. 111.5 1996 10.45% Senior Notes(f)............................................... 94.9 1995 10.45% Senior Notes(g)............................................... 520.3 Other senior indebtedness(h).............................................. 11.9 Capital leases............................................................ 119.0 1997 11% Senior Subordinated Notes(i)..................................... 163.5 1995 11% Senior Subordinated Notes........................................ 524.0 Other senior subordinated indebtedness.................................... 2.2 -------- Total long-term debt.............................................. $ 2,093.8 -------- Stockholder's equity (deficit): Common stock, $.01 par value.............................................. -- Additional paid-in capital................................................ 466.8 Notes receivable from stockholders of parent(j)........................... (0.6) Retained deficit.......................................................... (561.7) -------- Total stockholder's equity (deficit)................................... (95.5) -------- Total capitalization.............................................. $ 1,998.3 ========
- --------------- (a) The Restricted Cash balance was used to redeem the 1995 13.75% Senior Subordinated Notes and the 1991 13.75% Senior Subordinated Notes and to pay the related call premium and accrued interest on April 28, 1997. (b) Refers to the $140,184,000 aggregate principal amount of 13.75% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated June 1, 1995 (the "1995 13.75% Senior Subordinated Notes"). (c) Refers to the $145,000,000 aggregate principal amount of 13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated June 15, 1991 (the "1991 13.75% Senior Subordinated Notes") of which $4,816,000 were outstanding on April 27, 1997. (d) On April 17, 1997, the Company amended and restated the 1995 Credit Facility. The Refinanced Credit Facility consists of a $325 million Revolving Facility, a $200 million Term Loan A Facility and a $350 million Term Loan B Facility. The Refinanced Credit Facility has lower interest rates and a longer average life than the 1995 Credit Facility. Giving effect to the Refinanced Credit Facility and the replacement of the 13.75% Senior Subordinated Notes with the 1997 11% Senior Subordinated Notes, the Company anticipates that its annual cash interest expense will decrease by approximately $12 million per year. (e) The Revolving Facility provides for a $325 million line of credit which is available for working capital requirements and general corporate purposes. Up to $150 million of the Revolving Facility may be used to support letters of credit. The letters of credit will be used to cover workers' compensation contingencies and for other purposes permitted under the Revolving Facility. As of April 27, 1997, letters of credit for approximately $89.1 million had been issued under the Revolving Facility, primarily to satisfy the State of California's requirements relating to workers' compensation self-insurance. (f) Refers to the $100,000,000 aggregate principal amount of 10.45% Senior Notes due 2004 issued pursuant to an indenture dated June 6, 1996 (the "1996 10.45% Senior Notes"). The 1996 10.45% Senior Notes are shown net of unamortized discount. 29 31 (g) Refers to the $520,326,000 aggregate principal amount of 10.45% Senior Notes due 2004 issued pursuant to an indenture dated June 1, 1995 (the "1995 10.45% Senior Notes"). (h) Includes the $175,000,000 aggregate principal amount of 10.45% Senior Notes due 2000 issued pursuant to an indenture dated April 15, 1992 (the "1992 10.45% Senior Notes") of which $4,700,000 were outstanding on April 27, 1997. (i) Refers to the $155,000,000 aggregate principal amount of 11% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated March 26, 1997 (the "1997 11% Senior Subordinated Notes"). The 1997 11% Senior Subordinated Notes were issued in the Private Placement at a premium of 105.5% resulting in gross proceeds of $163.5 million. Proceeds of the Private Placement in excess of the principal amount will be amortized over the life of the 1997 11% Senior Subordinated Notes. (j) Represents notes receivable from shareholders of Holdings with respect to the purchase of Holdings' common stock. 30 32 SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY The following table sets forth certain selected consolidated historical financial data of the Company and its predecessor Food 4 Less. The operating and balance sheet data of the Company and Food 4 Less set forth in the table below as of and for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997 have been derived from the financial statements of the Company and Food 4 Less which have been audited by Arthur Andersen LLP, independent public accountants. Certain prior period amounts in the financial data presented below have been reclassified to conform to the fiscal 1997 presentation. The summary historical financial data of the Company presented below as of and for the 12 weeks ended April 21, 1996 and April 27, 1997 have been derived from unaudited financial statements of the Company which, in the opinion of management, reflect all material adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus.
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS 12 WEEKS 12 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED JUNE 27, JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, APRIL 21, APRIL 27, 1992 1993 1994(a) 1995(b) 1996(c) 1997 1996 1997 ---------- ---------- ---------- ----------- ----------- ----------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT STORE DATA) (UNAUDITED) OPERATING DATA: Sales................. $2,913,493 $2,742,027 $2,585,160 $1,556,522 $4,335,109 $5,516,259 $1,230,808 $1,276,222 Cost of sales(d)...... 2,429,711 2,273,167 2,126,302 1,296,810 3,527,120 4,380,241 992,883 1,013,269 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross profit(d)....... 483,782 468,860 458,858 259,712 807,989 1,136,018 237,925 262,953 Selling, general and administrative expenses............ 432,695 419,576 378,376 219,696 744,449 933,414 206,620 209,775 Amortization of goodwill............ 7,795 7,571 7,691 4,615 21,847 38,650 7,202 8,132 Loss (gain) on disposal of assets.............. (1,364) (2,083) 37 (455) (547) 9,317 -- -- Restructuring charge.............. -- -- -- 5,134 (e) 123,083 (f) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss)(d)........... 44,656 43,796 72,754 30,722 (80,843) 154,637 24,103 45,046 Interest expense(g)... 70,211 69,732 68,250 42,222 178,774 248,428 56,084 57,041 Provision for earthquake losses... -- -- 4,504(h) -- -- -- -- -- Provision for income taxes............... 3,441 1,427 2,700 -- 500 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Loss before extraordinary charges............. (28,996) (27,363) (2,700) (11,500) (260,117) (93,791) (31,981) (11,995) Extraordinary charges............. 4,818(i) -- -- -- 23,128 (j) -- -- 47,983(k) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net loss(l)........... $ (33,814) $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (31,981) $ (59,978) ========== ========== ========== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges(m).... --(m) --(m) 1.0x --(m) --(m) --(m) --(m) --(m) NON-CASH CHARGES: Depreciation and amortization of property and equipment........... $ 37,898 $ 37,426 $ 41,380 $ 25,966 $ 92,282 $ 129,008 $ 28,107 $ 29,813 Amortization of goodwill and other assets.............. 16,979 20,214 15,703 10,657 33,047 40,669 8,575 7,963 Amortization of deferred financing costs............... 6,304 4,901 5,472 3,413 8,193 10,667 3,336 2,779 BALANCE SHEET DATA (end of period)(n): Working capital surplus (deficit)... $ (66,254) $ (19,222) $ (54,882) $ (74,776) $ (178,456) $ (182,641) $ (230,188) $ (167,758) Total assets.......... 998,451 957,840 980,080 1,000,695 3,188,129 3,131,993 3,144,775 3,233,634 Total debt(o)......... 525,340 538,083 517,872 533,804 2,082,304 2,093,206 2,059,749 2,271,578 Stockholder's equity (deficit)........... 50,771 72,863 69,021 57,803 59,119 (35,562) 27,138 (95,540) OTHER DATA: Depreciation and amortization(p)..... $ 54,877 $ 57,640 $ 57,083 $ 36,623 $ 125,329 $ 169,677 $ 36,682 $ 37,776 Capital expenditures........ 60,263 53,467 57,741 49,023 122,355 123,622 34,222 31,026 Stores open at end of period.............. 249 248 258 267 408 405 407 405 EBITDA (as defined)(q)......... $ 101,723 $ 103,794 $ 130,573 $ 76,853 $ 245,146 $ 354,646 $ 70,118 $ 85,024 EBITDA margin(r)...... 3.5% 3.8% 5.1% 4.9 % 5.7 % 6.4 % 5.7% 6.7%
31 33 (a) Operating data for the 52 weeks ended June 25, 1994 include the results of 10 Food Barn stores, which were not material, from March 29, 1994, the date of the Food Barn acquisition. (b) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week period which ends on the last Saturday in June to the 52 or 53-week period which ends on the Sunday closest to January 31, resulting in a 31-week transition period. (c) Operating data for the 52 weeks ended January 28, 1996 reflects the acquisition of Ralphs on June 14, 1995. (d) Cost of sales has been principally determined using the last-in, first-out ("LIFO") method of valuing inventory. If cost of sales had been determined using the first-in, first-out ("FIFO") method, gross profit and operating income would have been greater by $3.6 million, $4.4 million, $0.7 million, $2.7 million, $2.2 million, $5.6 million, $1.3 million (unaudited) and $1.7 million (unaudited) for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 the 53 weeks ended February 2, 1997 and the 12 weeks ended April 21, 1996 and April 27, 1997, respectively. (e) The Company converted 11 of its conventional supermarkets to warehouse stores. During the 31 weeks ended January 29, 1995, the Company recorded a non-cash restructuring charge for the write-off of property and equipment at the 11 stores of $5.1 million. (f) The Company recorded a $75.2 million restructuring charge associated with the closing of 58 stores and one warehouse facility in the 52 weeks ended January 28, 1996. Pursuant to the settlement agreement with the State of California, 24 Food 4 Less stores (as well as 3 Ralphs stores) were required to be divested and an additional 34 under-performing stores were closed. The Company also recorded a $47.9 million restructuring charge associated with the closing of 9 stores and one warehouse facility in the 52 weeks ended January 28, 1996, in conjunction with the agreement with Smith's to lease the Riverside warehouse facility and 9 stores. (g) Interest expense includes non-cash charges related to the amortization of deferred financing costs. (h) On January 17, 1994, Southern California was struck by a major earthquake which resulted in the temporary closing of 31 of the Company's stores. The closures were caused primarily by loss of electricity, water, inventory, or damage to the affected stores. All but one of the closed stores reopened within a week of the earthquake. The final closed store reopened on March 24, 1994. The Company is insured, subject to deductibles, against earthquake losses (including business interruption). The pre-tax charge to earnings, net of insurance recoveries, was approximately $4.5 million. (i) Represents an extraordinary net charge of $4.8 million reflecting the write-off of $6.7 million (net of related income tax benefit of $2.5 million) of deferred debt issuance costs as a result of the early redemption of a portion of Food 4 Less' bank term loan, partially offset by a $1.9 million extraordinary gain (net of a related income tax expense of $0.7 million) on the replacement of partially depreciated assets following the civil unrest in Los Angeles. (j) Represents an extraordinary charge of $23.1 million relating to the refinancing of Food 4 Less' old credit facility, 10.45% Senior Notes due 2000 (the "1992 Senior Notes"), 13.75% Senior Subordinated Notes due 2001 (the "1991 Senior Subordinated Notes") and Holdings' 15.25% Senior Discount Notes due 2004 in connection with the Merger and the write-off of their related debt issuance costs. (k) Represents an extraordinary charge of $48.0 million relating to the write-off of debt issuance costs associated with the refinancing of the 1995 Credit Facility and the write-off of debt issuance costs and premium paid relating to the redemption of the 1991 and the 1995 13.75% Senior Subordinated Notes. (l) 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 $51.1 million, $43.9 million, $25.7 million, $9.8 million, $32.6 million, $29.2 million, $10.6 million and $9.5 million for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, and the 12 weeks ended April 21, 1996 and April 27, 1997, respectively. Included in the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996 are reduced employer contributions of $8.1 million, $14.3 million and $26.1 million, respectively, related to union health and welfare benefit plans. Included in the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997 are reduced employer contributions of $17.8 million, $1.0 million and $2.7 million, respectively, related to union pension and health and welfare benefit plans. (m) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of loss before provision for income taxes and extraordinary charges plus fixed charges. "Fixed charges" consist of interest on all indebtedness, amortization of deferred debt financing costs and one-third of rental expense (the portion deemed representative of the interest factor). Earnings were insufficient to cover fixed charges for the 52 weeks ended June 27, 1992 and June 26, 1993, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997, by approximately $25.6 million, $25.9 million, $11.5 million, $259.6 million, $93.8 million, $32.0 million and $12.0 million, respectively. However, such earnings included non-cash charges of $61.2 million for the 52 weeks ended June 27, 1992, $62.5 million for the 52 weeks ended June 26, 1993, $40.0 million for the 31 weeks ended January 29, 1995, $202.5 million for the 52 weeks ended January 28, 1996, $180.3 million for the 53 weeks ended February 2, 1997, $40.0 million for the 12 weeks ended April 21, 1996, $40.6 million for the 12 weeks ended April 27, 1997, primarily consisting of depreciation and amortization and the write-off of property and equipment associated with stores closed as a result of the Merger, stores closed due to under-performance, stores closed in connection with the acquisition of the nine stores from Smith's, and warehouses to be closed as a result of the acquisition of the Riverside Facility. In addition, earnings for the 52 weeks ended January 28, 1996 were reduced by cash restructuring charges of $54.1 million. (n) Balance sheet data as of June 25, 1994 relates to Food 4 Less and reflect the acquisition of 10 Food Barn stores. Balance sheet data as of January 28, 1996 relates to the Company and reflects the Merger and the financings associated therewith. (o) Total debt includes long-term debt, current maturities of long-term debt and capital lease obligations. (p) Depreciation and amortization includes amortization of goodwill. (q) "EBITDA (as defined)," as presented historically by the Company, represents income before interest expense, depreciation and amortization expense, the LIFO provision, provision for income taxes, provision for earthquake losses, provision for restructuring, a one-time charge in the 1995 transition period for Teamsters Union sick pay benefits, $75.0 million of one-time costs incurred in connection with the Merger in fiscal year 1995 and $13.5 million of one-time costs incurred in connection with the acquisition of the Riverside Facility and nine former Smith's stores in fiscal year 1996. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. EBITDA as presented may not be comparable to EBITDA of other companies that do not calculate EBITDA in the same manner as the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (r) EBITDA margin represents EBITDA (as defined) as a percentage of sales. 32 34 SELECTED HISTORICAL FINANCIAL DATA OF RSI The following table presents selected 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 audited by KPMG Peat Marwick LLP, independent certified public accountants. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of RSI and related notes thereto included elsewhere in this Prospectus.
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- (DOLLARS IN MILLIONS, EXCEPT STORE DATA) OPERATING DATA: Sales.................................................................. $2,843.8 $2,730.2 $2,724.6 Cost of sales.......................................................... 2,217.2 2,093.7 2,101.0 -------- -------- -------- Gross profit........................................................... 626.6 636.5 623.6 Selling, general and administrative expenses(a)........................ 470.0 471.0 467.0 Amortization of excess of cost over net assets acquired................ 11.0 11.0 11.0 Provisions for restructuring(b)........................................ 7.1 2.4 -- -------- -------- -------- Operating income....................................................... 138.5 152.1 145.6 Interest expense(c).................................................. 125.6 108.8 112.7 Loss on disposal of assets and provisions for legal settlement and earthquake losses(d)................................................ 10.1 12.9 0.8 Income tax expense (benefit)........................................... 8.3 (108.0)(e) -- Extraordinary item-debt refinancing, net of tax benefits............... (70.6) -- -- -------- -------- -------- Net earnings (loss)(f)................................................. $ (76.1) $ 138.4 $ 32.1 ======== ======== ======== Ratio of earnings to fixed charges(g).................................. 1.02x 1.24x 1.24x BALANCE SHEET DATA (end of period): Working capital surplus (deficit)...................................... $(122.0) $ (73.0) $(119.5) Total assets........................................................... 1,388.5 1,483.7 1,509.9 Total debt(h).......................................................... 1,029.8 998.9 1,018.5 Stockholders' equity (deficit)......................................... (133.3) 5.1 27.2 OTHER DATA: Depreciation and amortization(i)....................................... $ 76.9 $ 74.5 $ 76.0 Capital expenditures................................................... 102.7 62.2 64.0 Stores open at end of period........................................... 159 165 173 EBITDA (as defined)(j)................................................. $ 227.3 $ 230.2 $ 230.2 EBITDA margin(k)....................................................... 8.0% 8.4% 8.4%
- --------------- (a) Includes provision for post retirement benefits other than pensions of $3.3 million, $3.4 million and $2.6 million for the 52 weeks ended 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. (c) Interest expense includes non-cash charges related to the amortization of deferred debt issuance costs of $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 $2.6 million, $1.9 million and $0.8 million for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29, 1995, respectively. 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 $36.9 million, $36.3 million, and $20.0 million, for 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 33 35 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, 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). (h) Total debt includes long-term debt, current maturities of long-term debt, short-term debt and capital lease obligations. (i) For the 52 weeks ended 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 and $11.0 million, respectively. (j) "EBITDA (as defined)" as presented historically by RSI, represents net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, 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. 34 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW On June 14, 1995, Food 4 Less completed its acquisition of RSI and its wholly owned subsidiary, Ralphs Grocery Company ("RGC" and together with RSI, "Ralphs"). Concurrently with the consummation of the Merger, the Company received a significant equity investment from its parent, Food 4 Less Holdings, Inc. ("Holdings") and refinanced a substantial portion of the existing indebtedness of Food 4 Less and RGC. See "Business -- The Merger and the Financing." Since the Merger, the Company has converted 111 former Alpha Beta, Boys and Viva stores to the Ralphs format, converted 13 former Ralphs stores to the Food 4 Less warehouse store format, and opened 37 new stores, including nine Southern California stores acquired from Smith's which became available when Smith's withdrew from the California market. The Company has sold or closed 74 stores as a result of divestitures required by the State of California and other steps taken to improve the average size and quality of its store base. As a result of the closure and divestiture of smaller stores and the opening of larger stores, the average square footage per store in Southern California has increased approximately 11.6% from 36,100 square feet at the time of the Merger to 40,300 square feet at the end of fiscal 1996. Following the consummation of the Merger, sales in the Company's Southern California Division fell short of anticipated levels for the second half of fiscal 1995. This shortfall resulted primarily from achieving less benefit from the Company's advertising program and experiencing greater competitive activity than originally expected. In addition, the Company's operating margins were affected by delays in the implementation of certain buying and other programs to lower the cost of goods, excessive price markdowns in stores undergoing conversion and a less advantageous than expected product mix in certain stores. The realization of cost savings was also delayed in certain areas. In particular, store operating expenses were higher than anticipated, due primarily to lower productivity and higher labor costs than originally anticipated and difficulties in introducing Ralphs merchandising and service standards into the smaller conventional supermarkets formerly operated by Food 4 Less. Also, as the Company's backstage facilities were integrated, the Company experienced higher than expected warehouse and distribution costs resulting from, among other things, higher than expected inventory levels, delays in the transfer of distribution personnel from Food 4 Less to Ralphs facilities, and other backstage operational inefficiencies. At the beginning of fiscal 1996, the Company streamlined its management structure and implemented several strategic initiatives designed to improve its sales and margins. These changes have contributed to the Company's improved results in fiscal 1996. In the first quarter of fiscal 1996 the Company began to implement new marketing initiatives designed to improve its sales performance. Comparable store sales trends have been improving since that time. Comparable store sales growth was positive in each of the last three quarters of fiscal 1996, and reached 2.9% for the fourth quarter, which resulted in comparable store sales growth of 1.8% for fiscal 1996. On September 11, 1996, the Company launched its new "First in Southern California" marketing campaign. The new marketing campaign highlights the Company's belief that more shoppers are choosing Ralphs than any other supermarket in Southern California. The focus of the new campaign is on lower regular retail prices while emphasizing those programs that enhance Ralphs' offerings such as selection, quality, premier perishable departments and customer service. During the first quarter of fiscal 1996, the Company implemented a labor productivity and cost reduction program. As a result, significant reductions were made in store level and corporate headcount levels. In addition, through the sublease of Smith's distribution center and creamery in Riverside, California, the Company was able to consolidate its distribution operations into three modern, efficient facilities located in Compton, Glendale and Riverside, California. The elimination of certain smaller and less efficient facilities allowed the Company to reduce transportation costs, management overhead and outside storage costs and to improve its inventory management. 35 37 Operating results improved each quarter during fiscal 1996, and the Company's EBITDA margin improved from 5.7% in fiscal 1995 to an 6.4% in fiscal 1996. The Company's EBITDA margin in the first quarter of fiscal 1997 was 6.7%, compared to 5.7% in the comparable prior year period. The Company's improved EBITDA margin reflects the various initiatives which management has implemented. Gross margin improvements reflect a reduction in warehousing and distribution costs as a result of the consolidation of the Company's distribution operations, as well as a reduction in the cost of goods sold as the benefits of inventory management programs instituted by the Company are realized. SG&A expenses were reduced as a percentage of sales as a result of tighter expense and labor controls at store level and administrative cost reductions. It is anticipated that the refinancing of the 1995 Credit Facility, together with the lower interest cost associated with the replacement of the 13.75% Senior Subordinated Notes with the 1997 11% Senior Subordinated Notes offering, will reduce the Company's annual interest expense by approximately $12 million. ACCOUNTING PRESENTATION The Company's results of operations for the 53 weeks ended February 2, 1997 reflect operations for the combined Company, while the results of operations for the 52 weeks ended January 28, 1996 reflect 20 weeks of operations of F4L Supermarkets prior to the Merger and 32 weeks of operations of the combined Company. Management believes that the Company's results of operations for periods ending after the consummation of the Merger are not directly comparable to its results of operations for periods ending prior to such date. This lack of comparability as a result of the Merger is attributable to several factors, including the size of the combined Company (since the Merger approximately doubled Food 4 Less' annual sales volume), the addition of 174 conventional stores to the Company's overall store mix and the material changes in the Company's capital structure. The Merger has been accounted for as a purchase of Ralphs by Food 4 Less. As a result, all financial statements for periods subsequent to June 14, 1995, the date the Merger was consummated, reflect Ralphs' net assets at their estimated fair market values as of June 14, 1995. The purchase price in excess of the fair market value of Ralphs' net assets was recorded as goodwill and is being amortized over a 40-year period. The Company finalized the allocation of the Ralphs purchase price in the second quarter of fiscal 1996. Food 4 Less changed its fiscal year end from the 52 or 53-week period which ends on the last Saturday in June to the 52 or 53-week period which ends on the Sunday closest to January 31, resulting in a transition period ended January 29, 1995. References to the 1995 transition period and fiscal 1995 are to the 31-week period ended January 29, 1995, and the 52-week period ending January 28, 1996, respectively. The operating results for the 1995 transition period are not directly comparable to those of fiscal 1995, as these periods include 52 weeks of operations. FORWARD-LOOKING STATEMENTS When used in this Offering Memorandum, the words "estimate," "expect," "project" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on estimates and assumptions made by management of the Company, which although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such estimates. Such statements are subject to certain risks and uncertainties, including those discussed under "Risk Factors" above, that could cause actual results to differ materially from those projected. These factors include, but are not limited to: (i) increased competitive pressures from existing competitors and new entrants, including price-cutting strategies, store openings and remodels; (ii) loss or retirement of key members of management or the termination of the Company's Consulting Agreement with Yucaipa; (iii) inability to negotiate more favorable terms with suppliers; (iv) increases in interest rates or the Company's cost of borrowing or a default under any material debt agreements; (v) inability to develop new stores in advantageous locations or to successfully convert or remodel additional stores; (vi) prolonged labor disruption; (vii) deterioration in general or regional economic conditions; (viii) adverse state or federal 36 38 legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; (ix) loss of customers or sales weakness; (x) adverse determinations in connection with pending or future litigations or other material claims against the Company; (xi) inability to achieve future sales levels or other operating results that support the cost savings; (xii) the unavailability of funds for capital expenditures; (xiii) increases in labor costs; (xiv) inability to control inventory levels; and (xv) operational inefficiencies in distribution or other Company systems. Many of such factors are beyond the control of the Company. Following the Merger, the Company has experienced certain unanticipated costs and delays in the realization of certain projected cost savings. There can be no assurance that new or additional unforeseen costs or delays will arise either in connection with the integration or the Company's operations or the ongoing conduct of its business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. For a discussion of certain risks which may affect the Company, see "Risk Factors." RESULTS OF OPERATIONS The following table sets forth the historical operating results of the Company for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997:
1995 FISCAL YEAR FISCAL YEAR TRANSITION FISCAL YEAR FISCAL YEAR 1993 1994 PERIOD 1995 1996 ---------------- ---------------- ---------------- ---------------- ---------------- (DOLLARS IN MILLIONS) Sales................ $2,742.0 100.0% $2,585.2 100.0% $1,556.5 100.0% $4,335.1 100.0% $5,516.3 100.0% Gross profit......... 468.9 17.1 458.9 17.8 259.7 16.7 808.0 18.6 1,136.0 20.6 Selling, general and administrative expenses............ 419.6 15.3 378.4 14.6 219.7 14.1 744.4 17.2 933.4 16.9 Amortization of goodwill............ 7.6 0.3 7.7 0.3 4.6 0.3 21.8 0.5 38.7 0.7 Loss (gain) on disposal of assets.............. (2.1) (0.1) 0.0 0.0 (0.5) (0.0) (0.5) (0.0) 9.3 0.2 Restructuring charge.............. 0.0 0.0 0.0 0.0 5.1 0.3 123.1 2.8 0.0 0.0 Operating income (loss).............. 43.8 1.6 72.8 2.8 30.7 2.0 (80.8) (1.9) 154.6 2.8 Interest expense..... 69.8 2.5 68.3 2.6 42.2 2.7 178.8 4.1 248.4 4.5 Provision for earthquake losses... 0.0 0.0 4.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 Provision for income taxes............... 1.4 0.1 2.7 0.1 0.0 0.0 0.5 0.0 0.0 0.0 Loss before extraordinary charge.............. (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (260.1) (6.0) (93.8) (1.7) Extraordinary charge.............. 0.0 0.0 0.0 0.0 0.0 0.0 23.1 0.5 0.0 0.0 Net loss............. $ (27.4) (1.0) $ (2.7) (0.1) $ (11.5) (0.7)% $ (283.2) (6.5)% $ (93.8) (1.7)% 12 WEEKS ENDED ----------------------------------------- APRIL 21, 1996 APRIL 27, 1997 ---------------- ---------------- (DOLLARS IN MILLIONS) Sales................ $1,230.8 100.0% $1,276.2 100.0% Gross profit......... 237.9 19.3 263.0 20.6 Selling, general and administrative expenses............ 206.6 16.8 209.8 16.4 Amortization of goodwill............ 7.2 0.6 8.1 0.6 Loss (gain) on disposal of assets.............. (0.0) (0.0) -- -- Restructuring charge.............. -- -- -- -- Operating income (loss).............. 24.1 2.0 45.0 3.5 Interest expense..... 56.1 4.6 57.0 4.5 Provision for earthquake losses... -- -- -- -- Provision for income taxes............... -- -- -- -- Loss before extraordinary charge.............. (32.0) (2.6) (12.0) (0.9) Extraordinary charge.............. -- -- 48.0 3.8 Net loss............. $ (32.0) (2.6)% $ (60.0) (4.7)%
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED APRIL 27, 1997 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED APRIL 21, 1996: Sales. Sales increased $45.4 million, or 3.7 percent, from $1,230.8 million for the 12 weeks ended April 21, 1996 to $1,276.2 million for the 12 weeks ended April 27, 1997. The increase in sales was primarily attributable to a 4.1 percent increase in comparable store sales and continued success of new store openings, partially offset by store closings. Since the beginning of fiscal 1996, 27 stores have been opened and 31 stores have been closed. The first quarter of fiscal 1997 represents the fourth consecutive quarter that the Company has achieved positive comparable store sales. Gross Profit. Gross profit increased as a percentage of sales from 19.3 percent in the 12 weeks ended April 21, 1996 to 20.6 percent in the 12 weeks ended April 27, 1997. The increase in gross profit margin reflects a reduction in warehousing and distribution costs as a result of the consolidation of the Company's 37 39 distribution operations, as well as a reduction in the cost of goods sold as the benefits of product procurement programs instituted by the Company are realized. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") were $206.6 million and $209.8 million for the 12 weeks ended April 21, 1996 and April 27, 1997, respectively. SG&A decreased as a percentage of sales from 16.8 percent to 16.4 percent for the same periods. The reduction in SG&A as a percentage of sales reflects the continued results of tighter expense and labor controls at the store level and continued administrative cost reductions. Operating Income. Primarily as a result of the factors discussed above, the Company's operating income increased from $24.1 million in the 12 weeks ended April 21, 1996 to $45.0 million in the 12 weeks ended April 27, 1997. Loss Before Extraordinary Charges. Primarily as a result of the factors discussed above, the Company's loss before extraordinary charges decreased from $32.0 million in the 12 weeks ended April 21, 1996 to $12.0 million in the 12 weeks ended April 27, 1997. Extraordinary Charges. Extraordinary charges of $48.0 million were recorded during the 12 weeks ended April 27, 1997. These charges relate to the call premium on the 13.75% Senior Subordinated Notes and the write-off of deferred financing costs, associated with the Old Credit Facility and the 13.75% Senior Subordinated Notes. COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 53 WEEKS ENDED FEBRUARY 2, 1997 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 28, 1996: Sales. Sales per week increased $20.7 million, or 24.8 percent, from $83.4 million in the 52 weeks ended January 28, 1996 to $104.1 million in the 53 weeks ended February 2, 1997. The increase in sales was primarily attributable to the addition of 174 conventional supermarkets acquired through the Merger, new store openings and the improved performance of converted stores partially offset by the closing of 74 smaller stores since the Merger. Comparable store sales trends have been improving each quarter since the Merger, and the fourth quarter represents the third consecutive quarter the Company has achieved positive comparable store sales, increasing by 2.9 percent. Excluding stores being divested or closed in connection with the Merger, comparable store sales for fiscal 1996 increased 1.8 percent. Management believes the increase in comparable store sales was primarily attributable to additional consumers' favorable response to the Company's "First in Southern California" marketing program. Gross Profit. Gross profit increased as a percentage of sales from 18.6 percent in the 52 weeks ended January 28, 1996 to 20.6 percent in the 53 weeks ended February 2, 1997. The increase in gross profit margin reflects a reduction in warehousing and distribution costs as a result of the consolidation of the Company's distribution operations, as well as a reduction in the cost of goods sold as the benefits of inventory management programs instituted by the Company are realized. The increase in gross profit margin was also attributable to the addition of RGC's conventional supermarkets which diluted the effect of the Company's warehouse stores (which have lower gross margins that the Company's conventional supermarkets) on its overall gross margin for the period. Gross profit in 1995 was also impacted by certain one-time costs associated with the integration of the Company's operations. See "Operating Income (Loss)." Selling, General and Administrative Expenses. Selling, general, administrative and other expenses ("SG&A") were $744.4 million and $933.4 million for the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997, respectively. SG&A decreased as a percentage of sales from 17.2 percent to 16.9 percent for those periods. The reduction in SG&A as a percentage of sales reflects the results of tighter expense and labor controls at store level and administrative costs reductions. The decrease in SG&A as a percentage of sales was offset by an increase in SG&A due primarily to the addition of RGC's conventional supermarkets acquired through the Merger. The additional conventional supermarkets diluted the effect of the Company's warehouse stores which have lower SG&A than the Company's conventional supermarkets. The Company participates in multi-employer health and welfare plans for its store employees who are members of the United Food and Commercial Workers Union ("UFCW"). As part of the renewal of the Southern 38 40 California UFCW contract in October 1995, employers contributing to UFCW health and welfare plans received a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. The Company's share of the excess reserves recognized in fiscal 1996 was $17.8 million, which partially offset the increase in SG&A. SG&A was also impacted in fiscal 1995 and 1996 by certain one-time costs associated with the integration of the Company's operations. See "Operating Income (Loss)." Restructuring Charge. During fiscal 1995, the Company recorded a $75.2 million charge associated with the closure of 58 former F4L Supermarkets stores and one former F4L Supermarkets warehouse facility. The stores were closed to comply with a settlement agreement with the State of California in connection with the Merger or due to under-performance. Three RGC stores were also required to be sold to comply with the settlement agreement. During fiscal year 1995, the Company utilized $34.7 million of the reserve for restructuring costs ($50.0 million of costs partially offset by $15.3 million of proceeds from the divestiture of stores). During fiscal year 1996, the Company utilized $15.1 million of the reserve for restructuring costs, consisting mainly of write-downs of property and equipment, expenditures associated with the closed stores and the warehouse facility and lease termination expenses ($15.2 million). On December 29, 1995, the Company consummated an agreement with Smith's to sublease its one million square foot distribution center and creamery facility in Riverside, California for approximately 23 years, with renewal options through 2043, and to acquire certain operating assets and inventory at that facility. In addition, the Company also acquired nine of Smith's Southern California stores which became available when Smith's withdrew from the California market. As a result of the acquisition of the Riverside distribution center and creamery, the Company closed its La Habra distribution center in the first quarter of fiscal year 1996. Also, the Company closed nine of its smaller and less efficient stores which were near the stores acquired from Smith's. During the fourth quarter of fiscal year 1995, the Company recorded a $47.9 million restructuring charge to recognize the cost of closing these facilities. During fiscal year 1996, the Company utilized $33.9 million of the reserve for restructuring costs, consisting mainly of write-downs of property and equipment ($18.3 million) and lease termination expenses ($15.6 million). Operating Income (Loss). In addition to the factors discussed above, operating income for fiscal year 1996 was impacted by approximately $13.5 million of costs associated with the integration of the Smith's distribution center and the continuing integration of the stores acquired from Smith's and approximately $8.9 million associated with closed store reserves, which was recorded in the fourth quarter. Interest Expense. Interest expense (including amortization of deferred financing costs) was $178.8 million for the 52 weeks ended January 28, 1996 and $248.4 million for the 53 weeks ended February 2, 1997. The increase in interest expense was primarily due to the increased indebtedness incurred in conjunction with the Merger. See "Liquidity and Capital Resources." Loss Before Extraordinary Charge. Primarily as a result of the factors discussed above, the Company's loss before extraordinary charge decreased from $260.1 million for fiscal year 1995 to $93.8 million in fiscal year 1996. COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 28, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 31 WEEKS ENDED JANUARY 29, 1995. Sales Sales per week increased $33.2 million, or 66.1 percent, from $50.2 million in the 31 weeks ended January 29, 1995 to $83.4 million in the 52 weeks ended January 28, 1996. The increase in sales was primarily attributable to the addition of 174 conventional supermarkets acquired through the Merger. The sales increase was partially offset by a pro forma comparable store sales (includes the combined sales of Food 4 Less and RGC for the period prior to the Merger) decline of 1.9 percent for the 52 weeks ended January 28, 1996 as compared to the 52 weeks ended January 28, 1995. Excluding stores scheduled for divestiture or closing, pro forma comparable store sales decreased 1.2 percent. Management believes the decline in comparable store sales was primarily attributable to additional competitive store openings and remodels in Southern California, as well as the Company's own new store openings and conversions. 39 41 Gross Profit Gross profit increased as a percentage of sales from 16.7 percent in the 31 weeks ended January 29, 1995 to 18.6 percent in the 52 weeks ended January 28, 1996. The increase in gross profit margin was primarily attributable to the addition of 174 conventional supermarkets which diluted the effect of the Company's warehouse stores (which have lower gross margins than the Company's conventional supermarkets) on its overall gross margin for the period. Gross profit was also impacted by certain one-time costs associated with the integration of the Company's operations. See "Operating Income (Loss)." Selling, General and Administrative Expenses SG&A expenses were $219.7 million and $744.4 million for the 31 weeks ended January 29, 1995 and the 52 weeks ended January 28, 1996, respectively. SG&A increased as a percentage of sales from 14.1 percent to 17.2 percent for the same periods. The increase in SG&A as a percentage of sales was due primarily to the addition of 174 conventional supermarkets acquired through the Merger. The additional conventional supermarkets diluted the effect of the Company's warehouse stores (which have lower SG&A than the Company's conventional supermarkets) on its SG&A margin for the period. The Company participates in multi-employer health and welfare plans for its store employees who are members of the United Food and Commercial Workers Union ("UFCW"). As part of the renewal of the Southern California UFCW contract in October 1993, employers contributing to UFCW health and welfare plans received a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. The Company's share of the excess reserves recognized in fiscal 1995 was $26.1 million, which partially offset the increase in SG&A. SG&A was also impacted by certain one-time costs associated with the integration of the Company's operations. See "-- Operating Income (Loss)." Restructuring Charge During fiscal 1995, the Company recorded a $75.2 million charge associated with the closure of 58 stores formerly owned by Food 4 Less and one former Food 4 Less warehouse facility. Twenty-four of these stores were required to be closed pursuant to a settlement agreement with the State of California in connection with the Merger. Three RGC stores were also required to be sold. Thirty-four of the closed stores were under-performing stores formerly owned by Food 4 Less. The $75.2 million restructuring charge consisted of write-downs of property and equipment ($52.2 million) less estimated proceeds ($16.0 million); reserve for closed stores and warehouse facility ($16.1 million); write-off of the Alpha Beta trademark ($8.3 million); write-off of other assets ($8.0 million); lease termination expenses ($4.0 million); and miscellaneous expenses ($2.6 million). During fiscal 1995, the Company utilized $34.7 million of the reserve for restructuring costs ($50.0 million of costs partially offset by $15.3 million of proceeds from the divestiture of stores). The charges consisted of write-downs of property and equipment ($33.2 million); write-off of the Alpha Beta trademark ($8.3 million); and expenditures associated with the closed stores and the warehouse facility, consisting of write-offs of other assets, lease termination expenditures and miscellaneous expenditures ($8.5 million). Future lease payments of approximately $19.1 million will be offset against the remaining reserve. Management believes that the remaining reserve is adequate to complete the planned restructuring. On December 29, 1995, the Company entered into an agreement with Smith's to sublease its one million square foot distribution center and creamery facility in Riverside, California for approximately 23 years, with renewal options through 2043, at an annual rent of approximately $8.8 million. Concurrently with such agreement, the Company also acquired certain operating assets and inventory at that facility for a purchase price of approximately $20.2 million. In addition, the Company also acquired nine of Smith's Southern California stores which became available when Smith's withdrew from the California market. As a result of the acquisition of the Riverside distribution center and creamery, the Company closed its La Habra distribution center in the first quarter of fiscal 1996. Also, the Company closed nine of its stores which were near the acquired former Smith's stores. During the fourth quarter of fiscal 1995, the Company recorded an additional $47.9 million restructuring charge to recognize the cost of closing these facilities, consisting of write-downs of property and equipment ($16.1 million), closure costs ($2.2 million), and lease termination expenses ($29.6 million). 40 42 Operating Income (Loss) In addition to the factors discussed above, operating income includes charges of approximately $75 million for costs associated with the conversion of stores and integration of the Company's operations. These costs related primarily to (i) markdowns on clearance inventory at Food 4 Less' Alpha Beta, Boys and Viva stores converted to the Ralphs format, (ii) an advertising campaign announcing the Merger, and (iii) incremental labor cost associated with the training of Company personnel following store conversions. In addition, the Company has experienced higher than anticipated warehousing and distribution costs since the Merger, primarily due to the delay in the planned consolidation of the Company's distribution facilities resulting from the acquisition of the Riverside Facility. The Company has taken steps to reduce these increased costs in future periods. Interest Expense Interest expense (including amortization of deferred financing costs) was $42.2 million for the 31 weeks ended January 29, 1995 and $178.8 million for the 52 weeks ended January 28, 1996. The increase in interest expense was primarily due to the increased indebtedness incurred in conjunction with the Merger. See "Liquidity and Capital Resources." Loss Before Extraordinary Charge Primarily as a result of the factors discussed above, the Company's loss before extraordinary charge increased from $11.5 million for the 1995 transition period to $260.1 million for fiscal 1995. Extraordinary Charge An extraordinary charge of $23.1 million was recorded during fiscal 1995 relating to retirement of indebtedness of Food 4 Less in connection with the Merger and the write-off of the related deferred financing costs. RESULTS OF OPERATIONS OF RALPHS The following table sets forth the historical operating results of Ralphs for the 52 weeks ended January 30, 1994 ("fiscal 1993") and January 29, 1995 ("fiscal 1994"):
52 WEEKS ENDED ----------------------------------------- JANUARY 31, 1994 JANUARY 30, 1995 ------------------ ------------------ (DOLLARS IN MILLIONS) Sales.................................................. $2,730.2 100.0% $2,724.6 100.0% Cost of sales.......................................... 2,093.7 76.7 2,101.0 77.1 Selling, general and administrative expenses........... 471.0 17.2 467.0 17.2 Operating income(a).................................... 152.1 5.6 145.6 5.3 Net interest expense................................... 108.8 4.0 112.7 4.1 Provision for earthquake losses(b)..................... 11.0 0.4 -- -- Income tax expense (benefit)........................... (108.0) (4.0) -- -- Extraordinary item..................................... -- -- -- -- Net earnings (loss).................................... $ 138.4 5.1 $ 32.1 1.2
- --------------- (a) Operating income reflects charges of $2.4 million in fiscal 1993, for expenses relating to closing of 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. (b) Represents reserve for losses, net of expected insurance recoveries, resulting from the January 17, 1994 Southern California earthquake. 41 43 COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 29, 1995 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30, 1994. Sales For the fifty-two weeks ended January 29, 1995, sales were $2,724.6 million, a decrease of $5.6 million or 0.2% from the fifty-two weeks ended January 30, 1994. During fiscal 1994, Ralphs opened ten new stores (four in Los Angeles County, three in Orange County, one in San Diego County and two in Riverside County), closed two stores (in conjunction with new stores opening in the same areas), and completed five store remodels. Comparable store sales decreased 3.7%, which included an increase of 0.3% for replacement store sales, from $2,707.9 million in fiscal 1993 to $2,606.4 million in fiscal 1994. Ralphs sales continued to be adversely affected by the continuing softness of the economy in Southern California, continuing competitive new store and remodeling activity and recent pricing and promotional changes by competitors. Ralphs continued to take steps to mitigate the impact of the weak retailing environment in its markets, which included continuing its own new store and remodeling program and initiating the Ralphs Savings Plan in February 1994, a new marketing campaign specifically designed to enhance customer value. On January 17, 1994, an earthquake in Southern California caused considerable damage in Los Angeles and surrounding areas. Several Ralphs supermarkets suffered earthquake damage, with 54 stores closed on the morning of January 17th. Thirty-four stores reopened within one day and an additional 17 stores reopened within three days. Three stores in the San Fernando Valley area of Los Angeles suffered major structural damage. All three stores have since reopened for business, with the last reopening on April 15, 1994. Management believes that there was some negative impact on sales resulting from the temporary disruption of business resulting from the earthquake. Ralphs is partially insured for earthquake losses. The pre-tax financial impact, net of expected insurance recoveries, is expected to be approximately $11.0 million and Ralphs reserved for this loss in fiscal 1993. The gross earthquake loss is approximately $25.3 million and the expected insurance recovery is approximately $14.3 million. 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' Glendale and Compton facilities along with the ongoing implementation of new computer-controlled programs and labor standards that improved distribution productivity. The Glendale 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 Compton 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 42 44 costs, $7.5 million is included in cost of sales and $11.4 million is included in selling, general and administrative expenses. Selling, General and Administrative Expenses SG&A expenses decreased $4.0 million or 0.8% from $471.0 million in fiscal 1993 to $467.0 million in fiscal 1994. As a percentage of sales, SG&A was 17.2% in fiscal 1993 and 17.2% in fiscal 1994. The decrease in SG&A was primarily due to a reduction in contributions to the United Food and Commercial Workers Union ("UFCW") health care benefit plans, due to an excess reserve in these plans, a reduction in self-insurance costs, as discussed above, and the results of cost savings programs instituted by Ralphs. Ralphs is continuing its expense reduction program. The decrease in SG&A was partially offset by several factors including increases in union wage rates, a one-time charge for Teamsters Union sick pay benefits, as discussed above, transition expense relating to the Merger ($1.4 million) and increased rent expense resulting from new stores, including fixture and equipment financing. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both fiscal 1992 and fiscal 1993 the multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans received a pro rata share of excess reserve in these health care benefit plans through a reduction in current maintenance payments. Ralphs' share of the excess reserve was approximately $24.5 million of which $11.8 million was recognized in fiscal 1993 and the remainder, $12.7 million, was recognized in fiscal 1994. Since employers are required to make contributions to the benefit funds at whatever level is necessary to maintain plan benefits, there can be no assurance that plan maintenance payments will remain at current levels. 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. 43 45 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. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations, amounts available under the Company's $325 million revolving facility ("Revolving Facility") and lease financing are the Company's principal sources of liquidity. The Company believes that these sources will be adequate to meet its anticipated capital expenditure, working capital and debt service requirements for the remainder of fiscal 1997. At April 27, 1997, borrowings of $111.5 million under the Revolving Facility and $89.1 million of standby letters of credit were outstanding. The level of borrowings under the Company's Revolving Facility is dependent upon cash flows from operations, the timing of disbursements, seasonal requirements and capital expenditure activity. The Company is required to reduce loans outstanding under the Revolving Facility to $110.0 million for a period of not less than 30 consecutive days during the twelve consecutive month-period ended on the last day of fiscal 1997. At May 23, 1997, the Company had $139.5 million available for borrowing under the Revolving Facility. During the first quarter of fiscal 1997, cash provided by operating activities was approximately $8.5 million compared to $54.5 million in the first quarter of fiscal 1996. The decline in cash from operating activities in the current quarter is primarily due to the timing of payments of accounts payable and accrued liabilities and prepaid expenses. These reductions in cash were partially offset by an improvement in operating income of approximately $20.9 million. The improvement in operating income can primarily be attributed to strong comparable store sales, a reduction in warehousing and distribution costs resulting from the consolidation of the company's distribution operations, and a reduction in cost of goods sold as the benefits of product procurement programs are realized. The Company's principal use of cash in its operating activities is inventory purchases. The Company's high inventory turnover rate generally allows it to finance a substantial portion of its inventory through trade payables, thereby reducing its short-term borrowing needs. Cash used by investing activities was $30.6 million for the first quarter of fiscal 1997. Investing activities consisted primarily of capital expenditures of $31.0 million. The capital expenditures were financed primarily from cash provided by operating and financing activities. The capital expenditures in the first quarter of fiscal 1997, as discussed above, relate to six new stores (one of which had been completed at April 27, 1997) and the remodeling of 43 stores (16 of which had been completed at April 27, 1997). The Company currently anticipates that its aggregate capital expenditures for fiscal 1997 will be approximately $155.0 million (or $140.0 million, net of expected capital leases) and will include eight new stores and 58 remodels. Consistent with past practices, the Company intends to finance these capital expenditures primarily with cash provided by operations, borrowings under the Revolving Facility and through leasing transactions. No assurance can be given that sources of financing for capital expenditures will be available or sufficient to finance its anticipated capital expenditure requirements; however, management believes the capital expenditure program has substantial flexibility and is subject to revision based on various factors, including changes in business conditions and cash flow requirements. Management believes that if the Company were to substantially reduce or postpone these programs, there would be no substantial impact on short-term operating profitability. However, management also believes that the construction of new stores is an important component of its future operating strategy. Consequently, management believes that if these programs were substantially reduced, future operating results, and ultimately its cash flow, would be adversely affected. 44 46 The capital expenditures discussed above do not include potential acquisitions which the Company could make to expand within its existing markets or to enter other markets. The Company has grown through acquisitions in the past and from time to time engages in discussions with potential sellers of individual stores, groups of stores or other retail supermarket chains. The Company continues to monitor and evaluate the performance of individual stores as well as operating markets in relation to its overall business objectives. As a result of this evaluation, alternative strategies may be considered by the Company which could result in the disposition of certain assets. Cash provided by financing activities was $12.4 million for the first quarter of fiscal 1997, resulting primarily from refinancing activities. Refinancing activities consisted of the issuance of 11% Senior Subordinated Notes to refinance the Company's 13.75% Senior Subordinated Notes and the refinancing and amendment of the previous bank credit facility ("1995 Credit Facility") (discussed below). In total, financing activities consisted primarily of proceeds of $713.5 million from the issuance of long-term debt and net borrowings of $12.1 million under the Revolving Facility, partially offset by principal payments of long-term debt of $541.0 million, restricted cash of $161.2 million and capital lease payments of $6.6 million. During the quarter, the Company issued $155 million principal amount of 11% Senior Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes") with terms substantially identical to the Company's existing 11% Senior Subordinated Notes at a price of 105.5% of their principal amount, resulting in gross proceeds of $163.5 million. At April 27, 1997, $161.2 million of these proceeds was included in restricted cash and was subsequently used to redeem all of the Company's $145 million principal amount of 13.75% Senior Subordinated Notes at a price of 106.1% of their principal amount and to pay the related accrued interest through the redemption date which was April 28, 1997. As a result, the Company has classified the principal amount of the $145 million 13.75% Senior Subordinated Notes as current in the balance sheet at April 27, 1997. The remaining proceeds were used to pay fees and expenses associated with the issuance of the 1997 Senior Subordinated Notes. During the quarter, the Company also amended and restated the 1995 Credit Facility to lower interest margins and allow more flexibility with respect to application of proceeds from certain asset sales and capital expenditures. The Refinanced Credit Facility provides for a $200.0 million Term Loan A Facility and a $350.0 million Term Loan B Facility (together, the "Term Loans") and a $325 million Revolving Credit Facility ("Revolving Facility") under which working capital loans may be made and commercial or standby letters of credit in the maximum of $150.0 million may be issued. Quarterly principal installments on the Term Loans continue to 2004, with amounts due as follows: $2.6 million in fiscal 1997, $3.5 million in fiscal 1998, $25.5 million in fiscal 1999, $62.6 million in fiscal 2000, $87.5 million in fiscal 2001 and $368.3 million thereafter. As a result of the refinancings described above, the Company recorded extraordinary charges in the first quarter of fiscal 1997 of approximately $48.0 million, consisting of the call premium on the 13.75% Senior Subordinated Notes and the write-off of deferred financing costs, associated with the 1995 Credit Facility and the 13.75% Senior Subordinated Notes. The Company is a wholly-owned subsidiary of Holdings. Holdings has outstanding $127.7 million accreted value of Discount Debentures and $165.0 million principal amount of Pay-In-Kind Debentures outstanding. Holdings is a holding company which has no assets other than the capital stock of the Company. Holdings will be required to commence semi-annual cash payments of interest on the Discount Debentures and the Pay-In-Kind Debentures commencing December 15, 2000 in the amount of approximately $61 million per annum. Subject to the limitations contained in its debt instruments, the Company intends to make dividend payments to Holdings in amounts which are sufficient to permit Holdings to service its cash interest requirements. The Company may pay other dividends to Holdings in connection with certain employee stock repurchases and for routine administrative expenses. The Company is highly leveraged. At April 27, 1997, the Company's total long-term indebtedness (including current maturities) and stockholder's deficit were $2.3 billion and $95.5 million, respectively. Based upon current levels of operations and anticipated cost savings and future growth, the Company believes 45 47 that its cash flow from operations, together with available borrowings under the Revolving Facility and its other sources of liquidity (including lease financing), will be adequate to meet its anticipated requirements for working capital, capital expenditures, integration costs and debt service 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 cost savings and growth can be achieved. EFFECTS OF INFLATION AND COMPETITION The Company's primary costs, inventory and labor, are affected by a number of factors that are beyond its control, including availability and price of merchandise, the competitive climate and general and regional economic conditions. As is typical of the supermarket industry, the Company has generally been able to maintain margins by adjusting its retail prices, but competitive conditions may from time to time render it unable to do so while maintaining its market share. The supermarket industry is highly competitive and characterized by narrow profit margins. The Company's competitors in each of its operating divisions include national and regional supermarket chains, independent and specialty grocers, drug and convenience stores, and the newer "alternative format" food stores, including warehouse club stores, deep discount drug stores and "super centers." Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. The Company regularly monitors its competitors' prices and adjusts its prices and marketing strategy as management deems appropriate. See "Risk Factors -- Competition." RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS No. 128") was issued. SFAS No. 128 is effective for earnings per share calculations for periods ending after December 15, 1997. The new method of calculating earnings per share will have no effect on the Company's historical earnings per share. 46 48 BUSINESS Ralphs Grocery Company (the "Company") is the largest supermarket operator in Southern California with 342 stores and an estimated market share of 26% in Los Angeles and Orange Counties. The Company operates the second largest conventional supermarket chain in Southern California under the "Ralphs" name (263 stores) and the largest warehouse supermarket chain in the region under the "Food 4 Less" name (79 stores). The Company also operates in Northern California (27 stores) and the Midwest (36 stores). The Company has achieved strong competitive positions in each of its marketing areas by successfully tailoring its merchandising strategy to the particular needs of the individual communities it serves. In addition, the Company is a vertically integrated supermarket company with major manufacturing facilities, including a bakery and creamery operations, and full-line warehouse and distribution facilities servicing its Southern California operations. The Company operates both conventional and warehouse format stores under various names. The following table sets forth by retail format the number of stores operated by each of the Company's three divisions at February 2, 1997:
SOUTHERN NORTHERN CALIFORNIA CALIFORNIA MIDWESTERN TOTAL ---------- ---------- ---------- ----- Ralphs.............................. 263 -- -- 263 Cala................................ -- 8 -- 8 Bell................................ -- 13 -- 13 Falley's............................ -- -- 5 5 -- -- --- --- Total Conventional............. 263 21 5 289 Food 4 Less......................... 79 -- 31 110 FoodsCo............................. -- 6 -- 6 -- -- --- --- Total Warehouse................ 79 6 31 116 -- -- --- --- Total Stores................... 342 27 36 405 === == == ===
In Southern California, the Company's two complementary formats allow it to serve a broad customer base and tailor its stores to the market characteristics of individual store locations. The Company's conventional stores emphasize a broad selection of merchandise, high quality fresh produce, meat and seafood and service departments, including bakery and delicatessen departments in most stores. The Company's conventional stores also benefit from Ralphs' strong private label program and its strengths in merchandising, store operations and systems. By passing on format-related efficiencies, the Food 4 Less price impact warehouse format stores offer consumers the lowest overall prices while providing product selections comparable to conventional supermarkets. At the beginning of fiscal 1996, the Company streamlined its management structure and implemented several strategic initiatives which have contributed to improving operating trends at the Company. These initiatives resulted in several notable achievements, including: (i) positive comparable store sales for three consecutive quarters, including a 3.5% increase in Southern California comparable store sales in the fourth quarter of fiscal 1996, (ii) an improvement of the Company's EBITDA margin to 6.7% in the fourth quarter of fiscal 1996 from 5.5% in the comparable prior-year period, (iii) the opening of 26 new stores and the remodeling of 20 stores, (iv) the acquisition and integration of a new one million square foot, state-of-the-art distribution center, and (v) the launching of a major marketing program designed to increase sales and market share under the "First in Southern California" theme. In fiscal 1996 Ralphs reported total sales of approximately $5.5 billion and EBITDA (as defined) of $354.6 million. For the 12 week first quarter of fiscal 1997 ending on April 27, 1997, the Company had sales of approximately $1.3 billion and EBITDA (as defined) of approximately $85.0 million (or 6.7 percent of sales) as compared to sales of $1.2 billion and EBITDA (as defined) of $70.1 million (or 5.7 percent of sales) for the first quarter of fiscal 1996. Total Company comparable store sales increased by 4.1% for the first quarter of 1997 and EBITDA (as defined) increased by 21.3% over the prior year. 47 49 The Company is controlled by The Yucaipa Companies ("Yucaipa"), a private investment group which specializes in the supermarket industry. The principals of Yucaipa have significant expertise in acquiring and managing companies in the supermarket industry, having completed 13 transactions. The other supermarket companies presently controlled or managed by Yucaipa are Dominick's Finer Foods, Inc. (NYSE; DFF) and Smith's Food & Drug Centers, Inc. (NYSE: SFD). These companies, together with the Company, operate a total of 655 stores and had aggregate combined sales of approximately $11 billion in their most recent fiscal years. The Company actively participates in a "best practices" program with all other Yucaipa-managed supermarket chains that is intended to reduce costs and improve business processes. For example, the Company coordinates its purchasing efforts with other Yucaipa-managed supermarket chains in an effort to reduce its product costs. SOUTHERN CALIFORNIA DIVISION The Southern California Division operates 342 supermarkets in eight counties under the names "Ralphs" and "Food 4 Less." The Company's Southern California stores account for approximately 90 percent of the Company's sales. The combination of RGC and Food 4 Less created the largest supermarket operator in Southern California. Since the Merger, the Company has consolidated all of its stores in the region under its two leading complementary formats. The Company operates the second largest conventional supermarket chain in the region under the "Ralphs" name and the largest price impact warehouse supermarket chain under the "Food 4 Less" name. Management believes the consolidation of its formats in Southern California has improved the Company's ability to adapt its stores' merchandising strategy to the local markets in which they operate while achieving cost savings and other efficiencies. Ralphs Conventional Format. The Company operates 263 Ralphs stores in Southern California. All of the Company's conventional stores in the region use the "Ralphs" name and are operated under a single format. Each store is merchandised to appeal to the local community it serves and offers competitive pricing with emphasis on overall value. Ralphs' substantial supermarket product selection is a significant aspect of its marketing efforts. Ralphs stocks between 35,000 and 45,000 merchandise items in its stores, including approximately 2,800 private label products. Ralphs stores offer name-brand grocery products; quality and freshness in its produce, meat, seafood, delicatessen and bakery products; and broad selection in all departments. Most Ralphs stores offer service delicatessen departments, on-premises bakery facilities and seafood departments. Ralphs emphasizes store ambiance and cleanliness, fast and friendly service, the convenience of debit and credit card payment (including many in-store branch banks) and 24-hour operations in most stores. Food 4 Less Warehouse Format. The Company operates 79 stores in Southern California which target the price-conscious segment of the market in both urban and suburban areas under the name "Food 4 Less." Food 4 Less is a warehouse-style, price impact store which is positioned to offer the lowest overall prices in its marketing areas by passing on to the consumer savings achieved through labor efficiencies and lower overhead and advertising costs associated with the warehouse format, while providing the product selection and variety associated with a conventional format. In-store operations are designed to allow customers to perform certain labor-intensive services usually offered in conventional supermarkets; for example, merchandise is presented on warehouse style racks in full cartons, reducing labor intensive unpacking, and customers bag their own groceries. Labor costs are also reduced because the stores generally do not have labor-intensive service departments such as delicatessens, bakeries and fresh seafood departments, although they do offer a complete line of fresh meat, fish, produce and baked goods. The Food 4 Less format generally consists of large facilities constructed with high ceilings to accommodate warehouse racking with overhead pallet storage. Wide aisles accommodate forklifts and, compared to conventional supermarkets, a higher percentage of total store space is devoted to retail selling because the top of the warehouse-style grocery racks on the sales floor are used to store inventory, which reduces the need for large backroom storage. The Food 4 Less warehouse format supermarkets have brightly 48 50 painted walls and inexpensive signage in lieu of more expensive graphics. In addition, a "Wall of Values" located at the entrance of each store presents the customer with a selection of specially priced merchandise. Management believes that there is a significant segment of the market, encompassing a wide range of demographic groups, which prefers to shop in a warehouse format supermarket because of its lowest overall pricing. MARKETING AND MERCHANDISING As a result of the consolidation of conventional format stores in Southern California under the "Ralphs" name, the Company eliminated most of the separate advertising associated with Food 4 Less' prior 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. The Company utilizes innovative and aggressive marketing programs in an effort to increase sales, market share and profitability. In September 1996, the Company launched its "First in Southern California" marketing program, which emphasizes Ralphs' lower regular retail prices in conjunction with its premier quality, wide selection and enhanced customer service. The new marketing campaign also highlights the Company's belief that more shoppers are choosing Ralphs than any other supermarket in the region. The program is designed to increase store traffic and sales by a coordinated use of media advertisement and targeted use of price promotions and double coupon offerings. Management believes that consumers' favorable response to the "First in Southern California" marketing campaign has resulted in increased customer traffic at its stores and has contributed to an increase in fiscal 1996 fourth quarter comparable store sales in Southern California of 3.5%. The Company continues to emphasize its successful merchandising programs and exceptional product mix, including its home meal replacement program and strong private label program. The Company intends to continue to expand its home meal replacement program in its conventional supermarkets. The Company's home meal replacement program offers a wide range of pre-packaged fresh, refrigerated and frozen food items. Through its private label program, the Company offers a diverse array of grocery and general merchandise items under its own brand names which include "Ralphs," "Private Selection," "Perfect Choice," "Plain Wrap" and "Equality." The Company has entered into several private label licensing arrangements which allow it to utilize recognized brand names on an exclusive basis in connection with certain goods it manufactures or purchases from others, including "Carnation" and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked goods). In addition, the Company has entered into an agreement to distribute private label dry grocery and frozen products under the "Sunny Select" and "Grocers Pride" labels. The Company's private label program provides quality comparable to that of national brands at significantly lower prices, while the Company's gross margins on private label products are generally higher than on national brands. The Company believes that its private label program is one of the most successful in the supermarket industry, and the Company intends to continue the growth of its private label program in the future. 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 up to certain limits. Ralphs also generates store traffic through weekly advertised specials, special sales promotions such as discounts on recreational activities, seasonal and holiday promotions, increased private label selection, club pack items and exclusive product offerings. The Food 4 Less warehouse stores utilize print and radio advertising which emphasizes Food 4 Less' low-price leadership, rather than promoting special prices on individual items. The Food 4 Less warehouse stores also utilize weekly advertising circulars, customized to local communities, which highlight the merchandise offered in each store. 49 51 WAREHOUSING AND DISTRIBUTION In March 1996, the Company commenced operations in a state-of-the-art distribution and creamery facility located in Riverside, California (the "Riverside Facility") which was acquired from Smith's. The technologically-advanced 90-acre complex has improved the quality, service and productivity of the Company's distribution and manufacturing operations. The Riverside Facility has more than one million square feet of warehousing and manufacturing space consisting of a 675,000 square foot dry grocery service center, a 270,000 square foot refrigerated and frozen food facility and a 115,000 square foot creamery facility. The Riverside Facility sublease runs for approximately 23 years, with renewal options through 2043, and provides for annual rent of approximately $8.8 million. The Company also acquired certain operating assets and inventory at the Riverside Facility when it entered into the sublease for a purchase price of approximately $20.2 million. The acquisition of the Riverside facility in December 1995 allowed the Company to eliminate certain of its smaller and less efficient warehouse facilities and to consolidate its distribution operations into the modern, efficient facilities located in Compton, Glendale and Riverside, California. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Riverside Facility also increases distribution capacity of the Company by increasing storage capacity to 120,000 pallets and increasing the assortment of items that are internally supported (increasing dry grocery from 10,000 to 14,000 SKUs and perishable and frozen items by 1,500 SKUs). The Company also operates a 17 million cubic foot high-rise automated storage and retrieval system ("ASRS") warehouse for non-perishable items, near Glendale, California. The ASRS 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's Glendale "picking" warehouse (together with the ASRS warehouse, the "Glendale Facility") was damaged in the Northridge earthquake. Its operations were transferred to the Riverside Facility while it was being renovated. The Company completed its renovation of the Glendale "picking" warehouse in March 1997. The Glendale Facility can hold substantially more inventory and requires fewer employees to operate than a conventional warehouse of equal size. The Company's third major Southern California distribution center is its 5.4 million cubic foot facility in Compton, California designed to process and store all perishable products (the "Compton Facility"). This facility was constructed in 1992 and has enabled the Company to have the ability to deliver perishable products to its stores on a daily basis, thereby improving the freshness and quality of these products. Combined shipments from the Company's Southern California warehouse facilities accounted for approximately 75 percent of the Southern California Division's total purchases during the 36 weeks ended October 6, 1996. Additional purchases, consisting of mostly general merchandise, approximating 2 percent of the division's total during this same period, were made through Certified Grocers of California, Ltd. ("Certified"), a food distribution cooperative in which the Company is a member. The Company is party to a joint venture with a subsidiary of Certified which operates a general merchandise warehouse in Fresno, California. Management has been holding discussions with Certified concerning the possible termination of the joint venture. MANUFACTURING The Riverside Facility's creamery is the production point for all fluid milk products bound for sale in the Company's Food 4 Less warehouse stores. Bottled water, fruit juice and ice for the entire Company will also be processed and packaged at the Riverside Facility creamery. Milk bound for the Company's Ralphs conventional stores, as well as all ice cream and ice cream products, are processed at the Company's existing creamery at the Compton Facility in Compton, California. The Compton Facility also processes selected 50 52 delicatessen items, including packaged salads and cheeses, and produces cultured products including sour cream and yogurt. In addition to the foregoing facilities, the Company will continue to operate a 316,000 square foot bakery in La Habra, California to manufacture a broad line of baked goods. STORE OPERATIONS AND RETAIL SYSTEMS The Company has a modern store base with 60.7% of its stores having been either opened or remodeled in the last five years. Since the Merger, the Company closed 74 smaller, underperforming stores, opened 37 stores, and expanded or remodeled 23 stores. During fiscal 1996, the Company opened 26 new stores and remodeled 20 stores. These improvements to its store base have resulted in an increase in Southern California average store size of approximately 11.6%. In addition, as of result of Ralphs' 124-year history in Southern California, the Company has valuable and well established store locations, many which are in densely populated metropolitan areas. The Southern California Division's store equipment and facilities are generally in excellent condition. The Ralphs stores range in size from approximately 18,900 square feet to 87,000 square feet and average approximately 37,700 square feet. The Southern California Food 4 Less stores are generally larger and range in size from approximately 27,400 square feet to 109,300 square feet, and average approximately 55,200 square feet. The Company believes the Southern California Division's warehouse and distribution system and the design of its stores permit the Company to decrease in-store stockroom space and thereby increase available selling area. The Southern California Division's management information systems and optical scanning technology reduce the labor costs attributable to product pricing and customer check-out, and provide the Company's management with information that facilitates purchasing and receiving, inventory management, warehouse reordering and management of accounts payable. All of the Company's Southern California Division stores currently offer an electronic funds transfer system which allows customers to make purchases, obtain cash or check approvals in transactions linked to their bank accounts. In addition, the Company's stores now offer customers the convenience of making purchases with major credit cards. The Company's merger, expansion, remodeling and conversion efforts have required, and will continue to require the funding of significant capital expenditures. Remodels and new store openings, among other things, are subject to the availability of developers' financing, agreements with developers and landlords, local zoning regulations, construction schedules and other factors, including costs, often beyond the Company's control. Accordingly, there can be no assurance that the schedule will be met. Further, there is competition for new store sites, and it is possible that this competition might adversely affect the timing of its new store program. From time to time, the Company also closes or sells marginal stores. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS The Northern California Division of the Company operates 21 conventional supermarkets in the greater San Francisco Bay area under the "Cala" and "Bell" names, and six warehouse format stores under the "FoodsCo" name. Management believes that the Northern California Division has excellent store locations in the city of San Francisco that would be very difficult to replicate. The Midwestern Division of the Company operates 36 stores, of which 31, including ten former "Food Barn" stores which the Company acquired in March 1994, are warehouse format stores operated under the "Food 4 Less" name, and five of which are conventional supermarkets operated under the "Falley's" name. Of these 36 stores, 32 are located in Kansas and four are located in Missouri. Management believes the Food 4 Less warehouse format stores are the low-price leaders in each of the markets in which they compete. The Northern California Division's conventional store strategy is to attract customers through its convenient locations, broad product line and emphasis on quality and service, and its advertising and promotion strategy highlights the reduced price specials offered in its stores. In contrast, the Company's warehouse format stores, operated under the Food 4 Less name in the Midwestern Division and the FoodsCo name in the Northern California Division, emphasize lowest overall 51 53 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 19,300 square feet. The Northern California Division's warehouse stores range in size from approximately 29,100 square feet to 59,700 square feet, and average approximately 43,300 square feet. The Midwestern Division's warehouse format stores range in size from approximately 8,800 square feet to 60,200 square feet and average approximately 37,900 square feet. The Northern California Division purchases merchandise from a number of suppliers; however, approximately 36 percent of its purchases are made through Certified Grocers of California, Ltd. ("Certified"), a food distribution cooperative, pursuant to supply contracts. The Northern California Division does not operate its own warehouse facilities, relying instead on direct delivery to its stores by Certified and other vendors. Food 4 Less' Southern California warehouse facilities supply a portion of the merchandise sold in the Northern California Division stores. The Midwestern Division's primary supplier is Associated Wholesale Grocers ("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The Midwestern Division does not operate a central warehouse, but purchases approximately 70 percent of the merchandise sold in its stores from AWG. Management believes that, as AWG's largest single customer, the Midwestern Division has significant buying power, allowing it to provide a broader product line more economically than it could if it maintained its own full-line warehouse. The Midwestern Division produces approximately 50 percent of all case-ready fresh meat items sold in its stores at its central meat plant located in Topeka, Kansas. Since the beginning of fiscal 1991, the Northern California Division has remodeled 13 stores, opened six new stores and, in fiscal 1995, acquired three stores from Roger Wilco, now operated as Bell stores. The Northern California Division Food 4 Less warehouse stores were renamed as FoodsCo warehouse stores in fiscal 1994 following the sale by the Company of the exclusive rights to use the "Food 4 Less" name in Northern California to Fleming Companies, Inc., which previously held a non-exclusive license. See "Licensing Operations" for further discussion of the amendment to the Fleming license. HISTORY On June 14, 1995, Holdings acquired all of the common stock of Ralphs Supermarkets, Inc. ("RSI") in a transaction accounted for as a purchase by Food 4 Less. The consideration for the acquisition consisted of $388.1 million in cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 of Holdings (the "Seller Debentures") and $18.5 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 of Holdings (the "New Discount Debentures"). Food 4 Less, RSI and RSI's wholly-owned subsidiary, Ralphs Grocery Company ("RGC"), combined through mergers (the "Merger") in which RSI remained as the surviving entity and changed its name to Ralphs Grocery Company. Food 4 Less was organized by The Yucaipa Companies ("Yucaipa"), a private investment group, in connection with the June 1989 acquisition of Breco Holding Company, Inc. ("BHC"), which owned Boys, Viva, and Cala stores. Concurrently with the acquisition of BHC (the "BHC Acquisition"), Food 4 Less, Inc. ("FFL"), a corporation controlled by an affiliate of Yucaipa, contributed to Food 4 Less all of the outstanding capital stock of Falley's, Inc. ("Falley's"), which owned Food 4 Less' Midwestern stores and its Food 4 Less Southern California stores. Food 4 Less added six stores to its Northern California Division by acquiring Bell Markets, Inc. ("Bell") on June 30, 1989, and added seven stores to its Southern California Division by acquiring certain operating assets of ABC Market Corp. ("ABC") on January 15, 1990. On June 17, 1991, Food 4 Less acquired all of the outstanding capital stock of Alpha Beta Company ("Alpha Beta"), which operated 142 stores in seven Southern California counties (the "Alpha Beta Acquisition"). On March 29, 1994, Food 4 Less added ten warehouse format stores (formerly operated under the name "Food Barn") to its Midwestern Division which it acquired from Associated Wholesale Grocers, Inc. THE MERGER AND THE FINANCING On June 14, 1995, Food 4 Less merged into RSI. Immediately following the RSI Merger, Ralphs Grocery Company, which was a wholly-owned subsidiary of RSI, merged with and into RSI pursuant to the 52 54 RGC Merger, and RSI changed its name to Ralphs Grocery Company. The purchase price for RSI was approximately $1.5 billion, including the assumption of debt. The consideration paid to the stockholders of RSI consisted of $388.1 million in cash, $131.5 million principal amount of the Seller Debentures and $18.5 million initial accreted value of the New Discount Debentures which were issued by Holdings. The Merger was financed through the following principal transactions: - Borrowings of $600 million aggregate principal amount pursuant to term loans (the "Term Loans") under a senior bank facility (the "Credit Facility") provided by a syndicate of banks led by Bankers Trust. The Credit Facility also provides for a $325 million revolving credit facility (the "Revolving Facility"). - The issuance by the Company of $350 million of 10.45% Senior Notes due 2004 (the "1995 Senior Notes") and $100 million of 11% Senior Subordinated Notes due 2005 (the "1995 Senior Subordinated Notes"). - The issuance of preferred stock in a private placement by Holdings to a group of investors (the "1995 Equity Investors") led by Apollo Advisors, L.P. and Apollo Advisors II, L.P. (on behalf of one or more managed entities) or their respective affiliates and designees ("Apollo") and including affiliates of BT Securities Corporation ("BT Securities"), CS First Boston Corporation ("CS First Boston") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and other institutional investors, yielding cash proceeds of $140 million pursuant to the 1995 Equity Investment. Concurrently with the 1995 Equity Investment, the 1995 Equity Investors purchased outstanding shares of Holdings capital stock from a stockholder of Holdings for a purchase price of $57.8 million. - The exchange by Food 4 Less of (a) $170.3 million aggregate principal amount of the 10.45% Senior Notes due 2000 of Food 4 Less (the "1992 Senior Notes") for $170.3 million aggregate principal amount of the 1995 Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged and (b) $140.2 million aggregate principal amount of the 13.75% Senior Subordinated Notes due 2001 of Food 4 Less (the "1991 Senior Subordinated Notes") for $140.2 million aggregate principal amount of the 13.75% Senior Subordinated Notes due 2005 of the Company (the "1995 13.75% Senior Subordinated Notes") plus $20.00 in cash per $1,000 principal amount exchanged, together with the solicitation of consents from the holders of the 1992 Senior Notes and 1991 Senior Subordinated Notes to certain amendments to the indentures governing such notes. - The offers by Food 4 Less to (i) exchange up to $450 million aggregate principal amount of the Old RGC Notes (as defined herein) for up to $450 million aggregate principal amount of the 1995 11% Senior Subordinated Notes plus $20.00 in cash per $1,000 principal amount of Old RGC Notes exchanged and (ii) purchase Old RGC Notes for $1,010.00 in cash per $1,000 principal amount of Old RGC Notes accepted for purchase, together with the solicitation of consents from holders of Old RGC Notes to certain amendments to the indenture governing the Old RGC Notes. - The placement by Holdings pursuant to the New Discount Debenture Placement of $100 million initial accreted value of New Discount Debentures to a partnership including Yucaipa, the selling stockholders of Ralphs, an affiliate of George Soros, Apollo, and an affiliate of each of BT Securities, CS First Boston and DLJ. The $100 million initial accreted value of New Discount Debentures included (a) $18.5 million that was issued to the RSI stockholders, (b) $17.5 million, $2.5 million and $2.5 million that was issued to Yucaipa, BT Securities and Apollo, respectively, in satisfaction of fees otherwise payable by the Company and Holdings in connection with the Merger and the related financing and (c) $59 million that was issued for cash to the partnership described above. The $41 million initial accreted value of New Discount Debentures issued to the RSI stockholders, Apollo, BT Securities and Yucaipa were contributed to such partnership by the recipients thereof. - The assumption by the Company, pursuant to the Merger, of approximately $162.9 million of other indebtedness of RGC and Food 4 Less. 53 55 COMPETITION The supermarket industry is highly competitive and characterized by narrow profit margins. The Company's competitors in each of its operating divisions include national and regional supermarket chains, independent and specialty grocers, drug and convenience stores, and the newer "alternative format" food stores, including warehouse club stores, deep discount drug stores and "super centers." Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. The Company regularly monitors its competitors' prices and adjusts its prices and marketing strategy as management deems appropriate. The Southern California Division competes with several large national and regional chains, principally Albertsons, Hughes, Lucky, Stater Bros., and Vons, and with smaller independent supermarkets and grocery stores as well as warehouse clubs and other "alternative format" food stores. The Company's primary competitor in Southern California is expected to be acquired by a major multi-regional supermarket chain in the near future which may increase competitive pressure for the Company. The Northern California Division competes with large national and regional chains, principally Lucky and Safeway, and with independent supermarket and grocery store operators and other retailers, including "alternative format" stores. The Midwestern Division's supermarkets compete with several national and regional supermarket chains, principally Albertson's and Dillons, as well as independent grocery and "alternative format" stores such as Hypermarket USA. The Company positions its warehouse format supermarkets as the overall low-price leaders in each marketing area in which they operate. EMPLOYEES The Company believes that its relationship with its employees is excellent. At February 2, 1997, the Company had a total of 27,254 employees, as shown in the table below.
SOUTHERN NORTHERN CALIFORNIA CALIFORNIA MIDWESTERN TOTAL ---------- ---------- ---------- ------ Administrative............................ 1,138 61 48 1,247 Warehouse, manufacturing and transportation.......................... 3,350 -- 58 3,408 Stores.................................... 20,097 1,144 1,358 22,599 ------ ----- ----- ------ Total........................... 24,585 1,205 1,464 27,254 ====== ===== ===== ======
Of the Company's 27,254 total employees at February 2, 1997, there were 23,419 employees covered by union contracts, principally with the United Food and Commercial Workers Union (the "UFCW"). The table below sets forth information regarding the Company's union contracts which cover more than 100 employees.
DATE(S) OF UNION NUMBER OF EMPLOYEES COVERED EXPIRATION ----- --------------------------- ---------- UFCW 14,214 Southern California October 3, 1999 Division clerks and meatcutters Hospital and Service Employees 549 Southern California January 19, 1997(a) Division store porters International Brotherhood of Teamsters 2,867 Southern California September 13, 1998 Division drivers and warehousemen UFCW 1,054 Northern California March 7, 1998 Division clerks and meatcutters UFCW 3,690 Southern California February 26, 2000 Division clerks and meatcutters Bakery and Confectionery Workers 206 Southern California July 7, 2000 Division bakers Hotel Employees and Restaurant Workers 839 Southern California Division September 11, 2000 Culinary Workers
54 56 - --------------- (a) Although negotiations for a new union contract are in progress, there can be no assurance that a new contract will be reached on terms satisfactory to the Company or that labor costs will not increase. LICENSING OPERATIONS The Company owns the "Food 4 Less" trademark and service mark and licenses the "Food 4 Less" name for use by others. In fiscal 1996, earnings from licensing operations were approximately $244,000. An exclusive license with the right to sublicense the "Food 4 Less" name in all areas of the United States except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas, Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"), a major food wholesaler and retailer. In August of 1993, the Company amended its licensing agreement with Fleming to give Fleming exclusive use of the Food 4 Less name in Northern California and the Company exclusive use in Southern California (the "Amendment"). With the exception of Northern California, and subject to the Amendment and certain proximity restrictions, the Company retains the right to open and operate its own "Food 4 Less" warehouse supermarkets throughout the United States. As of February 2, 1997, there were 179 Food 4 Less warehouse supermarkets in 12 states, including the 110 stores owned or leased and operated by the Company. Of the remaining 69 stores, Fleming operates 7 under license, 10 are operated under sublicenses from Fleming and 52 are operated by other licensees. PROPERTIES At February 2, 1997 the Company operated 405 supermarkets, as set forth in the table below:
NUMBER OF SUPERMARKETS AVERAGE ---------------- TOTAL SQUARE FEET/ DIVISION OWNED LEASED SQUARE FEET FACILITY ------------------------------------------ ----- ------ ----------- ------------ Southern California....................... 62(a) 280 14,237,000 41,600 Northern California....................... -- 27 665,000 24,600 Midwestern................................ 2(b) 34 1,299,000 36,100
- --------------- (a) Includes fifteen stores located on real property subject to ground leases. (b) Includes one store that is partially owned and partially leased. Most of the Southern California Division's store locations are held pursuant to long-term leases, many of which, in the opinion of management, have below-market rental rates or other favorable lease terms. The average remaining term (including all renewal options) of the Company's supermarket leases is approximately 30 years. In addition to the supermarkets, the Company operates three main warehouse and distribution centers in Southern California. The newly acquired 90 acre Riverside Facility has more than one million square feet of warehousing and manufacturing space consisting of a creamery and several warehouses for dry grocery, dairy/deli and frozen food storage. The Riverside Facility sublease runs for approximately 23 years, with renewal options through 2043, and provides for annual rent of approximately $8.8 million. The Glendale Facility is a 170,000 square foot high-rise automated storage and retrieval system warehouse. It opened in 1987, handles non-perishable items and has a capacity of approximately 50,000 pallets. The Compton Facility, which opened in 1992, is a 5.4 million cubic foot facility designed to process and store all perishable products. The Company also has manufacturing operations located in Compton that produce a variety of dairy and other products, including fluid milk, ice cream, yogurt and bottled waters and juices, as well as packaged ice, cheese and packaged salads. The bakery operation is located at the La Habra complex and measures 316,000 square feet. The Company's former central office, manufacturing and warehouse complex in La Habra, California had been leased from American Food & Drug Company ("AFD"), an affiliate of American Stores, for a term ending in 2001. Operations at the La Habra facility were discontinued as part of the Company's consolidation 55 57 of warehouse and distribution facilities which began with the acquisition of the Riverside Facility in December 1995. On October 29, 1996, the Company finalized an agreement with AFD which resulted in the termination of the Company's leases of the La Habra facility and its leases of two stores which had also been leased from AFD. In addition, in order to complete the Company's settlement agreement with the State of California entered into at the date of the Merger, the Company concurrently sold a store to AFD. In addition, the Company entered into a new lease for the bakery facility at the La Habra facility, which it will continue to operate, and modified the terms of two other store leases. In fiscal 1995 the Company recorded a restructuring charge which includes a $29.6 million provision for lease termination expenses in connection with the closure of the La Habra and other warehouses (as well as certain other properties). See "Management's Discussion and Analysis of Financial Condition and Results of Operations." LEGAL PROCEEDINGS In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against the Company and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in the retail market for fluid milk and to fix the retail price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and December 23, 1992, respectively. A class has been certified consisting of all purchasers of milk in Los Angeles County from December 7, 1988. Most defendants in the actions, not including the Company, have reached tentative settlement agreements, and certain of the settlements have been approved by the trial court. The Company is continuing to actively defend itself in these class action suits. On September 13, 1996, a class action lawsuit titled McCampbell, et al. v. Ralphs Grocery Company, et al. was filed in the Superior Court of the State of California, County of San Diego, against the Company and two other grocery store chains operating in the Southern California area. The complaint alleges, among other things, that the Company and others conspired to fix the retail price of eggs in Southern California. The plaintiffs claim that the defendants' actions violate provisions of the California Cartwright Act and constitute unfair competition. Plaintiffs seek damages they purport to have sustained as a result of the defendants' alleged actions, which damages may be trebled under the applicable statute, and an injunction from future actions in restraint of trade and unfair competition. Discovery has commenced and no class has been certified. Management of the Company intends to defend this action vigorously and the Company has filed an answer to the complaint denying the plaintiffs' allegations and setting forth several defenses. On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery Company, et al. was filed in the Los Angeles Superior Court against the Company. The complaint was filed by eight individual plaintiffs who were terminated in conjunction with the Company's restructuring. The plaintiffs claim that they were wrongfully terminated for discriminatory reasons and that the Company engaged in various fraudulent practices. The plaintiffs seek compensatory damages in excess of $15,000,000, special and punitive damages. Management of the Company believes that the plaintiffs' claims are without merit and intends to defend this action vigorously. In addition, the Company or its subsidiaries are defendants in a number of other cases currently in litigation or are the subject of potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on the Company's financial position or results of operations. The Company is subject to regulation by a variety of governmental agencies, including, but not limited to, the California Department of Alcoholic Beverage Control, the California Department of Agriculture, the U.S. Food and Drug Administration, the U.S. Department of Agriculture and state and local health departments. 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 the Glendale Facility property located near Glendale. This request was part of an ongoing effort by the Regional Board, in 56 58 connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where the Glendale Facility 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 Glendale Facility. Since that time, the Regional Board has requested further investigation by Ralphs. Ralphs conducted the requested investigations and reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Glendale Facility. The Company is not a party to the Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on its property. On or about October 12, 1995, the EPA mailed a Special Notice Letter to 44 parties, including the Company as owner and operator of the Glendale Facility property, naming them as potentially responsible parties ("PRPs"). On November 26, 1996, the EPA issued an Administrative Order for Remedial Action (EPA Docket No. 97-06) against more than 60 respondents, including the Company, in connection with the Superfund site. Under the order, these PRPs are required to take certain actions, over an approximately 270-day period, in connection with the implementation of interim remedies for the treatment of groundwater. The PRPs have also agreed to an Alternative Dispute Resolution Process to allocate the costs among themselves. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. The Company removed underground storage tanks and remediated soil contamination at the Glendale Facility 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 Glendale Facility property, management does not believe that the costs of remediating such contamination will be material to the Company. Apart from the Glendale Facility, the Company has had environmental assessments performed on most of its facilities, including warehouse and distribution facilities. The Company believes that any responsive actions required at the examined properties as a result of such assessments will not have a material adverse effect on its financial condition or results of operations. The Company is subject to a variety of environmental laws, rules, regulations and investigative or enforcement activities, as are other companies in the same or similar business. The Company believes it is in substantial compliance with such laws, rules and regulations. These laws, rules, regulations and agency activities change from time to time, and such changes may affect the ongoing business and operations of the Company. 57 59 MANAGEMENT The following table sets forth certain information regarding the executive officers and directors of the Company as of April 18, 1997. Directors serve until the election and qualification of their successors.
NAME AGE POSITION - --------------------- --- ------------------------------------------------ Ronald W. Burkle 44 Chairman of the Board and Director George G. Golleher 49 Chief Executive Officer and Director Alfred A. Marasca 55 President, Chief Operating Officer and Director Joe S. Burkle 73 Chief Executive Officer -- Falley's and Director Greg Mays 50 Executive Vice President -- Finance and Administration John T. Standley 34 Chief Financial Officer Harley DeLano 59 President -- Cala Foods Tony Schnug 52 Group Senior Vice President -- Support Operations Christopher Hall 32 Group Vice President -- Finance, Controller and Chief Accounting Officer Robert I. Bernstein 34 Director Robert Beyer 36 Director Peter Copses 38 Director Patrick L. Graham 47 Director Lawrence K. Kalantari 37 Director John Kissick 55 Director
Ronald W. Burkle has been Chairman of the Board since February 1997. He has been a Director since June 1995. He was Chairman of the Board from June 1995 to January 1996. Mr. Burkle was a Director, Chairman of the Board and Chief Executive Officer of Food 4 Less from its inception in 1989 until the Merger. Mr. Burkle co-founded The Yucaipa Companies, Inc. in 1986 and served as Director, Chairman of the Board, President and Chief Executive Officer of FFL from 1987 and of Holdings from 1992 until the Merger, respectively. Mr. Burkle has been Chairman of the Board of Dominick's Finer Foods, Inc. since March 1995 and served as Chief Executive Officer from March 1995 until January 1996. Mr. Burkle also served as Chairman of the Board of Smitty's Supermarkets, Inc. ("Smitty's") from June 1994 until its merger in May 1996 with Smith's Food & Drug Centers, Inc. ("Smith's"). He has been Chief Executive Officer of Smith's since May 1996. He has also served as a Director of Kaufman & Broad Home Corporation, Inc. since March 1995. Mr. Burkle is the son of Joe S. Burkle. George G. Golleher has been Chief Executive Officer since January 1996 and a Director since June 1995. He was Vice Chairman from June 1995 to January 1996. He was a Director of Food 4 Less from its inception in 1989 and was the President and Chief Operating Officer of Food 4 Less from January 1990 until the Merger. From 1986 through 1989, Mr. Golleher served as Senior Vice President -- Finance and Administration of The Boys Markets, Inc. Mr. Golleher has served as a Director of Dominick's Finer Foods, Inc., an affiliate of The Yucaipa Companies, from March 1995 until October 1996. Alfred A. Marasca has been President, Chief Operating Officer and a Director since June 1995. He was President and Chief Operating Officer of RGC from February 1994 until the Merger. He was President of RGC from 1993 to 1994, Executive Vice President -- Retail from 1991 to 1993, and Executive Vice President -- Marketing from 1985 to 1991. Joe S. Burkle has been a Director since June 1995 and Chief Executive Officer of Falley's, Inc. since 1987. He was a Director and Executive Vice President of Food 4 Less from its inception in 1989 until the Merger. Mr. Burkle began his career in the supermarket industry in 1946, and served as President and Chief 58 60 Executive Officer of Stater Bros. Markets, a Southern California supermarket chain. Prior to 1987, Mr. Burkle was a private investor in Southern California. Mr. Burkle is the father of Ronald W. Burkle. Greg Mays has been Executive Vice President -- Finance & Administration since February 1997. Mr. Mays was Executive Vice President -- Finance and Administration and Chief Financial Officer from September 1995 to February 1997. He was Executive Vice President -- Finance & Administration from June 1995 to September 1995. He was Executive Vice President -- Finance & Administration and Chief Financial Officer of Food 4 Less and of Holdings from December 1992 until the Merger. From 1989 to 1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. and, from 1991 to December 1992, he was President and Chief Financial Officer of Almac's. From April 1988 to June 1989, Mr. Mays was Chief Financial Officer of Food 4 Less of Modesto, Inc. and Cala Foods, Inc. John T. Standley has been Chief Financial Officer since February 1997. He was Senior Vice President -- Administration at Smith's from May 1996 to February 1997. He was Chief Financial Officer, Vice President and Assistant Secretary of Smitty's from December 1994 to May 1996. From 1991 to 1994, Mr. Standley was Vice President of Finance for Food 4 Less Supermarkets, Inc. Prior to 1991, he was a manager at Arthur Andersen & Company. Harley DeLano has been President of Cala Foods, Inc. since 1990. Mr. DeLano was General Manager of ABC from 1980 to 1990. He serves as a Director of Certified Grocers. Tony Schnug has been Group Senior Vice President -- Support Operations since January 1996. He was Senior Vice President of Manufacturing and Construction from June 1995 to January 1996. He was Senior Vice President -- Corporate Operations of Food 4 Less from 1990 until the Merger. Before joining Food 4 Less, he was Managing Director of SAGE, a wholly-owned subsidiary of Ogilvy & Mather, and Vice President -- Management Information Systems of The Vons Company. Christopher Hall has been Group Vice President -- Finance, Controller, and Chief Accounting Officer since February 1997. He was Group Vice President/Controller from September 1995 to February 1997. He was Vice President, Accounting from June 1995 to September 1995. Prior to that, he was Controller at Food 4 Less Supermarkets from 1993 to June 1995, and joined Food 4 Less Supermarkets in 1992 as Director -- Finance. Prior to 1992, he was a member of the audit practice at Arthur Andersen LLP. Robert I. Bernstein has been a Director since March 1997. He has been a general partner of The Yucaipa Companies since joining the firm in December 1995. From 1986 to 1989 and from 1993 to 1995, Mr. Bernstein was employed by Bankers Trust. From 1989 to 1992, he was an infantry officer in the U.S. Marine Corps. Robert Beyer has been a Director since June 1995. He has been a Group Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer was Co-Chief Executive Officer of Crescent Capital Corporation, a registered investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986 to 1991, Mr. Beyer was a member of the investment banking department of Drexel Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of the investment banking department of Bear, Stearns & Co., Inc. Peter Copses has been a Director since June 1995. He has been a Principal since 1990 of Apollo Advisors, L.P. which, together with an affiliate, acts as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P., private securities investment funds, and of Lion Advisors, L.P., which acts as financial advisor to and representative for certain institutional investors with respect to securities investments. Mr. Copses is a Director of Dominicks Finer Foods, Inc., Family Restaurants, Inc., Forum Group, Inc. and Zale Corporation. Patrick L. Graham has been a Director since June 1995. He joined The Yucaipa Companies as a general partner in January 1993. Prior to that time, he was a Managing Director in the Corporate Finance Department of Libra Investments, Inc. from 1992 to 1993 and Paine Webber, Inc. from 1990 to 1992. From 1982 to 1990, he was a Managing Director of the Corporate Finance Department of Drexel Burnham Lambert, Inc. and an Associate Director of the Corporate Finance Department of Bear Stearns & Co., Inc. Mr. Graham served as a 59 61 Director of Smitty's Supermarkets, Inc. from June 1994 until May 1996 and of Dominick's Finer Foods, Inc. since March 1995. Lawrence K. Kalantari has been a director since March 1997. He has been a general partner of The Yucaipa Companies since joining the firm in December 1995. Prior to that time, he was a Managing Director for Bankers Trust during 1995. Previously he was employed by CS First Boston Corporation from July 1993 to May 1995 and PaineWebber, Inc. from March 1990 to June 1993. John Kissick has been a Director since June 1995. He is a principal of Apollo Advisors, L.P. which, together with an affiliate, acts as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P., private securities investment funds, and of Lion Advisors, L.P., which acts as financial advisor to and representative for certain institutional investors with respect to securities investments. From 1990 to 1991, Mr. Kissick was a consultant with Kissick & Associates, a private investment advisory firm. He serves as Director of Continental Graphics Holdings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture Brands International, Inc. The Company does not currently pay any fees or remuneration to its directors for service on the board or any board committee, but will reimburse directors for their ordinary out-of-pocket expenses. Messrs. R. Burkle, Golleher, J. Burkle, Bernstein, Beyer, Copses, Graham, Kalantari and Kissick are directors of Holdings. 60 62 EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation of the Chief Executive Officer, the four other most highly compensated executive officers and one additional highly compensated former executive officer of the Company (the "Named Executive Officers"), whose total salary and bonus for the 53 weeks ended February 2, 1997 exceeded $100,000 for services rendered in all capacities to the Company and its subsidiaries for the same time period. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------------------------------------------------------------------------ TRANSITION NO. OF SHARES PERIOD/FISCAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR ENDED SALARY(7) BONUS(7) OPTIONS COMPENSATION(10) - ------------------------------ ---------------- ---------- ---------- ------------- --------------- Byron E. Allumbaugh(1) February 2, 1997 $1,155,449 $ -- -- $ 1,500 Chairman January 28, 1996 $ 883,333 $ 547,692 820,227(9) $ 1,848 January 29, 1995(6) $ -- $ -- -- $ -- June 25, 1994 $ -- $ -- -- $ -- George G. Golleher(2) February 2, 1997 $ 770,833 $ -- 100,000(9) $ 1,500 Chief Executive Officer January 28, 1996 $ 503,205 $1,950,000(8) 200,000(9) $ 1,783 January 29, 1995(6) $ 298,100 $ 300,000 -- $ 3,329 June 25, 1994 $ 500,000 $ 500,000 -- $ 3,937 Alfred A. Marasca(3) February 2, 1997 $ 600,000 $ -- -- $ 1,500 President and January 28, 1996 $ 466,667 $ 333,846 300,000(9) $ 3,000 Chief Operating Officer January 29, 1995(6) $ -- $ -- -- $ -- June 25, 1994 $ -- $ -- -- $ -- Greg Mays(4) February 2, 1997 $ 314,583 $ -- -- $ 1,500 Executive Vice President -- January 28, 1996 $ 286,378 $ 355,000(8) 60,000 $ 1,783 Finance/Administration and January 29, 1995(6) $ 154,300 $ 85,000 -- $ 2,687 Chief Financial Officer June 25, 1994 $ 250,000 $ 150,000 -- $ -- Harley DeLano February 2, 1997 $ 215,000 48,887 30,000 $ 1,500 President, Cala Foods January 28, 1996 $ 211,218 $ 150,000 -- $ 1,783 January 29, 1995(6) $ 115,385 $ 50,000 -- $ 2,247 June 25, 1994 $ 197,404 $ 40,000 -- $ 3,329 Tony Schnug(5) February 2, 1997 $ 247,500 $ -- -- $ 1,500 Group Senior Vice January 28, 1996 $ 206,282 $ 201,000 35,000 $ 1,783 President-Support January 29, 1995 $ 210,385 $ 100,000 -- $ 2,247 Operating June 25, 1994 $ 190,000 $ 40,000 -- $ 3,145
- --------------- (1) In January 1996, Byron E. Allumbaugh became Chairman. Mr. Allumbaugh retired as Chairman in January 1997. (2) In January 1996, George G. Golleher became Chief Executive Officer. (3) In June 1995, Alfred A. Marasca became President and Chief Operating Officer. (4) In September 1995, Greg Mays became Executive Vice President - Finance & Administration and Chief Financial Officer. (5) In January 1996, Tony Schnug became Group Senior Vice President-Support Operations. (6) Food 4 Less changed its fiscal year from the 52 or 53-week period which ends on the last Saturday in June to the 52 to 53-week period which ends on the Sunday closest to January 31, resulting in a 31-week transition period. (7) Salary and bonus payments are reflected in the period they are paid. (8) Includes payment of a special bonus upon change of control, in connection with the Merger, for George Golleher and Greg Mays in the amount of $1,750,000 and $150,000, respectively. (9) All options shown were granted in connection with the Merger. Of such options, 220,227 and 100,000 were granted to Messrs. Allumbaugh and Marasca, respectively, in exchange for the cancellation of certain payments to such individuals under RGC equity appreciation rights. (10) The amounts shown in this column represent annual payments by the Company to the Employee Profit Sharing and Retirement Program of the Company. 61 63 The following table sets forth information concerning options granted in fiscal 1996 to each of the Named Executive Officers pursuant to Holdings' 1995 Stock Option Plan. All options are exercisable for shares of Holdings' Common Stock. OPTION GRANTS IN FISCAL 1996
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES INDIVIDUAL GRANTS OF STOCK PRICE ------------------------------------------------------------ APPRECIATION NO. OF % OF TOTAL OPTIONS EXERCISE OR FOR OPTION TERM OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ------------------- GRANTED(1) IN FISCAL YEAR ($/SH) DATE 5% ($) 10%($) ---------- -------------------- ----------- ---------- -------- --------- Byron E. Allumbaugh........ -- -- -- -- -- -- George G. Golleher......... 100,000 13.7% 10.00 4/29/06 628,895 1,593,742 Alfred A. Marasca.......... -- -- -- -- -- -- Greg Mays.................. 60,000 8.2% 10.00 4/29/06 377,337 956,245 Harley DeLano.............. 30,000 4.1% 10.00 4/29/06 188,688 478,123 Tony Schnug................ 35,000 4.8% 10.00 4/29/06 220,113 557,810
- --------------- (1) Mr. Golleher's options are immediately exercisable. Options held by Messrs. Mays, Delano and Schnug vest over a five-year period commencing June 14, 1996. The following tables sets forth for each of the Named Executive Officers, as to outstanding options at February 2, 1997, the number of unexercised options and the aggregate unrealized appreciation on "in-the-money" unexercised options held at such date. No options were exercised by any of the Named Executive Officers during fiscal 1996. 1996 FISCAL YEAR END OPTION VALUES
NUMBER OF SHARES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL YEAR END FISCAL YEAR END NAME EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($) - --------------------------------------------- ----------------------------- ----------------------------- Byron E. Allumbaugh.......................... 820,227/0 2,198,208/0 George G. Golleher........................... 300,000/0 0/0 Alfred A. Marasca............................ 300,000/0 999,000/0 Greg Mays.................................... 12,000/48,000 0/0 Harley DeLano................................ 6,000/24,000 0/0 Tony Schnug.................................. 7,000/28,000 0/0
CONSULTING AND EMPLOYMENT AGREEMENTS In connection with the consummation of the Merger, Food 4 Less' board of directors authorized the payment of a special bonus of $1,750,000 to George Golleher in a lump sum amount equal to the base salary due him under the remaining term of his then existing employment agreement. As a condition of the payment of such bonus, Mr. Golleher's existing employment agreement was cancelled, and he entered into a new agreement which provides for an annual salary currently equal to $1,000,000 plus a bonus equal to his salary in each year if the Earnings Targets are reached. Mr. Golleher's new employment agreement continues in effect certain additional rights, including the right to be elected to the Company's board of directors and the right to require the Company to repurchase certain of his shares of New Holdings stock upon his death, disability or termination without cause. 62 64 The employment agreement between the Company and Alfred Marasca provides for a salary currently equal to $600,000 per annum and an annual bonus equal to his salary if the Earnings Targets for the year are reached. The employment agreement between the Company and Greg Mays provides for a salary currently equal to $375,000 per annum and an annual bonus equal to his salary if the Earnings Targets for the year are reached. Mr. Mays also received a special bonus of $150,000 in fiscal 1995 upon the change of control in connection with the Merger. The employment agreements described above are for a term of three years and provide generally that the Company may terminate the agreement for cause or upon the failure of the employee to render services to the Company for a specified period and the employee may terminate the agreement because of the employee's disability. In addition, the employee's services may be suspended upon notice by the Company and in such event the employee will continue to be compensated by the Company during the remainder of the term of the agreement, subject to certain offsets if the employee becomes engaged in another business. The Company's consulting agreement with Mr. Joe Burkle provides for compensation of $3,000 per week. Mr. Burkle provides the management and consulting services of an executive vice president under the consulting agreement. The agreement has a five-year term, which is automatically renewed on January 1 of each year for a five-year term unless sixty days' notice is given by either party; provided that if the Company terminates for reasons other than for good cause, the payments due under the agreement continue for the balance of the term. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company does not have a board committee performing the functions of a compensation committee. Byron E. Allumbaugh, Chairman, and George G. Golleher, Chief Executive Officer of the Company, together with Alfred Marasca, President, and Greg Mays, Executive Vice President, made decisions with regard to the Company's executive officer compensation for fiscal 1996. RETIREMENT PLANS Retirement Plan. The Ralphs Grocery Company Retirement Plan (the "Retirement Plan") is a defined benefit pension plan for salaried and hourly nonunion employees with at least one year of credited service (1,000 hours). The Company makes annual contributions to the Retirement Plan in such amounts as are actuarially required to fund the benefits payable to participants in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Non-Qualified Retirement Plans. To allow the Company's retirement program to provide benefits based upon a participant's total compensation and without regard to other ERISA or tax code pension plan limitations, eligible executive employees of the Company participate in the Ralphs Grocery Company Supplemental Executive Retirement Plan (the "SERP") and the Ralphs Grocery Company Retirement Supplement Plan (the "Supplement Plan"). The SERP and the Supplement Plan also modify the benefit formula under the Retirement Plan in other respects. The Company has purchased split dollar life insurance policies for participants under the SERP. Under certain circumstances, the cash surrender value of certain split dollar life insurance policies will offset the Company's obligations under the SERP. 63 65 The following table sets forth the combined estimated annual benefits payable in the form of a (single) life annuity under the Retirement Plan, the SERP and the Supplement Plan (unreduced by the cash surrender value of any life insurance policies) to a participant in the above plans who is retiring at a normal retirement date on January 1, 1997 for the specified final average salaries and years of credited service.
FINAL YEARS OF CREDITED SERVICE AVERAGE ------------------------------------------------------------ SALARY 15 20 25 30 35 - --------------------- -------- -------- -------- -------- -------- $ 100,000 $ 19,348 $ 25,798 $ 32,347 $ 38,697 $ 45,146 200,000 41,848 55,798 69,747 83,697 97,646 300,000 90,000 120,000 150,000 180,000 180,000 400,000 120,000 160,000 200,000 240,000 240,000 600,000 180,000 240,000 300,000 360,000 360,000 800,000 240,000 320,000 400,000 480,000 480,000 1,000,000 300,000 400,000 500,000 600,000 600,000 1,040,000 and above 312,000 416,000 520,000 624,000 624,000
Messrs. Allumbaugh, Golleher, Marasca, Mays, Schnug and DeLano have completed 39, 12, 33, 9, 7 and 12 years of credited service, respectively. Compensation covered by the Retirement Plan, the SERP and Supplement Plan includes both salary and bonus. The calculation of retirement benefits generally is based on average compensation for the highest three years of the ten years preceding retirement. The benefits earned by a participant under the SERP and Supplement Plan are reduced by any benefits which the participant has earned under the Retirement Plan and may be offset under certain circumstances by the cash surrender value of life insurance policies maintained by the Company pursuant to the insurance agreements entered into by the Company and the executive. Benefits are not subject to any deduction for social security offset. 64 66 PRINCIPAL STOCKHOLDERS The following table sets forth the ownership as of April 18, 1997 of Common Stock and Series A Preferred Stock and Series B Preferred Stock of Holdings by each person who, to the knowledge of Holdings, owns 5 percent or more of Holdings' outstanding voting stock, by each person who is a director or Named Executive Officer of the Company, and by all executive officers and directors of the Company as a group.
COMMON SERIES A SERIES B STOCK(1) PREFERRED STOCK PREFERRED STOCK ---------------- ------------------- ------------------- PERCENTAGE PERCENTAGE NUMBER NUMBER NUMBER OF TOTAL OF ALL OF OF OF VOTING OUTSTANDING BENEFICIAL OWNER(2) SHARES % SHARES % SHARES % POWER(1) STOCK(1)(3) - ------------------------------------ --------- ---- --------- ---- -------- ----- ---------- ----------- Yucaipa and affiliates: The Yucaipa Companies(4).......... 17,566,389 65.6% -- -- -- -- 38.5% 35.8% Ronald W. Burkle(5)............... 1,777,390 9.5% -- -- -- -- 4.7% 4.3% George G. Golleher(5)(6).......... 562,525 2.9% -- -- -- -- 1.5% 1.4% 10000 Santa Monica Blvd. Los Angeles, CA 90067 ---------- ---- ---------- ---- --------- ----- ---- ---- Total....................... 19,906,304 73.5% -- -- -- -- 43.3% 40.3% Alfred A. Marasca(7)................ 300,000 1.6% -- -- -- -- 0.8% 0.7% Greg Mays(8)........................ 68,890 0.4% -- -- -- -- 0.2% 0.2% Harley DeLano(9).................... 30,000 0.2% -- -- -- -- 0.1% 0.1% Tony Schnug(9)...................... 35,000 0.2% -- -- -- -- 0.1% 0.1% Apollo Advisors, L.P. Apollo Advisors II, L.P.(10) 2 Manhattanville Road Purchase, NY 10577................ 1,285,165 6.8% 10,733,244 64.3% -- -- 35.6% 32.6% BT Investment Partners, Inc.(11) 130 Liberty Street New York, NY 10006................ 509,812 2.7% 900,000 5.4% 3,100,000 100.0% 4.1% 12.2% Other 1995 equity investors as a group(12)......................... 40,172 0.2% 5,000,000 30.3% -- -- 15.1% 13.8% All directors and executive officers as a group (15 persons)(4)(5)(6)(7)(8)(10)(13)... 20,350,194 73.9% -- -- -- -- 43.9% 40.8%
- --------------- (1) Gives effect to the assumed exercise of outstanding warrants, held by certain institutional investors, to acquire 2,008,874 shares of Holdings common stock. (2) 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. (3) Assumes the conversion of all outstanding Series A Preferred Stock and Series B Preferred Stock into Common Stock at the conversion rate applicable as of March 15, 1997. (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. The foregoing entities are parties to a stockholders agreement with other Holdings investors which gives to Yucaipa the right to elect a majority of the directors of Holdings. Share amount and percentages shown for Yucaipa include a five-year warrant to purchase 8,000,000 shares of Holdings Common Stock held by Yucaipa. Such warrant will become exercisable only upon the occurrence of an initial public offering or certain sale transactions involving Holdings. The exercise price of the warrant is such that the warrant has no value unless and until the value of the Company's equity securities is greater than $1.220 billion. See "Description of Capital Stock -- Yucaipa Warrant." (5) Certain management stockholders who own in the aggregate 431,096 shares of Common Stock have entered into a Stockholder Voting Agreement and Proxy pursuant to which Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors, Inc. have sole voting control over the shares currently owned by such management stockholders until June 14, 2005. The 431,096 shares have been 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 1,346,294 and 562,525 shares of Common Stock they respectively own (including in the case of Mr. Golleher, 300,000 shares issuable upon the exercise of options). (6) Includes 300,000 shares issuable upon the exercise of options held by Mr. Golleher. (7) Represents shares issuable upon the exercise of options held by Mr. Marasca. (8) Includes 60,000 shares issuable upon the exercise of options held by Mr. Mays. In addition, Mr. Mays owns 8,890 of the 431,096 shares of Common Stock that are subject to the Stockholder Voting Agreement and Proxy described in note (4) above. (9) Represents shares issuable upon the exercise of options held by Messrs. DeLano and Schnug. 65 67 (10) Represents shares owned by one or more entities managed by or affiliated with Apollo Advisors, L.P. or Apollo Advisors II, L.P. (collectively, "Apollo"), together with certain affiliates or designees of Apollo. (11) 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. (12) Includes certain institutional investors, other than Apollo and BTIP, which purchased Series A Preferred Stock of Holdings in connection with the Merger. Pursuant to the 1995 Stockholders Agreement, certain corporate actions by Holdings and its subsidiaries require the consent of the directors whom the 1995 equity investors, including Apollo and BTIP, are entitled to elect to the Holdings Board of Directors. Such investors do not affirm the existence of a "group" within the meaning of Rule 13d-5 under the Exchange Act, and expressly disclaim beneficial ownership of all Holdings shares except for those shares held of record by each such investor or its nominees. (13) Includes 10,000 shares issuable upon the exercise of options held by executive officers other than the named executive officers above. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company is a party to a consulting agreement with Yucaipa which provides for certain management and financial services to be performed by Yucaipa for the benefit of the Company and its subsidiaries. The services of Messrs. R. Burkle, Bernstein, Graham and Kalantari, acting in their capacities as directors, and the services of other Yucaipa personnel are provided to the Company pursuant to this agreement. See "Item 10 -- Directors and Executive Officers of the Registrant." Messrs. R. Burkle, Bernstein, Graham and Kalantari are partners of Yucaipa. The consulting agreement provides for an annual management fee payable by the Company to Yucaipa in the amount of $4 million, plus reimbursement of out-of-pocket expenses. In addition, the Company may retain Yucaipa in an advisory capacity in connection with acquisition or sale transactions, in which case the Company will pay Yucaipa an advisory fee, except that the retention of Yucaipa in connection with a sale of the entire Company would require approval by a majority of the disinterested directors. The agreement has a five-year term, which is automatically renewed on each anniversary of the Merger for a five-year term unless ninety days' notice is given by either party. The agreement may be terminated at any time by the Company, provided that Yucaipa will be entitled to full monthly payments under the agreement for the remaining term thereof, unless the Company terminates for cause pursuant to the terms of the agreement. Yucaipa may terminate the agreement if the Company fails to make a payment due thereunder, or if there occurs a change of control (as defined in the agreement) of the Company, and upon any such termination Yucaipa will be entitled to full monthly payments for the remaining term of the agreement. Pursuant to the agreement (and a predecessor agreement with Food 4 Less), Yucaipa earned a total of $3.6 million in management fees for fiscal 1995 and $4.0 million for fiscal 1996. Pursuant to the Yucaipa consulting agreement, upon closing of the RSI Merger, Yucaipa received an advisory fee from Ralphs in the amount of $21.5 million, which was paid in cash and New Discount Debentures, plus reimbursement of expenses in connection with the RSI Merger and the related transactions. Upon closing of the RSI Merger, Yucaipa paid a cash fee of approximately $3.5 million to Soros Fund Management in consideration for advisory services which Soros Fund Management has rendered since 1991. Additionally, upon closing of the RSI Merger, Yucaipa received a warrant to purchase 8,000,000 shares of Holdings common stock exercisable under certain conditions. In consideration for its commitment to purchase preferred stock as part of the 1995 Equity Investment, Apollo received a fee of $5 million from Holdings upon closing of the RSI Merger, which fee was paid in cash and notes. In connection with the execution of the definitive Agreement and Plan of Merger ("the Merger Agreement") between Food 4 Less, Holdings, FFL and RSI, Yucaipa entered into the Put Agreement with the majority stockholder of RSI, pursuant to which such RSI stockholder was entitled to put up to $10 million aggregate principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 (the "Seller Debentures"), issued as part of the consideration for the RSI Merger, to Yucaipa on the closing date of the Merger. The Yucaipa consulting agreement provided that the Company reimburse Yucaipa for any loss and expenses incurred by Yucaipa upon the resale of such Seller Debentures to any unaffiliated third party. Pursuant to such agreement, the Company reimbursed an affiliate of Yucaipa the amount of $3.5 million upon the closing of the Merger. 66 68 Holdings files a consolidated federal income tax return, under which the federal income tax liability of Holdings and its subsidiaries is determined on a consolidated basis. Holdings is a party to a federal income tax sharing agreement with the Company and certain of its subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides that in any year in which the Company is included in any consolidated tax liability of Holdings and has taxable income, the Company will pay to Holdings the amount of the tax liability that the Company would have had on such due date if it had been filing a separate return. Conversely, if the Company generates losses or credits which actually reduce the consolidated tax liability of Holdings and its other subsidiaries, Holdings will credit to the Company the amount of such reduction in the consolidated tax liability. These credits are passed between Holdings and the Company in the form of cash payments. In the event any state and local income taxes are determinable on a combined or consolidated basis, the Tax Sharing Agreement provides for a similar allocation between Holdings and the Company of such state and local taxes. As part of the financing for the RSI Merger, Holdings issued $100 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures"), which was acquired by a partnership comprised of an affiliate of Yucaipa and certain other investors. The $17.5 million initial accreted value of New Discount Debentures contributed to the partnership by the Yucaipa affiliate consists of New Discount Debentures issued in partial payment of the Yucaipa consulting fee due upon closing of the RSI Merger, as described above. Holdings granted to the partnership certain registration rights with respect to the New Discount Debentures, and paid substantially all expenses of the partnership in connection with the resale of the New Discount Debentures, including underwriting discounts and brokers' commissions (subject to certain limitations). On October 20, 1995, the holder of the New Discount Debentures sold all of such New Discount Debentures at a price equal to 77 percent of the accreted value thereof. The sale of the New Discount Debentures was effected by BT Securities Corporation ("BT Securities" an affiliate of BT Investment Partners, Inc. ("BTIP")). BT Securities received a fee in the amount of 2 percent ($2.1 million) of the aggregate accreted value of the New Discount Debentures. Holdings reimbursed the selling holder for such fee and other expenses of the sale as contemplated by a registration rights agreement executed concurrently with the consummation of the Merger. BT Securities and its affiliates have provided investment banking and other financing services to the Company from time to time and have received customary fees in connection therewith. On June 6, 1996, the Company issued the 1996 10.45% Senior Notes to BT Securities, which resold the notes pursuant to Rule 144A under the Securities Act. BT Securities received a fee in the amount of $2.3 million for acting as initial purchaser in the offering. On March 26, 1997, the Company issued the 1997 11% Senior Subordinated Notes to BT Securities and certain other investment banks, which resold the Notes pursuant to Rule 144A under the Securities Act. BT Securities received a fee of $1.6 million for acting as initial purchaser in the offering. Bankers Trust Company, an affiliate of BTIP and BT Securities has acted as Agent under the Credit Facility and receives customary fees for such services. A contribution of $5 million was made to the partnership that purchased and subsequently sold the New Discount Debentures, by an affiliate of the Company. This affiliate borrowed the $5 million from the Company to fund its contribution to the partnership. Holders of RGC equity appreciation rights ("EARs"), including Messrs. Allumbaugh, Marasca and Gray, agreed to defer the receipt of $5 million cash otherwise payable by RGC upon settlement of the EARs at the time of the Merger, pending repayment of the $5 million loan made by the Company as described above. When the New Discount Debentures were resold by the partnership, and the proceeds from such resale distributed to the partners, all of the approximately $2.1 million in total proceeds received by the affiliate were applied to repayment of the loan, and the portion of the loan not repaid was forgiven by the Company and the EAR holders. FFL Partners, a partnership controlled by Ronald W. Burkle, is obligated, pursuant to an agreement with Holdings, to repurchase shares of Holding's common stock from certain terminated participants in an employee benefit plan maintained by one of the Company's subsidiaries. See "Note 10 of Notes to Consolidated Financial Statements of Ralphs Grocery Company." From time to time the Company advances funds to plan participants on behalf of FFL Partners and records a receivable from FFL Partners for the amount advanced. At February 2, 1997 the outstanding receivable from FFL Partners was approximately $271,000. 67 69 Management believes that the terms of the transactions described above are or were fair to the Company and are or were on terms at least as favorable to the Company as those which could be obtained from unaffiliated parties (assuming that such transactions could be effected with such parties). DESCRIPTION OF CAPITAL STOCK Following is a description of the authorized and outstanding capital stock of the Company and Holdings, including the terms of the 1995 Equity Investment to which was made in Holdings in connection with the Merger. THE COMPANY The authorized capital stock of the Company consists of 1,600,000 shares of Common Stock, $.01 par value per share, of which 1,513,938 shares are outstanding. All of such outstanding shares are owned by Holdings. There is no public trading market for the Common Stock of the Company. The indentures that govern outstanding debt securities of the Company contain certain restrictions on the payment of cash dividends with respect to the Company's Common Stock. In addition, the Credit Facility also restricts such payments. Subject to the limitations contained in the Credit Facility and such indentures, holders of Common Stock of the Company are entitled to dividends when and as declared by the Board of Directors from funds legally available therefor, and upon liquidation, are entitled to share ratably in any distribution to holders of Common Stock. All holders of Common Stock are entitled to one vote per share on any matter coming before the stockholders for a vote. HOLDINGS The authorized capital stock of Holdings consists of 60,000,000 shares of Common Stock, $.01 par value, 25,000,000 shares of Non-Voting Common Stock, $.01 par value, 25,000,000 shares of Series A Preferred Stock, $.01 par value, and 25,000,000 shares of Series B Preferred Stock, $.01 par value. Of such authorized shares, (i) 16,976,585 shares of Common Stock, 16,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock are outstanding and held by approximately 100 holders of record, (ii) 2,008,874 shares of Common Stock are reserved for issuance upon the exercise of outstanding warrants held by institutional investors, (iii) 3,000,000 shares of Common Stock are reserved for issuance upon the exercise of employee stock options and (iv) 421,236 shares of Common Stock are held in treasury. An additional 8,000,000 shares of Common Stock are reserved for issuance upon the exercise of a warrant issued to Yucaipa upon closing of the Merger. See "-- Yucaipa Warrant" below. There is no public trading market for the capital stock of Holdings. Holdings does not expect in the foreseeable future to pay any dividends on its capital stock. Holders of Common Stock of Holdings are entitled to dividends when and as declared by the Board of Directors of Holdings from funds legally available therefor, and upon liquidation, are entitled to share ratably in any distribution to holders of Common Stock. All holders of Holdings Common Stock are entitled to one vote per share on any matter coming before the stockholders for a vote. Upon issuance, the Series A Preferred Stock initially had an aggregate liquidation preference of $166,832,440, or $10 per share, which accretes as described below. The holders of the Series A Preferred Stock vote (on an as-converted basis) together with the Common Stock as a single class on all matters submitted for stockholder vote. Each share of Series A Preferred Stock initially is convertible at the option of the holder thereof into a number of shares of Holdings Common Stock equal to the liquidation preference of such share of Series A Preferred Stock divided by $10. Upon consummation of an initial public offering of Holdings equity securities which meets certain criteria, the shares of Series A Preferred Stock will automatically convert into shares of Common Stock of Holdings at the same rate as applicable to an optional conversion. Upon issuance, the Series B Preferred Stock initially had an aggregate liquidation preference of $31,000,000, or $10 per share, which accretes as described below. The holders of Series B Preferred Stock 68 70 generally are not entitled to vote on any matters, except as required by the Delaware General Corporation Law. Upon the occurrence of a change of control, each share of Series B Preferred Stock initially will be convertible at the option of the holder thereof into a number of shares of Holdings Common Stock or Non-Voting Common Stock equal to the liquidation preference of such share of Series B Preferred Stock divided by $10. Upon consummation of an initial public offering of Holdings equity securities which meets certain criteria, shares of Series B Preferred Stock will automatically convert into shares of Non-Voting Common Stock of Holdings at the same rate as applicable to an optional conversion. The liquidation preference of the Series A Preferred Stock and the Series B Preferred Stock initially accretes daily at the rate of 7% per annum, compounded quarterly, until the later of the fifth anniversary of the date of issuance or the date the Company first reports EBITDA (as defined) of at least $500 million for any twelve-month period. Thereafter, the liquidation preference will remain constant. The accretion rate of the liquidation preference will increase (a) by 2% per annum if the Company fails to report EBITDA of at least $400 million for the four fiscal quarters ending closest to the third anniversary of the date of issuance (or for the rolling four-quarter period ending on any of the three subsequent quarter-ends), (b) by 2% per annum if the Company fails to report EBITDA of at least $425 million for the four fiscal quarters ending closest to the fourth anniversary of the date of issuance (or for the rolling four-quarter period ending on any of the three subsequent quarter-ends) or (c) by 2% per annum if the Company fails to report EBITDA of at least $450 million for the four fiscal quarters ending closest to the fifth anniversary of the date of issuance, in each case, such increase to take effect on the first day after the last day of the fiscal quarter with respect to which such failure occurred; provided that the accretion rate of the liquidation preference will not at any time exceed 13% per annum. The accretion of the liquidation preference will result in a proportional increase in the number of shares of common stock issuable upon conversion of the Series A Preferred Stock and the Series B Preferred Stock. Shares of Series A Preferred Stock or Series B Preferred Stock may be converted (subject to certain conditions) at the option of the holder into shares of the other series. The holders of Series A Preferred Stock and Series B Preferred Stock have no rights to any fixed dividends in respect thereof. Subject to certain exceptions, Holdings is prohibited from declaring dividends with respect to, or redeem, purchase or otherwise acquire, shares of its capital stock without the consent of holders of a majority of the Series A Preferred Stock. If dividends are declared on the Series A Preferred Stock or the Series B Preferred Stock which are payable in voting securities of Holdings, Holdings will make available to each holder of Series A Preferred Stock and Series B Preferred Stock, at such holder's request, dividends consisting of non-voting securities of Holdings which are otherwise identical to the voting securities and which are convertible into or exchangeable for such voting securities upon a change of control. 1995 STOCKHOLDERS AGREEMENT Under the terms of the 1995 Stockholders Agreement (which was entered into by Holdings, Yucaipa and its affiliates, the 1995 Equity Investors and other stockholders), the 1995 Equity Investors holding Series A Preferred Stock are entitled to nominate three directors to the Board of Directors of each of Holdings and the Company (the "Series A Directors"), of which two directors are nominees of Apollo and one director is a nominee of the other 1995 Equity Investors holding Series A Preferred Stock. The 1995 Stockholders Agreement gives to Yucaipa the right to nominate six directors of Holdings and seven directors of the Company, and the boards of Holdings and the Company consist of a total of nine and ten directors, respectively. The numbers of directors which may be nominated by the foregoing stockholders will be reduced if such stockholders cease to own certain specified percentages of their initial holdings. Unless and until Holdings has effected an initial public offering of its equity securities meeting certain criteria, Holdings and its subsidiaries may not take certain actions without the approval of the Series A Directors, including but not limited to certain mergers, sale transactions, transactions with affiliates, issuances of capital stock and payments of dividends on or repurchases of capital stock. In addition, under the 1995 Registration Rights Agreement the 1995 Equity Investors have certain "demand" and "piggyback" registration rights with respect to their Series A Preferred Stock and Series B Preferred Stock, as well as the right under the 1995 Stockholders Agreement to participate, on a pro rata basis, in sales by Yucaipa of the Holdings stock it holds. 69 71 In certain circumstances, Yucaipa will have the right to compel the participation of the 1995 Equity Investors and other stockholders in sales of all the outstanding shares of Holdings stock. YUCAIPA WARRANT Upon closing of the Merger, Holdings issued to Yucaipa a warrant to purchase up to 8,000,000 shares of Holdings Common Stock. The initial exercise price of such warrant is such that the warrant has no value unless and until the value of the shares representing Holdings' equity on the Closing Date is greater than $1.220 billion. Such warrant will be exercisable on a cashless basis at the election of Yucaipa in the event Holdings completes an initial public offering of equity securities meeting certain criteria, or in connection with certain sale transactions involving Holdings, in either case effected on or prior to the fifth anniversary of the Merger. The expiration date of such warrant, and the deadline for such triggering transactions, may be extended from the fifth to the seventh anniversary of the Merger if Holdings meets certain financial performance goals prior to such fifth anniversary. The cashless exercise provisions of such warrant allow the holder to exercise it without the payment of cash consideration, provided that Holdings will withhold from the shares otherwise issuable upon such exercise a number of shares having a fair market value as of the exercise date equal to the exercise price. DESCRIPTION OF THE NOTES GENERAL The Notes were issued under an indenture (the "Indenture"), dated March 26, 1997, by and among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as Trustee (the "Trustee"). The following summary of certain provisions of the Notes and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Notes and the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." Capitalized terms not defined herein shall have the meanings set forth in the Indenture. A copy of the forms of the Indenture may be obtained from the Company. The Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may be presented for registration or transfer and exchange at the offices of their respective Registrar, which for the Notes initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Notes (the "Holders"). The Company will pay principal (and premium, if any) on the Notes at the Trustee's corporate office located in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of the relevant Holders. As used below in this "Description of the Notes," the "Company" means Ralphs Grocery Company, but not any of its subsidiaries. PRINCIPAL AND MATURITY OF AND INTEREST ON THE NOTES The Notes are limited in aggregate principal amount to $155,000,000. The Notes will mature on June 15, 2005. Interest on the Notes will accrue at the rate of 11% per annum and will be payable semi-annually on each June 15 and December 15, commencing on June 15, 1997, to the Holders of record on the immediately preceding June 1 and December 1, provided that with respect to the interest payment on June 15, 1997, the record date shall be the date of original issuance. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 70 72 OPTIONAL REDEMPTION OF THE NOTES The Notes will be redeemable, at the option of the Company, in whole at any time or in part from time to time, on and after June 15, 2000, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on June 15 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption:
REDEMPTION YEAR PRICE ------------------------------------------ ---------- 2000...................................... 105.500% 2001...................................... 103.667% 2002...................................... 101.833% 2003 and thereafter....................... 100.000%
In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Notes originally issued, at a redemption price equal to 109.429% if redeemed during the 12 months commencing on June 15, 1996 and 107.857% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. In order to effect the foregoing redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. NOTICES AND SELECTION In the event of a redemption of less than all of the Notes, Notes will be selected for redemption by the Trustee pro rata, by lot or by any other method that such Trustee considers fair and appropriate and, if such Notes are listed on any securities exchange, by a method that complies with the requirements of such exchange; provided, however, that any redemption of the Notes pursuant to the provisions relating to a Public Equity Offering shall be made on a pro rata basis unless such method is otherwise legally prohibited. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at such Holder's registered address. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption (unless the Company shall default in the payment of the redemption price or accrued interest). Notes that are redeemed by the Company or that are purchased by the Company pursuant to a Net Proceeds Offer as described under "-- Certain Covenants -- Limitation on Asset Sales" below or pursuant to a Change of Control Offer as described under "-- Change of Control" below or that are otherwise acquired by the Company will be surrendered to the Trustee for cancellation. SUBORDINATION OF THE NOTES The payment of the Obligations on the Notes will be subordinated in right of payment, as set forth in the 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 (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 Designated Senior Indebtedness whether or not such interest is an allowed claim enforceable against the Company in any such proceeding) before the Holders of Notes will be entitled to receive any payment with 71 73 respect to the Notes (excluding Permitted Subordinated Reorganization Securities), and until all Obligations with respect to Senior Indebtedness are paid in full in cash or Cash Equivalents, any distribution to which the Holders of Notes would be entitled (excluding Permitted Subordinated Reorganization Securities) shall be made to the holders of Senior Indebtedness. No direct or indirect payment (other than payments previously made pursuant to the provisions described under "-- Defeasance of Indenture" below) by or on behalf of the Company of Obligations on the Notes whether pursuant to the terms of the 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 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 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 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 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 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 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 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 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 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 Note Indenture and would enable the Holders of Notes to accelerate the maturity thereof. See "-- Events of Default." By reason of such subordination, in the event of the insolvency of the Company, Holders of the Notes, may recover less, ratably, than holders of Senior Indebtedness. As of April 27, 1997, the aggregate amount of Senior Indebtedness outstanding was $1,436.8 million (not including obligations with respect to letters of credit issued under the Revolving Facility, of which $89.1 million were outstanding as of April 27, 1997), the aggregate outstanding amount of guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior 72 74 Indebtedness of the Company) was $9.0 million, and the Company had $124.4 million available to be borrowed under the Revolving Facility. GUARANTEES Each Subsidiary Guarantor will unconditionally guarantee, jointly and severally, the Company's obligations under the Notes on a senior subordinated unsecured basis (the "Guarantees"). The Indebtedness represented by the Guarantee will be subordinated on the same basis to Guarantor Senior Indebtedness as the Notes are subordinated to Senior Indebtedness. See "-- Subordination of the Notes". Upon (i) the release by the lenders under the Term Loans, related documents and future refinancings thereof of all guarantees of a Subsidiary Guarantor and all Liens on the property and assets of such Subsidiary Guarantor relating to such Indebtedness, or (ii) the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially all of its assets) to an entity which is not a subsidiary of the Company, which is otherwise in compliance with the Indenture, such Subsidiary Guarantor shall be deemed released from all its obligations under its Guarantee; provided, however, that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, such Indebtedness of the Company shall also terminate upon such release, sale or transfer. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. The Indenture will further provide that a Subsidiary Guarantor may consolidate with or merge into or sell its assets to a corporation other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor, but subject to the provisions described in the immediately preceding paragraph), provided that (a) if the surviving corporation is not the Subsidiary Guarantor, the surviving corporation agrees to assume such Subsidiary Guarantor's obligations under its Guarantee, and all its obligations under the Indenture and (b) such transaction does not (i) violate any covenants set forth in the Indenture or (ii) result in a Default or Event of Default under the Indenture immediately thereafter that is continuing. The obligations of each Subsidiary Guarantor under its Guarantee are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to its Guarantee) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee, or pursuant to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under such Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor. CHANGE OF CONTROL The Indenture provides that, upon the occurrence of a Change of Control, each Holder of Notes issued thereunder will have the right to require the repurchase of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The Indenture provides that within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder of Notes, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. The Indenture requires that notice of an event giving rise to a Change of Control shall be given on the same date and in the same manner to all Holders. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect 73 75 Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date. The Change of Control Offer is required to remain open for at least 20 Business Days or such longer period as may be required by law. The Company must comply with Rule 14e-1 under the Exchange Act and any other applicable provisions of the federal securities laws in connection with a Change of Control Offer. CERTAIN COVENANTS Except as otherwise specified below, the Indenture contains, among other things, the following covenants: Limitation on Restricted Payments. The Indenture provides that the Company shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) the Company could not incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" below or (c) the aggregate amount expended for all Restricted Payments, including such proposed Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment as determined in good faith by the Board of Directors of the Company), subsequent to June 14, 1995, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income is a loss, minus 100% of such loss) of the Company earned subsequent to June 14, 1995 and on or prior to the date of the proposed Restricted Payment (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the Company from any person (other than a Subsidiary of the Company) from the issuance and sale (including upon exchange or conversion for other securities of the Company) subsequent to June 14, 1995 and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary, until and to the extent such borrowing is repaid), plus (iii) 100% of the aggregate net cash proceeds received by the Company as capital contributions to the Company after June 14, 1995, plus (iv) $25 million. The Indenture provides that if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of the Company or the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of the Company with an Average Life equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid and (4) Permitted Payments; provided, however, that the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (iii), (iv), (vi) and (vii) of the definition of the term "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and no amounts expended pursuant to clause (3) above or pursuant to clause (i), (ii), (v), and (viii) of the definition of the term "Permitted Payments" shall be so counted; provided further that to the extent any payments made pursuant to clause (vi) of the definition of the term "Permitted Payments" are deducted for purposes of computing the Consolidated Net Income of the Company, such payments shall not be counted for purposes of computing amounts expended as Restricted Payments pursuant to subclause (c) in the immediately preceding paragraph. Limitation on Incurrences of Additional Indebtedness. The Indenture provides that the Company shall not, and shall not permit any of its Subsidiaries, directly or indirectly, to incur, assume, guarantee, become 74 76 liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the Notes or Event of Default under the Indenture shall have occurred and be continuing at the time or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of the Company would be greater than 2.0 to 1.0; provided, further, a Subsidiary may incur Acquired Indebtedness to the extent such Indebtedness could have been incurred by the Company pursuant to the immediately preceding proviso. In addition, the Indenture provides that neither the Company nor any Subsidiary Guarantor will, directly or indirectly, 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 Notes or the Guarantee of such Subsidiary Guarantor, as the case may be, or (b) subordinate in right of payment to the Notes or the Note Guarantee of such Subsidiary Guarantor, as the case may be, in the same manner and at least to the same extent as the 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 Liens. The Indenture provides that the Company shall not and shall not permit any Subsidiary to create, incur, assume or suffer to exist any Liens upon any of their respective assets unless the Notes are equally and ratably secured by the Liens covering such assets, except for (i) 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 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 Indenture; provided that (A) any such Lien is created solely for the purpose of securing such other Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection therewith) of the purchase (whether through stock or asset purchase, merger or otherwise) or construction or improvement of the property subject thereto (whether real or personal, including fixtures and other equipment), (B) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs and (C) such Lien does not extend to or cover any other property other than such item of property and any improvements on such item; (vi) Liens existing on the Issue Date; (vii) Liens in favor of the Trustee and any substantially equivalent Lien granted to any trustee or similar institution under any indenture for Indebtedness permitted to be incurred under the Indenture; and (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 replacement, extension or renewal shall increase the amount or the assets subject to such Liens, except to the extent that the Liens associated with such additional assets are otherwise permitted hereunder. Limitation on Asset Sales. The Indenture provides that neither the Company nor any of its Subsidiaries shall consummate an Asset Sale unless (a) the Company or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold and (b) upon consummation of an Asset Sale, the Company will within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (A) a Related Business Investment, (B) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale or (C) an investment in properties and assets that will be used in the business of the Company and its Subsidiaries existing on the Issue Date or in businesses reasonably related thereto; (ii) in the case of a sale of a store or stores, deem such Net Cash Proceeds to have been applied to the extent 75 77 of any capital expenditures made to acquire or construct a replacement store in the general vicinity of the store sold within 365 days preceding the date of the Asset Sale; (iii) apply or cause to be applied such Net Cash Proceeds to the permanent repayment of Pari Passu Indebtedness 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; (iv) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (v) after such time as the accumulated Net Cash Proceeds of Asset Sales effected since June 14, 1995 equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of Notes tendered to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued interest thereon to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company shall have the right to exclude from the foregoing provisions Asset Sales subsequent to June 14, 1995, the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets or equipment which are acquired or constructed by the Company or a Subsidiary subsequent to the date that is six months prior to the Issue Date; provided that such sale and substantially concurrent lease-back occurs within 270 days following such acquisition or the completion of such construction, as the case may be. Pending the utilization of any Net Cash Proceeds in the manner (and within the time period) described above, the Company may use any such Net Cash Proceeds to repay revolving loans (under the Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. Each Net Proceeds Offer will be mailed to the record Holders of Notes as shown on the register of Holders of such Notes not less than 325 nor more than 365 days after the relevant Asset Sale, with a copy to the Trustee, shall specify the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed) and shall otherwise comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders of Notes may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer, Notes of tendering Holders will be repurchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The Indenture provides that the Company shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Credit Agreement in effect on the Issue Date as any such Payment Restriction may apply to any present or future Subsidiary, (ii) the Indenture and any agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenants described under "-- Limitation on Incurrences of Additional Indebtedness" and "-- Limitation on Liens" above that limit the right of the debtor to dispose of the assets securing such Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; 76 78 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 June 14, 1995. Guarantees of Certain Indebtedness. The Indenture provides that the Company shall not permit any of its Subsidiaries to (a) incur, guarantee or secure through the granting of Liens the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof or (b) pledge any intercompany notes representing obligations of any of its Subsidiaries, to secure the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof, in each case unless such Subsidiary, the Company and the Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Guarantee. Limitation on Transactions with Affiliates. The Indenture provides that neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities (other than equity securities which do not constitute Disqualified Capital Stock) from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of the Company or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under the following paragraph and (y) Affiliate Transactions in the ordinary course of business, that are fair to the Company or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (other than the requirement set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business), (B) with respect to Affiliate Transactions involving aggregate payments in excess of $5 million and less than $15 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (other than the requirement set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business) and that such Affiliate Transaction has received the approval of a majority of the disinterested members of the Board of Directors of the Company or the Subsidiary, as the case may be, or, in the absence of any such approval by the disinterested members of the Board of Directors of the Company or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and that such Independent Financial Advisor has provided written confirmation of such determination to the Board of Directors and (C) with respect to Affiliate Transactions involving aggregate payments in excess of $15 million, the Company or such Subsidiary, as the case may be, shall have delivered to the Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. 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 77 79 wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture, (v) any agreement as in effect as of June 14, 1995 or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders of the Notes in any material respect, (vi) the existence of, or the performance by the Company or any of its Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or Holdings) is a party as of June 14, 1995 and any similar agreements which it (or Holdings) may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after June 14, 1995 shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the Notes in any material respect, (vii) transactions permitted by, and complying with, the provisions of the covenant described under "-- Limitation on Mergers and Certain Other Transactions" below and (viii) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the Indenture which are fair to the Company, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Limitations on Preferred Stock of Subsidiaries. The Indenture provides that the Company will not permit any of its Subsidiaries to issue 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. Limitations on Mergers and Certain Other Transactions. The Indenture provides that the Company, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case, (1) either the Company shall be the continuing person, or the person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (the Company or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of the Company under the Indenture and the Notes; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) the Surviving Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above; (3) immediately before and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing; and (4) each Subsidiary Guarantor, unless it is the other party to the transaction, shall have by supplemental indenture confirmed that its Guarantee of the obligations of the Company under the Notes shall apply, without alteration or amendment as such Guarantee applies on the date it was granted under the Indenture to the obligations of the Company under the Indenture and the Notes to the obligations of the Company or such Person, as the case may be, under the Indenture and the Notes, after the consummation of such transaction. The Indenture provides that upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company or any adoption of a Plan of Liquidation by the Company in accordance with the 78 80 foregoing, the surviving person formed by such consolidation or into which the Company is merged or to which such transfer is made (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such surviving person had been named as the Company therein; provided, however, that solely for purposes of computing amounts described in subclause (c) of the first paragraph of the covenant described under "-- Limitation on Restricted Payments" above, any such surviving person shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. When a successor corporation assumes all of the obligations of the Company under the Indenture and the Notes and agrees to be bound thereby, the predecesor shall be released from such obligations. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more direct or indirect Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. EVENTS OF DEFAULT The following events constitute "Events of Default" under the Indenture: (i) failure to make any interest payment on the Notes when due and the continuance of such default for a period of 30 days; (ii) failure to pay principal of, or premium, if any, on the Notes when due, whether at maturity, upon acceleration, redemption, required repurchase or otherwise; (iii) failure to comply with any other agreement contained in the Notes or the Indenture, if such failure continues unremedied for 30 days after written notice given by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding (except in the case of a default with respect to the covenants described under "-- Certain Covenants -- Limitation on Restricted Payments," "-- Certain Covenants -- Limitations on Asset Sales," "-- Change of Control," and "-- Certain Covenants -- Limitations on Mergers and Certain Other Transactions," which shall constitute Events of Default with notice but without passage of time); (iv) a default under any Indebtedness of the Company or its Subsidiaries, whether such Indebtedness now exists or shall hereinafter be created, if both (A) such default either (1) results from the failure to pay any such Indebtedness at its stated final maturity or (2) relates to an obligation other than the obligation to pay such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated final maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, 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 Subsidiary of the Company or any of their respective properties and shall not be discharged for a period of 60 days after such judgment becomes final and nonappealable; (vi) either the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a custodian of it or for all or substantially all of its property; or (d) makes a general assignment for the benefit of its creditors; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary, in an involuntary case or proceeding; (b) appoints a Custodian of the Company or any Significant Subsidiary, or for all or any substantial part of their respective properties; or (c) orders the liquidation of the Company or any Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 days; (viii) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of the Company and its Subsidiaries; or (ix) any of the Guarantees issued under the Indenture shall be declared or adjudged invalid in a final judgment or order issued by any court of governmental authority. In the event of a declaration of acceleration because an Event of Default set forth in clause (iv) above has occurred and is continuing, such declaration of 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 79 81 Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. If an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency, receivership or reorganization of the Company or a Subsidiary Guarantor) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare due and payable all unpaid principal and interest accrued and unpaid on the then outstanding Notes by notice in writing to the Company, the administrative agent under the Credit Agreement and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become due and payable upon the first to occur of an acceleration under the Credit Agreement, or five business days after receipt by the Company and the administrative agent under the Credit Agreement of such Acceleration Notice. If an Event of Default resulting from certain events of bankruptcy, insolvency, receivership or reorganization of the Company or a Subsidiary Guarantor that is a Significant Subsidiary shall occur under the Indenture, all unpaid principal of and accrued interest on all then outstanding Notes shall be immediately due and payable without any declaration or other act on the part of the Trustee or any of the Holders of such Notes. After a declaration of acceleration under the Indenture, subject to certain conditions, the Holders of a majority in principal amount of the then outstanding Notes, by notice to the Trustee, may rescind such declaration if all existing Events of Default under the Indenture are remedied. In certain cases the Holders of a majority in principal amount of outstanding Notes may waive a past default under the Indenture and its consequences, except a default in the payment of or interest on any of the Notes. The Indenture provides that if a Default or Event of Default occurs and is continuing thereunder and if it is known to the Trustee, the Trustee shall mail to each Holder of Notes notice of the Default or Event of Default within 90 days after such Default or Event of Default occurs; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of or interest on any Notes, including the failure to make payment on a Change of Control Payment Date pursuant to a Change of Control Offer or payment when due pursuant to a Net Proceeds Offer the Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders. The Indenture provides that no Holder may pursue any remedy thereunder unless the Trustee (i) shall have failed to act for a period of 60 days after receiving written notice of a continuing Event of Default by such Holder and a request to act by Holders of at least 25% in principal amount of Notes and (ii) has received indemnification satisfactory to it; provided, however, that such provision does not affect the right of any Holder to sue for enforcement of any overdue payment of Notes. The Indenture provides that two officers of the Company are required to certify to the Trustee within 120 days after the end of each fiscal year of the Company whether or not they know of any Default that occurred under the Indenture during such fiscal year and, if applicable, describe such Default and the status thereof. DEFEASANCE OF INDENTURE The Company may, at its option and at any time, elect to have the obligations of the Company discharged with respect to the outstanding Notes. Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Notes except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on Notes when such payments are due solely from the funds held by the Trustee in the trust referred to below; (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of Notes and money for security 80 82 payments held in trust in respect of Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee and the Company's obligations in connection therewith; and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time elect to have the obligations of the Company released with respect to certain covenants described above under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must have irrevocably deposited with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes to redemption or maturity, provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes on the maturity date or such redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel stating that the Holders of Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing under the Indenture on the date of such deposit or insofar as clauses (vi) and (vii) under the first paragraph under "-- Events of Default" above are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest with respect to the Notes; (vi) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Indenture or any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound (and in that connection, the Trustee shall have received a certificate from the Agent under the Credit Agreement to that effect with respect to such Credit Agreement if then in effect); (vii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (viii) the Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Notes over other creditors of the Company or any Subsidiary Guarantor or with the intent of defeating, hindering, delaying or defrauding creditors of the Company, any Subsidiary Guarantor or others; and (ix) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or Covenant Defeasance have been complied with. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect as to all outstanding Notes when either (a) all such Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b)(i) all such Notes not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount of money sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (ii) no Default or 81 83 Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (iii) the Company has paid all sums payable by it under the Indenture; and (iv) the Company has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of such Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. MODIFICATION OF THE INDENTURE The Indenture and the Notes may be amended or supplemented (and compliance with any provision thereof may be waived) by the Company, the Subsidiary Guarantors, the Trustee and the Holders of not less than a majority in aggregate principal amount of Notes then outstanding, except that (i) without the consent of each Holder affected, no such amendment, supplement or waiver may (1) change the principal amount of Notes the Holders of which must consent to an amendment, supplement or waiver of any provision of the Indenture, the Notes or the Guarantees, (2) reduce the rate or extend the time for payment of interest on any Notes, (3) reduce the principal amount of any Notes, (4) change the Maturity Date of any Notes or alter the redemption provisions in the Indenture or the Notes in a manner adverse to any Holder, (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on or redemption payment with respect to any Notes, or (6) make the principal of, or interest on, any Notes payable with anything or in any manner other than as provided for in the Indenture, the Notes and the Guarantees, (ii) without the consent of Holders of not less than 75% in aggregate principal amount of Notes then outstanding, no such amendment, supplement or waiver may change the Change of Control Payment Date or the purchase price in connection with any repurchase of Notes pursuant to the covenant described under "-- Change of Control" above in a manner adverse to any Holder or waive a Default or Event of Default resulting from a failure to comply with the covenant described under "-- Change of Control" above and (iii) without the consent of Holders of not less than two thirds in aggregate principal amount of Notes then outstanding, no such amendment, supplement or waiver may release any Subsidiary Guarantor from any of its obligations under its Guarantee or the Indenture other than in accordance with the terms of such Guarantee and the Indenture. In addition, the Indenture, the Notes and the Guarantees may be amended by the Company, the Subsidiary Guarantors and the Trustee (a) to cure any ambiguity, defect or inconsistency therein; provided that such amendment or supplement does not adversely affect the rights of any Holder thereof or (b) to make any other change that does not adversely affect the rights of any Holder thereunder in any material respect. THE TRUSTEE The Indenture provides that the Holders of a majority in principal amount of the outstanding Notes may remove the Trustee thereunder and appoint a successor trustee with the Company's consent, by so notifying the trustee to be so removed and the Company. In addition, the Holders of a majority in principal amount of the outstanding Notes have the right, subject to certain limitations, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee under the Indenture or of exercising any trust or power conferred on the Trustee. The Indenture provides that, in case a Default or an Event of Default has occurred and is continuing thereunder, the Trustee shall exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in the exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Subject to the latter provision, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders of the Notes, unless they shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred thereby. If the Company fails to pay such amounts of principal of, premium, if any, or interest on, the Notes as shall have become due and payable upon demand as specified in the Indenture, the Trustee, at the request of the Holders of a majority in aggregate principal amount of Notes at the time outstanding, and upon being offered such reasonable indemnity as it 82 84 may be required against the costs, expenses and liabilities incurred by it, except as a result of its negligence or bad faith, shall institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and collect in the manner provided by law the monies adjudged or decreed to be payable. The Indenture contains limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to be realized on certain property received by it in respect of any such claims, securities or otherwise. The Trustee is permitted to engage in other transactions; however, if the Trustee acquires any "conflicting interest," it must eliminate such conflict or resign. REPORTS The Indenture provides that the Company will deliver to the Trustee thereunder within 15 days after the filing of the same with the Commission, copies of the quarterly and annual report and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture 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 Trustee and Holders of the Notes with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA Section 314(a). CERTAIN DEFINITIONS "Acquired Indebtedness" means (i) with respect to any person that becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) after the Issue Date, Indebtedness of such person or any of its Subsidiaries existing at the time such person becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) and which was not incurred in connection with, or in contemplation of, such person becoming a Subsidiary of the Company (or being merged into the Company or any of its Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries, any Indebtedness assumed by the Company or any of its Subsidiaries in connection with the acquisition of any assets from another person (other than the Company or any of its Subsidiaries), and which was not incurred by such other person in connection with, or in contemplation of, such acquisition. "Adjusted Net Assets" means, with respect to the Guarantee of a Subsidiary Guarantor at any date, the lesser of the amount by which (x) the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to such Guarantee)), but excluding liabilities under the Guarantee of such Subsidiary Guarantor, at such date and (y) the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to such Guarantee) and after giving effect to any collection from any Subsidiary of such Subsidiary Guarantor in respect of the obligations of such Subsidiary under its Guarantee), excluding debt in respect of the Guarantee of such Subsidiary Guarantor, as they become absolute and matured. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of the Company or any of its Subsidiaries. 83 85 "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise) made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than the Company or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of related sales, transfers or other dispositions (i) involving only Excluded Assets, (ii) resulting in Net Proceeds to the Company and the Subsidiaries of $500,000 or less, (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company or any Subsidiary with a Lien on such assets, which Lien is permitted under the Indenture; provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law, (iv) involving only Cash Equivalents or inventory in the ordinary course of business or obsolete equipment in the ordinary course of business consistent with past practices of the Company; (v) involving only the lease or sub-lease of any real or personal property in the ordinary course of business; or (vi) the proceeds of such Asset Sale which are not applied as contemplated in "-- Certain Covenants -- Limitation on Asset Sales" and which, together with all other such Asset Sale proceeds, do not exceed $20 million. "Average Life" means, as of any date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payments of such debt security multiplied by the amount of each such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any person, the Board of Directors of such person or of a subsidiary of such person or any duly authorized committee of that Board. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Capital Stock" means, with respect to any person, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii), (v) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $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. 84 86 "Change of Control" means the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of Holdings or the Company such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of the Company (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of the Company's Board of Directors. "Commission" means the Securities and Exchange Commission. "Common Stock" means, with respect to any person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of, such person's common stock, whether outstanding at the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received by, such person or a subsidiary of such person not subject to any Payment Restriction; and (c)(i) the net income (or loss) of any other person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of such person or any of its subsidiaries and any gains on pension reversions received by such person or any of its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any of its subsidiaries of any securities of such person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C) any other restructuring reserves or charges (provided, however, that any cash payments actually made with respect to the liabilities for which such restructuring reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case, incurred by the Company or any of its Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by the Company and its Subsidiaries resulting from earthquakes and (ix) with respect to the Company, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded; provided further that solely for the purpose of computing amounts described in subclause (c) of the first paragraph of the covenant described under "-- Limitation on Restricted Payments" above, "Consolidated Net Income" of the Company for any period shall be reduced by the aggregate amount of dividends paid by the Company or a Subsidiary to Holdings pursuant to clauses (v) and (viii) 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. 85 87 "Consulting Agreement" means that certain Consulting Agreement dated as of June 14, 1995 and as in effect on the Issue Date, among the Company, Holdings and The Yucaipa Companies (as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date). "Credit Agreement" means the Credit Agreement, dated as of June 14, 1995, as amended and in effect on the Issue Date, by and among Food 4 Less, as borrower, certain of its subsidiaries, Holdings, as guarantor, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or any such prior agreement as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). The term "Credit Agreement" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. The Company shall promptly notify the Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Disqualified Capital Stock" means, with respect to any person, any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security, into which it is convertible, puttable or exchangeable is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder thereof, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date of the Notes, or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (i) redeemable or repurchasable solely at the option of such person or (ii) issued to employees of the Company or its Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication)(i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credits) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period (excluding any such items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period) in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring reserve or charge referred to in clause (v) above (and were not otherwise deducted in the computation of Consolidated Net Income of such person for such period). "Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated by the Commission thereunder. 86 88 "Excluded Assets" means assets of the Company or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. "Existing Indebtedness" means the following indebtedness of the Company to the extent outstanding on the Issue Date: (a) the 10.45% Senior Notes due 2004 issued pursuant to an indenture dated as of June 6, 1996, (b) the 10.45% Senior Notes due 2004 issued pursuant to an indenture dated as of June 1, 1995; (c) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (d) the 11% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of June 1, 1995; (e) the 9% Senior Subordinated Notes due 2003 issued pursuant to an indenture dated as of March 30, 1993; (f) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to an indenture dated as of July 29, 1992; and (g)(1) the 13.75% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of June 1, 1995, and (2) the 13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated as of June 15, 1991; provided that such indebtedness described under sub clauses (1) and (2) of clause (g) hereof shall no longer constitute Existing Indebtedness from and after April 29, 1997. "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of the Company, any original issue discount on the Notes but excluding amortization of debt issuance costs) and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period but excluding the amortization of debt issuance costs), (ii) dividend requirements on Preferred Stock of such person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock)) declared or paid or required to be declared or paid during such period (except to the extent accrued in a prior period) and excluding items eliminated in consolidation and (iii) dividends declared or paid or scheduled or required to be declared or paid to Holdings which are permitted to be paid pursuant to clause (v) 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 clause (ii) above, dividend requirements shall be increased to an amount representing the pre-tax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, the Company. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of June 1, 1995. "Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and its successors. "Holdings Registration Rights Agreement" means that certain Registration Rights Agreement by and between RGC Partners, L.P., Holdings and Food 4 Less, as such Registration Rights Agreement may be 87 89 amended or replaced, so long as any amounts paid by Holdings and the Company under any amended or replacement agreement do not exceed the amounts payable by Holdings and the Company under such Registration Rights Agreement as in effect on June 14, 1995. "Indebtedness" means with respect to any person, without duplication, (i) all liabilities, contingent or otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person; (iii) reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes of the Indenture, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of the Company, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Independent Financial Advisor" means a reputable accounting, appraisal or nationally recognized investment banking or consulting firm that is, in the reasonable judgment of the Board of Directors of the Company, qualified to perform the tasks for which such firm has been engaged and disinterested and independent with respect to the Company and its Affiliates. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "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 88 90 advances to employees for moving and travel expenses, as salary advances or to permit the purchase of Qualified Capital Stock of Holdings or any of its Subsidiaries and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of original issuance of the Notes under the Indenture. "Letter of Credit Obligations" means Indebtedness of the Company or any of its Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of the definition of the term "Permitted Indebtedness," the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien under the Indenture. "Maturity Date" means June 15, 2005. "Merger" means (i) the merger of Food 4 Less into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of Ralphs Grocery Company into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated September 14, 1994, by and among Holdings, Food 4 Less, Inc., Food 4 Less, RSI and the stockholders of RSI, as such agreement was in effect on June 14, 1995. "Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in the form of cash or Cash Equivalents. "Net Proceeds" means (a) in the case of any Asset Sale or any issuance and sale by any person of Qualified Capital Stock, the aggregate net proceeds received by such person after payment of expenses, taxes, commissions and the like incurred in connection therewith (and, in the case of any Asset Sale, net of the amount of cash applied to repay Indebtedness secured by the asset involved in such Asset Sale), whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt as determined with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution) and (b) in the case of any conversion or exchange of any outstanding Indebtedness or Disqualified Capital Stock of such person for or into shares of Qualified Capital Stock of the Company, the sum of (i) the fair market value of the proceeds received by the Company in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the Holder to the Company upon such conversion or exchange. "New Discount Debenture Indenture" means the indenture dated as of June 14, 1995 under which the 13 5/8% Senior Discount Debentures due 2005 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof to the extent such refinancings are permitted under the Indenture. 89 91 "New Discount Debentures" means the 13 5/8% Senior Discount Debentures due 2005 of Holdings issued pursuant to the New Discount Debenture Indenture, as the same may be modified or amended from time to time and future refinancings thereof to the extent such refinancings are permitted under the Indenture. "Operating Coverage Ratio" means, with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by the Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Pari Passu Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in right of payment to the Notes or the Guarantee of such Subsidiary Guarantor, as the case may be in each case, whether or not secured by any Lien. "Payment Restriction" means, with respect to a subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person or (c) transfer any of its properties or assets to such person or any other subsidiary of such person, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and The Yucaipa Companies, or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of the Company, or any of its subsidiaries or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its Subsidiaries (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans in an aggregate principal amount at any time outstanding not to exceed $600 million less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above subsequent to June 14, 1995, (ii) the revolving credit facility under the Credit Agreement (including the Letter of Credit 90 92 Obligations) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above since June 14, 1995, and (iii) any Indebtedness incurred under the Credit Agreement pursuant to and in compliance with (A) clause (m) of this definition and (B) the covenant described above under the caption "-- Limitation on Incurrences of Additional Indebtedness" (other than Permitted Indebtedness that is not incurred pursuant to clause (m) or this clause (a) of this definition); (b) Indebtedness of the Company or a Subsidiary Guarantor owed to and held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred by the Company or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of the Company and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis and (ii) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon this clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of the Company and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the end of the twelfth fiscal quarter following the Merger); (d) Indebtedness incurred by the Company or any Subsidiary in connection with capital expenditures in an aggregate principal amount not exceeding $150 million (less the aggregate principal amount of any Indebtedness incurred by the Company or any Subsidiary on or prior to the Issue Date in reliance on clause (d) of the definition of "Permitted Indebtedness" under the indenture governing the 1995 Senior Subordinated Notes), provided that such capital expenditures relate solely to the integration of the operations of RSI, Food 4 Less and their respective subsidiaries as described in prospectus of Food 4 Less dated May 31, 1995; (e) Indebtedness of the Company or any Subsidiary incurred under certain Foreign Exchange Agreements and Interest Swap Obligations entered into with respect to Indebtedness otherwise permitted to be outstanding pursuant to the covenant described above under the caption "-- Limitation on Incurrences of Additional Indebtedness" or this definition of Permitted Indebtedness in a notional amount not exceeding the aggregate principal amount of such Indebtedness; (f) guarantees incurred in the ordinary course of business by the Company or a Subsidiary of Indebtedness of any other person in aggregate not to exceed $25 million at any time outstanding (less the amount of any guarantees incurred by the Company or any Subsidiary on or prior to the Issue Date in reliance on clause (f) of the definition of "Permitted Indebtedness" under the indenture governing the 1995 Senior Subordinated Notes until such guarantees are no longer outstanding); (g) guarantees by the Company or a Subsidiary Guarantor of Indebtedness incurred by a wholly-owned Subsidiary Guarantor so long as the incurrence of such Indebtedness incurred by such wholly-owned Subsidiary Guarantor is permitted under the terms of the Indenture; (h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (j) Existing Indebtedness and other Indebtedness outstanding on the Issue Date; (k) Indebtedness arising from guarantees of Indebtedness of the Company or any Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary in the ordinary course of business; and (m) additional Indebtedness of the Company and the Subsidiary Guarantors in an amount not to exceed $175 million at any time outstanding (less the amount of any Indebtedness incurred by the Company or any Subsidiary Guarantor on or prior to the Issue Date in reliance on clause (m) of the definition of "Permitted Indebtedness" under the indenture governing the 1995 Senior Subordinated Notes until such Indebtedness is repaid or no longer outstanding). 91 93 "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale made pursuant to the provisions of the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with the provisions of the covenant described under "-- Certain Covenants -- Limitation on Transactions with Affiliates," (vi) Investments by Subsidiary Guarantors in other Subsidiary Guarantors or the Company and Investments by the Company in a Subsidiary Guarantor in the form of Indebtedness owed to the Company by such Subsidiary Guarantor and Investments by Subsidiaries which are not Subsidiary Guarantors in other 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 arising as a matter of law to secure payment of nondelinquent customs duties in connection with the importation of goods; (ix) judgment and attachment Liens not giving rise to a Default or Event of Default; (x) leases or subleases granted to others not interfering in any material respect with the business of the Company or any Subsidiary; (xi) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Swap Obligations and Foreign Exchange Agreements and forward contracts, option futures contracts, futures options or similar agreements or arrangements designed to protect the Company or any Subsidiary from fluctuations in the price of commodities; (xii) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or its Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (xiii) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Subsidiary in the ordinary course of business in accordance with past practices; (xiv) any interest or title of a lessor in the property subject to any lease, whether characterized as capitalized or operating other than any such interest or title resulting from or arising out of a default by the Company or any Subsidiary of its obligations under such lease; (xv) Liens arising from filing UCC financing statements for precautionary purposes in connection with true leases of personal property that are otherwise permitted under the Indenture and under which the Company or any Subsidiary is lessee; (xvi) Liens on assets of the Company securing Indebtedness which would constitute Senior Indebtedness but for the provisions of clause 92 94 (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 in aggregate principal amount at any one time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the aggregate Consolidated Net Income of the Company earned subsequent to June 14, 1995 and on or prior to such time. "Permitted Payments" means (i) any payment by the Company or any Subsidiary, or any dividend by the Company or any Subsidiary to Holdings the proceeds of which are utilized by Holdings to make payments, to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar services, or for reimbursement of losses, costs and expenses pursuant to the Consulting Agreement, (ii) any payment by the Company or any Subsidiary pursuant to the Second Amended and Restated Tax Sharing Agreement, dated as of June 14, 1995, by and among the Company, all direct and indirect subsidiaries, and Holdings as such Tax Sharing Agreement may be amended from time to time, so long as the payment thereunder by the Company and its Subsidiaries shall not exceed the amount of taxes the Company would be required to pay if it were the filing person for all applicable taxes, (iii) any payment by the Company or any Subsidiary pursuant to the Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4 Less and Holdings, as in effect on the Issue Date, (iv) any payment by the Company or any Subsidiary, or any dividend by the Company or any Subsidiary to Holdings the proceeds of which are used by Holdings to make payments, (a) in connection with repurchases of outstanding shares of the Company's or Holdings' Common Stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by Holdings, the Company or any of its Subsidiaries to participants or former participants in employee benefit plans upon termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period), (v) from and after June 15, 2000, payments of cash dividends to Holdings in an amount sufficient to enable Holdings to make payments of interest required to be made in respect of the Seller Debentures and the New Discount Debentures in an amount not to exceed the amount payable thereunder in accordance with the terms thereof in effect on June 14, 1995, (vi) dividends or other payments to Holdings sufficient to enable Holdings to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business or to pay required fees and expenses in connection with the Merger and the registration under applicable laws and regulations of its debt or equity securities, (vii) dividends by the Company to Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (a) the Company or any of the Subsidiaries is required pursuant to the Indenture to utilize such Net Cash Proceeds to repay the Notes (and has complied with all such requirements), (b) such Net Cash Proceeds are not required to be and have not been utilized to repay outstanding Indebtedness of the Company or any of the Subsidiaries and (c) Holdings is required pursuant to the documents governing any outstanding Indebtedness of Holdings to utilize such Net Cash Proceeds to repay such Indebtedness (it being understood that only the amounts not utilized as described in clauses (a) and (b) of this clause (vii) shall be permitted to be distributed to Holdings pursuant to this clause (vii)) and (viii) for so long as the sole business activity of such partnership is to acquire, hold, sell, exchange, transfer or otherwise dispose of all or any portion of the New Discount Debentures and to manage its investment in the New Discount Debentures, any payment by the Company or any Subsidiary, or any dividend or loan to Holdings, the proceeds of which are utilized by Holdings to fund ongoing costs and expenses of RGC Partners, L.P. pursuant to the Subscription Agreement and the Holdings Registration Rights Agreement. "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 93 95 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 Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as interpreted by the Company's chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Public Equity Offering" means an underwritten public offering of Common Stock of the Company or Holdings pursuant to a registration statement filed with the Commission in accordance with the Securities Act which public equity offering results in gross proceeds to the Company or Holdings, as the case may be, of not less than $20 million; provided, however, that in the case of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company net cash proceeds in an amount sufficient to redeem Notes called for redemption in accordance with the terms thereof. "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (c), (d), (h) and (j) of the definition thereof) incurred in accordance with the Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking 94 96 fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date of the Notes and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders of the Notes than those contained in such repaid or amended Subordinated Indebtedness. "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 Holdings issued pursuant to the Seller Debenture Indenture, including any additional 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 issued as interest thereon, in each case, as such Seller Debentures may be modified or amended from time to time and future refinancings thereof to the extent such refinancings are permitted under the Indenture. "Seller Debenture Indenture" means the indenture between Holdings and Norwest Minnesota, N.A., as trustee, dated as of June 14, 1995 under which the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof to the extent such refinancings are permitted under the Indenture. "Senior Indebtedness" means the principal of, premium, if any, and interest on, and all other Obligations with respect to, 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 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 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 (other than Capitalized Lease Obligations), (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 95 97 Company to a Subsidiary of the Company, and (i) that portion of any Indebtedness which is incurred by the Company in violation of the 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 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 Notes or the Guarantee of such Subsidiary Guarantor, as the case may be. "Subscription Agreement" means that certain Subscription Agreement, between RGC Partners, L.P., Holdings, Food 4 Less and the partnership investors listed on Exhibit A thereto, as such Subscription Agreement may be amended or replaced, so long as any amounts paid by Holdings and the Company under any amended or replacement agreement do not exceed the amounts payable by Holdings and the Company under such Subscription Agreement as in effect on June 14, 1995. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than fifty percent of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of the Company. "Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less GM, Inc., Food 4 Less of Southern California, Inc., and Crawford Stores, Inc., (ii) each of the Company's Subsidiaries which becomes a guarantor of the Notes in compliance with the provisions set forth under "-- Certain Covenants -- Guarantees of Certain Indebtedness," and (iii) each of the Company's Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the Indenture. 96 98 "Term Loans" means the term loan facility under the Credit Agreement and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings outstanding under such facility or under any prior refunding, replacement or refinancing thereof (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). "Yearly Period" means each fiscal year of the Company. "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership, or any successor thereto which is an affiliate of Ronald W. Burkle or his Permitted Transferees and which has been established for the sole purpose of changing the form of The Yucaipa Companies from that of a partnership to that of a limited liability company or any other form of entity which is not materially adverse to the rights of the Holders under the Indenture. DESCRIPTION OF THE CREDIT FACILITY Set forth below is a summary of the material terms and conditions of the Amended and Restated Credit Facility dated as of April 17, 1997 among the Company, the Subsidiary Guarantors, Bankers Trust as Agent and the other lenders party thereto (the "Refinanced Credit Facility"). This summary does not purport to be a complete description of the Refinanced Credit Facility and is subject to the detailed provisions of the loan agreement (the "Loan Agreement") and various related documents entered into in connection with the Refinanced Credit Facility. A copy of the Loan Agreement is available upon request from the Company. SUMMARY OF REFINANCED CREDIT FACILITY General. The Refinanced Credit Facility was effective as of April 17, 1997 and is an amendment and restatement of the 1995 Credit Facility. The Refinanced Credit Facility provides for (i) term loans in the aggregate amount of $550 million, currently comprised of a $200 million tranche which matures on February 15, 2003 (the "Tranche A Loan") and a $350 million tranche which matures on February 15, 2004 (the "Tranche B Loan," and together with the Tranche A Loan, the "Term Loans"); and (ii) the $325 million Revolving Facility (the "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 $89.1 million of letters of credit were outstanding as of April 27, 1997. As of April 27, 1997, the outstanding principal amount of the Term Loans was $550 million and there was $111.5 million outstanding under the Revolving Facility. Proceeds of the term loans under the 1995 Credit Facility and initial revolving loans under the 1995 Credit Facility, together with proceeds from the other debt and equity financing transactions completed concurrently, were used to fund the cash requirements for the acquisition of RSI, refinance existing indebtedness of Ralphs and Food 4 Less, and pay various fees, expenses and other costs associated with the Merger and the related financing. Upon the effectiveness of the Refinanced Credit Facility, term loans and revolving loans under the 1995 Credit Facility were converted into the Term Loans and revolving loans under the Revolving Facility. Proceeds of loans under the Revolving Facility were also used to pay fees, expenses and other costs associated with such refinancing. The Revolving Facility is used to provide for the working capital requirements and general corporate purposes of the Company and to issue commercial and standby letters of credit to support workers' compensation contingencies and for other corporate purposes. Interest Rate; Fees. Borrowings under (i) the Revolving Facility and the Tranche A Loan bear interest at a rate per annum equal to the Base Rate (as defined in the Refinanced Credit Facility) plus a margin ranging from 0.25% to 1.25% or the Adjusted Eurodollar Rate (as defined in the Refinanced Credit Facility) plus a margin ranging from 1.25% to 2.25%. The current margins for the Revolving Facility and the Tranche A Loan are 0.75% for Base Rate Loans (as defined in the Refinanced Credit Facility) and 1.75% for Eurodollar Rate Loans (as defined in the Refinanced Credit Facility). Borrowings under the Tranche B Loan bears interest at a rate per annum equal to the Base Rate plus a margin ranging from 0.75% to 1.75% or the Adjusted Eurodollar Rate plus a margin ranging from 1.75% to 2.75%. The current margins for the Tranche B Loan are 1.25% for Base Rate Loans and 2.25% for Eurodollar Rate Loans. Up to $30 million of the Revolving Facility 97 99 is available as a swingline facility and loans outstanding under the swingline facility bear interest at a rate per annum equal to the Base Rate plus a margin which ranges from 0.25% to 1.25% minus the Commitment Fee Percentage (as defined in the Refinanced Credit Facility). After the occurrence of a default under the Refinanced Credit Facility, interest will accrue at the rate equal to the rate otherwise applicable under the Refinanced Credit Facility plus an additional 2.00% per annum. The Company pays the issuing bank a fee of 0.25% on each standby letter of credit and each commercial letter of credit and pays the lenders under the Refinanced Credit Facility a fee equal to the margin on Eurodollar Rate Loans under the Revolving Facility (the "Eurodollar Margin") minus the Commitment Fee Percentage for standby letters of credit and a fee equal to the Eurodollar Margin minus 1% minus the Commitment Fee Percentage for commercial letters of credit. Each of these fees is calculated based on the amount available to be drawn under a letter of credit. In addition, the Company will pay a commitment fee which ranges from 0.325% to 0.500% per annum on the unused portions of the Revolving Facility and for purposes of calculating this fee, loans under the swingline facility shall not be deemed to be outstanding. The current commitment fee is 0.500%. The 1995 Credit Facility required the Company to enter into hedging agreements to limit its exposure to increases in interest rates for a period of not less than two years from the date of the closing on the 1995 Credit Facility in an aggregate notional amount of not less than $300 million. The Refinanced Credit Facility continues this requirement. The Refinanced Credit Facility may be prepaid in whole or in part without premium or penalty. Amortization; Prepayments. The Tranche A Loan will mature on February 15, 2003, and the Tranche B Loan will mature on February 15, 2004. The Refinanced Credit Facility provides for quarterly amortizations of the Term Loans in each year as follows: $2.625 million in fiscal 1997, $3.5 million in fiscal 1998, $25.5 million in fiscal 1999, $62.625 million in fiscal 2000, $87.5 million in fiscal 2001, $112.75 million in fiscal 2002, $118.25 million in fiscal 2003 and $137.25 million in fiscal 2004. Prepayments of Term Loans would reduce these amortizations. The Revolving Facility will mature on February 15, 2003. The Company is required to reduce loans outstanding under the Revolving Facility to (i) $110 million for a period of not less than 30 consecutive days during each period of twelve consecutive months through the end of Fiscal Year 1997 (as defined in the Refinanced Credit Facility), and (ii) $100 million ($75 million if the Company sells Cala for $25 million or more) for a period of not less than 30 consecutive days during each period of twelve consecutive months thereafter. The Company is required to make certain prepayments, subject to certain exceptions, on the Refinanced Credit Facility with 75% (100% for fiscal year 1997) of Consolidated Excess Cash Flow (as defined in the Refinanced Credit Facility) 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 and Tranche B Loans and to scheduled amortization payments of the Tranche A Loans and Tranche B Loans pro rata. Mandatory prepayments on the Tranche B Loans will be used to make an offer to repay such Loans and to the extent not accepted 50% of such amount will be applied to reduce Tranche A Loans on a pro rata basis and the remaining 50% may be retained by the Company. Guarantees and Collateral. Holdings and all active subsidiaries of the Company (including the Subsidiary Guarantors) have guaranteed the Company's obligations under the Refinanced Credit Facility. The Company's obligations and the guarantees of its subsidiaries are secured by substantially all personal property of the Company and its subsidiaries, including a pledge of the stock of all subsidiaries of the Company. Holdings' guarantee is secured by a pledge of the stock of the Company. The Company's obligations also are secured by first priority liens on certain real property fee interests of the Company and its subsidiaries and on certain unencumbered leasehold interests of the Company and its subsidiaries. Covenants. The obligation of the lenders under the Refinanced Credit Facility to advance funds is subject to the satisfaction of certain conditions customary in agreements of this type. In addition, the Company is subject to certain customary affirmative and negative covenants contained in the Refinanced Credit Facility, including, without limitation, covenants that restrict, subject to specified exceptions, (i) the incurrence of additional indebtedness and other obligations, (ii) mergers or acquisitions, (iii) asset sales, (iv) the granting of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in transactions with affiliates, or (vii) cash capital expenditures. Certain of these covenants are more restrictive than those in favor of holders of the Notes as described herein and as set forth in the Indenture. In addition, the Refinanced 98 100 Credit Facility requires that the Company maintain certain specified financial covenants, including a minimum fixed charge coverage, a maximum ratio of total debt to EBITDA and a minimum net worth. Events of Default. The Refinanced 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 Refinanced Credit Facility and foreclosure on the collateral securing such obligations, which could have material adverse results to holders of the Notes. DESCRIPTION OF HOLDINGS' INDEBTEDNESS The New Discount Debentures. $100 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures") were issued by Holdings upon consummation of the Merger. The New Discount Debentures will have an aggregate principal amount of $193,363,570 at maturity and will mature on July 15, 2005. The New Discount Debentures are senior unsecured obligations of Holdings and rank senior in right of payment to all subordinated indebtedness of Holdings, including the Seller Debentures. Until June 15, 2000, no interest will accrue on the New Discount Debentures, but the Accreted Value (as defined in the indenture governing the New Discount Debentures (the "New Debenture Indenture")) will accrete at a rate of 13 5/8% (representing the amortization of the original issue discount) from the date of original issuance until June 15, 2000, on a semi-annual bond equivalent basis using a 360 day year comprised of twelve 30-day months, such that the Accreted Value shall be equal to the full principal amount of the New Discount Debentures on June 15, 2000. The initial Accreted Value per $1,000 principal amount of New Discount Debentures was $519.92 (representing the original purchase price). Beginning on June 15, 2000, cash interest on the New Discount Debentures will accrue at a rate of 13 5/8% per annum and will be payable semi-annually in arrears on each June 15 and December 15 of each year, commencing December 15, 2000, to the holders of record on the immediately preceding June 1 and December 1. On or after June 15, 2000, the New Discount Debentures may be redeemed, at the option of Holdings, in whole at any time or in part from time to time, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, plus accrued and unpaid interest, to the redemption date, if redeemed during the twelve-month period commencing on June 15 in the years set forth below:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 2000................................. 106.8125% 2001................................. 105.1094% 2002................................. 103.4063% 2003................................. 101.7031% 2004 and thereafter.................. 100.0000%
Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the net proceeds of a Public Equity Offering (as defined in the New Debenture Indenture) of Holdings or the Company to redeem up to 35% of the New Discount Debentures at a redemption price equal to 110% of the Accreted Value thereof on the date of redemption. In the event of a Change of Control (as defined in the New Debenture Indenture), each holder has the right to require the repurchase of such holder's New Discount Debentures at a purchase price equal to 101% of the Accreted Value thereof on the Change of Control Payment Date (as defined in the New Debenture Indenture) (if such date is prior to June 15, 2000) or 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Change of Control Payment Date (if such date is on or after June 15, 2000). The New Debenture Indenture contains covenants that, among other things, limit the ability of Holdings to enter into certain mergers or consolidations or incur certain liens or of Holdings or its subsidiaries to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined in the New Debenture Indenture), or engage in certain transactions with affiliates. Under certain circumstances, Holdings will be required to make an offer to purchase New Discount Debentures at a price equal to 100% of the Accreted Value thereof on the date of purchase, if such date is prior to June 15, 2000 or 100% of the principal 99 101 amount thereof, plus accrued interest to the date of purchase, if such date is on or after June 15, 2000, with the proceeds of certain Asset Sales (as defined in the New Debenture Indenture). The New Debenture Indenture contains certain customary events of defaults, which include the failure to pay interest and principal, the failure to comply with certain covenants in the New Discount Debentures or the New Debenture Indenture, a default under certain indebtedness, the imposition of certain final judgments or warrants of attachment and certain events occurring under bankruptcy laws. Pursuant to the terms of a registration rights agreement entered into by Holdings, Holdings filed a shelf registration statement with the Commission with respect to the New Discount Debentures, and paid the expenses related thereto. Pursuant to such registration statement, the initial holder of the New Discount Debentures sold its entire interest in the New Discount Debentures. The Seller Debentures. $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 (the "Seller Debentures") were issued by Holdings to the stockholders of RSI upon consummation of the Merger. The Seller Debentures were issued in an aggregate principal amount of $131.5 million and will mature on June 15, 2007. The Seller Debentures are general unsecured obligations of Holdings and are subordinated to the prior payment when due of all Senior Indebtedness (as defined in the indenture governing the Seller Debentures (the "Debenture Indenture")), including the New Discount Debentures. The Seller Debentures bear interest at a rate equal to 13 5/8% per annum, payable semi-annually in arrears on each interest payment date. Holdings has the option, in its sole discretion, to issue additional securities ("Secondary Securities") in lieu of a cash payment of any or all of the interest due for the period prior to the interest payment date five years after the date of issuance of the Seller Debentures. On or after June 15, 2000, the Seller Debentures may be redeemed, at the option of Holdings, in whole at any time or in part from time to time, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the twelve-month period commencing on June 15 in the years set forth below:
YEAR REDEMPTION PRICE ------------------------------------- ---------------- 2000................................. 106.8125% 2001................................. 105.1094% 2002................................. 103.4063% 2003................................. 101.7031% 2004 and thereafter.................. 100.0000%
Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the net proceeds of an Initial Public Offering (as defined in the Debenture Indenture) of Holdings or Food 4 Less to redeem up to 35% of the Seller Debentures at a redemption price equal to 110% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption. In the event of a Change of Control (as defined in the Debenture Indenture), each holder has the right to require the repurchase of such holder's Seller Debentures at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. The Debenture Indenture contains certain covenants that, among other things, limit the ability of Holdings to enter into certain mergers or consolidations or incur certain liens or of Holdings or its subsidiaries to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined in the Debenture Indenture), or engage in certain transactions with affiliates. Under certain circumstances, Holdings will be required to make an offer to purchase Seller Debentures at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date with the proceeds of certain Asset Sales (as defined in the Debenture Indenture). The Debenture Indenture contains certain customary events of default, which will include the failure to pay interest and principal, the failure to comply with certain covenants in the Seller Debentures or the Debenture Indenture, a default under certain indebtedness, the imposition of certain final judgments or warrants of attachment and certain events occurring under bankruptcy laws. 100 102 Pursuant to the terms of a registration rights agreement executed concurrently with the closing of the Merger, Holdings has filed a shelf registration statement with the Commission with respect to the Seller Debentures. Holdings is obligated to use its best efforts to cause such shelf registration statement to remain effective for up to three years, and pay the expenses related thereto. If Holdings fails to comply with its obligations to keep such shelf registration statement effective, Holdings will be obligated to pay certain liquidated damages. BOOK ENTRY; DELIVERY AND FORM The Exchange Notes (and the related guarantees) to be issued in exchange for Private Notes as set forth herein will initially will be represented by a single, permanent global certificate in definitive, fully registered form (the "Global Note"). The Global Note will be deposited on the date of the closing of the Exchange Offer with, or on behalf of, The Depository Trust Company, New York, New York ("DTC") and registered in the name of a nominee of DTC. The information in this section concerning DTC and its book-entry system has been obtained from sources that the Company believes to be reliable but the Company takes no responsibility for the accuracy thereof. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participating organizations (collectively, "Participants") and to facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes in accounts of its Participants, thereby eliminating the need for physical movement of certificates. DTC's Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of the DTC only through the Participants or Indirect Participants. The Global Note. The Company expects that pursuant to procedures established by DTC (i) upon the issuance of the Global Note, DTC or its custodian will credit, on its internal system, the principal amount of Notes of the individual beneficial interests represented by such Global Note to the respective accounts of persons who have accounts with such depositary and (ii) ownership of beneficial interests in the Global Note will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of Participants) and the records of Participants (with respect to interests of persons other than Participants). Such accounts initially will be the same accounts as those of the exchanging holders of Private Notes and ownership of beneficial interests in the Global Note will be limited to Participants who have accounts with DTC ("Participants") or persons who hold interests through Participants. Prospective holders of the Exchange Notes are advised that the laws of some states require that certain persons take physical delivery in physical form of securities that they own. Consequently, the ability to transfer Notes evidenced by the Global Note will be limited to such extent. So long as DTC, or its nominee, is the registered owner or holder of the Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture. No beneficial owner of an interest in the Global Note will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the Indenture with respect to the Notes. Payments of the principal of, premium (if any), interest and Liquidated Damages (if any) on, the Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. 101 103 The Company expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, interest or Liquidated Damages, if any, in respect of the Global Note, will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of DTC or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in the Global Note held through such Participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such Participants. Transfers between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in same day funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell Notes to persons in states which require physical delivery of the Notes, or to pledge such securities, such holder must transfer its interest in the Global Note, in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture. DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more Participants to whose account the DTC interests in the Global Note are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the Global Note for Certificated Securities, which it will distribute to its Participants. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among Participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or its participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. Certificated Securities. If DTC is at any time unwilling or unable to continue as a depositary for the Global Note and a successor depositary is not appointed by the Company within 90 days, Certificated Securities will be issued in exchange for the Global Note. 102 104 CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Latham & Watkins, counsel to the Company, the following discussion describes the material federal income tax consequences expected to result to holders whose Private Notes are exchanged for Exchange Notes in the Exchange Offer. Such opinion is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought with respect to the Exchange Offer. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS. The exchange of Private Notes for Exchange Notes will be treated as a "non-event" for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Private Notes. As a result, no material federal income tax consequences will result to holders exchanging Private Notes for Exchange Notes. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer where such Private Notes were acquired by such broker-dealer as a result of market making activities or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resales of Exchange Notes received in exchange for Private Notes where such Private Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of up to 90 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer that requests such document in the Letter of Transmittal for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers or any other persons. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the Company's performance of, or compliance with, the Registration Rights Agreement and will indemnify the holders of Private Notes (including any broker-dealers), and certain parties related to such holders, against certain liabilities, including liabilities under the Securities Act. 103 105 LEGAL MATTERS Certain legal matters with respect to the Exchange Notes offered hereby will be passed upon for the Company by Latham & Watkins, Los Angeles, California. EXPERTS The consolidated financial statements of Ralphs Grocery Company (formerly Food 4 Less Supermarkets, Inc.) as of February 2, 1997, January 28, 1996 and January 29, 1995 and for the 53 week period ended February 2, 1997, the 52 week period ended January 28, 1996, the 31 week period ended January 29, 1995 and the 52 week period ended June 25, 1994, included in this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The consolidated financial statements and schedule of Ralphs Supermarkets, Inc. for the years ended January 29, 1995 and January 30, 1994, have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 under the Securities Act with respect to the Exchange Notes offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus omits certain information, exhibits and undertakings contained in the Registration Statement. For further information with respect to the Company and the Exchange Notes offered hereby, reference is made to the Registration Statement, including the exhibits thereto and the financial statements, notes and schedules filed as a part thereof. The Registration Statement (and the exhibits and schedules thereto), as well as the periodic reports and other information filed by the Company with the Commission, may be inspected and copied at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Room 1400, 75 Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such materials may be obtained from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference facilities in New York, New York and Chicago, Illinois at the prescribed rates. The Commission maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Company is subject to the periodic reporting and other information requirements of the Exchange Act. The Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, it will furnish to the holders of the Notes and, following consummation of the Exchange Offer and to the extent permitted by applicable law or regulations, file with the Commission (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including for each a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual consolidated financial statements only, a report thereon by the Company's independent auditors and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. The Commission maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The principal address of the Company is 1100 West Artesia Boulevard, Compton, California 90220 and the Company's telephone number is (310) 884-9000. 104 106 INDEX TO FINANCIAL STATEMENTS
PAGE ---- RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.): Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-2 Consolidated balance sheets as of January 29, 1995, January 28, 1996, February 2, 1997 and April 27, 1997 (unaudited).......................................................... F-3 Consolidated statements of operations for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 (unaudited) and the 12 weeks ended April 27, 1997 (unaudited).............................................. F-5 Consolidated statements of cash flows for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 (unaudited) and the 12 weeks ended April 27, 1997 (unaudited).............................................. F-6 Consolidated statements of stockholder's equity (deficit) for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 (unaudited) and the 12 weeks ended April 27, 1997 (unaudited)................................... F-7 Notes to consolidated financial statements............................................ F-8 RALPHS SUPERMARKETS, INC.: Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-33 Consolidated statements of operations for the years ended January 30, 1994 and January 29, 1995............................................................................ F-34 Consolidated statements of cash flows for the years ended January 30, 1994 and January 29, 1995............................................................................ F-35 Consolidated statements of stockholders' equity for the years ended January 30, 1994 and January 29, 1995................................................................ F-36 Notes to consolidated financial statements............................................ F-37
F-1 107 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Ralphs Grocery Company: We have audited the accompanying consolidated balance sheets of Ralphs Grocery Company (a Delaware corporation) (formerly Food 4 Less Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial Statements) and subsidiaries (the Company) as of January 29, 1995, January 28, 1996 and February 2, 1997 and the related consolidated statements of operations, stockholder's equity (deficit) and cash flows for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ralphs Grocery Company and subsidiaries as of January 29, 1995, January 28, 1996 and February 2, 1997 and the results of their operations and their cash flows for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California March 21, 1997 (except with respect to the matter discussed in Note 14, as to which the date is April 17, 1997). F-2 108 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
JANUARY 29, JANUARY 28, FEBRUARY 2, APRIL 27, 1995 1996 1997 1997 ----------- ----------- ----------- ---------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents..................... $ 19,560 $ 67,983 $ 67,589 $ 57,878 Restricted cash............................... -- -- -- 161,229 Trade receivables, less allowances of $1,192, $1,954, $4,057 and $4,225 at January 29, 1995, January 28, 1996, February 2, 1997 and April 27, 1997, respectively........... 23,377 60,948 46,560 44,597 Notes and other receivables................... 3,985 6,452 531 483 Inventories................................... 224,686 502,669 502,095 498,763 Patronage receivables from suppliers.......... 5,173 4,557 4,433 1,459 Prepaid expenses and other.................... 13,051 34,855 21,925 27,144 -------- ---------- ---------- ---------- Total current assets.................. 289,832 677,464 643,133 791,553 INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER COOPERATIVES: Associated Wholesale Grocers.................. 6,718 7,288 7,020 6,797 Certified Grocers of California and Other..... 5,686 4,926 4,945 4,945 PROPERTY AND EQUIPMENT: Land.......................................... 23,488 183,125 173,803 173,803 Buildings..................................... 24,172 196,551 188,311 190,088 Leasehold improvements........................ 110,020 251,856 226,159 227,969 Equipment and fixtures........................ 190,016 441,760 401,716 419,093 Construction in progress...................... 8,042 61,296 51,117 59,215 Leased property under capital leases.......... 82,526 189,061 200,199 194,405 Leasehold interests........................... 96,556 114,475 112,398 112,398 -------- ---------- ---------- ---------- 534,820 1,438,124 1,353,703 1,376,971 Less: Accumulated depreciation and amortization............................... 154,382 226,451 301,477 324,624 -------- ---------- ---------- ---------- Net property and equipment.................... 380,438 1,211,673 1,052,226 1,052,347 OTHER ASSETS: Deferred financing costs, less accumulated amortization of $20,496, $6,964, $17,615 and $6,688 at January 29, 1995, January 28, 1996, February 2, 1997 and April 27, 1997, respectively............................... 25,469 94,100 88,889 51,440 Goodwill, less accumulated amortization of $38,560, $60,407, $99,057 and $107,189 at January 29, 1995, January 28, 1996, February 2, 1997 and April 27, 1997, respectively............................... 263,112 1,173,445 1,310,956 1,302,824 Other, net.................................... 29,440 19,233 24,824 23,728 -------- ---------- ---------- ---------- $ 1,000,695 $ 3,188,129 $ 3,131,993 $3,233,634 ======== ========== ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 109 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
JANUARY 29, JANUARY 28, FEBRUARY 2, APRIL 27, 1995 1996 1997 1997 ----------- ----------- ----------- ---------- (UNAUDITED) CURRENT LIABILITIES: Accounts payable.............................. $ 190,455 $ 385,500 $ 371,240 $ 350,202 Accrued payroll and related liabilities....... 42,007 94,011 106,764 105,215 Accrued interest.............................. 10,730 23,870 31,011 55,161 Other accrued liabilities..................... 65,279 276,162 234,046 220,048 Income taxes payable.......................... 293 596 1,956 1,948 Current portion of self-insurance liabilities................................ 28,616 21,785 48,251 48,251 Current portion of long-term debt............. 22,263 31,735 4,465 148,789 Current portion of obligations under capital leases..................................... 4,965 22,261 28,041 29,027 ---------- ---------- ---------- ---------- Total current liabilities............. 364,608 855,920 825,774 958,641 SENIOR DEBT, net of current portion............. 320,901 1,226,302 1,263,142 1,285,034 OBLIGATIONS UNDER CAPITAL LEASES................ 40,675 130,784 126,336 118,981 SENIOR SUBORDINATED DEBT........................ 145,000 671,222 671,222 689,747 DEFERRED INCOME TAXES........................... 17,534 17,988 21,074 21,074 SELF-INSURANCE LIABILITIES...................... 44,123 127,200 91,332 91,214 LEASE VALUATION RESERVE......................... -- 25,182 62,389 60,237 OTHER NON-CURRENT LIABILITIES................... 10,051 74,412 106,286 104,246 COMMITMENTS AND CONTINGENCIES................... -- -- -- -- STOCKHOLDER'S EQUITY (DEFICIT): Cumulative convertible preferred stock, $.01 par value, 200,000 shares authorized and 50,000 shares issued at January 29, 1995 (aggregate liquidation value of $67.9 million at January 29, 1995) and no shares authorized or issued at January 28, 1996, February 2, 1997 or April 27, 1997......... 65,136 -- -- -- Common stock, $.01 par value, 5,000,000 shares authorized: 1,519,632 shares, 1,513,938 shares, 1,513,938 shares and 1,513,938 shares issued at January 29, 1995, January 28, 1996, February 2, 1997 and April 27, 1997, respectively......................... 15 15 15 15 Additional capital............................ 107,650 466,783 466,783 466,783 Notes receivable from stockholders of parent..................................... (702) (602) (592) (592) Retained deficit.............................. (112,225) (407,077) (501,768) (561,746) ---------- ---------- ---------- ---------- 59,874 59,119 (35,562) (95,540) Treasury stock: 12,345 shares, no shares, no shares and no shares of common stock at January 29, 1995, January 28, 1996, February 2, 1997 or April 27, 1997, respectively............................... (2,071) -- -- -- ---------- ---------- ---------- ---------- Total stockholder's equity (deficit)........................... 57,803 59,119 (35,562) (95,540) ---------- ---------- ---------- ---------- $ 1,000,695 $ 3,188,129 $ 3,131,993 $3,233,634 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. F-4 110 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
53 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS ENDED 12 WEEKS 12 WEEKS ENDED ENDED ENDED FEBRUARY ENDED ENDED JUNE 25, JANUARY 29, JANUARY 28, 2, APRIL 21, APRIL 27, 1994 1995 1996 1997 1996 1997 ---------- ----------- ----------- ---------- ----------- ----------- (UNAUDITED) (UNAUDITED) SALES......................................... $2,585,160 $ 1,556,522 $ 4,335,109 $5,516,259 $1,230,808 $1,276,222 COST OF SALES (including purchases from related parties of $175,929, $104,407, $141,432, $95,341, $25,791 and $16,904 for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2, 1997, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997, respectively)......................... 2,126,302 1,296,810 3,527,120 4,380,241 992,883 1,013,269 ---------- ---------- ---------- ---------- ---------- ---------- GROSS PROFIT.................................. 458,858 259,712 807,989 1,136,018 237,925 262,953 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................... 378,376 219,696 744,449 933,414 206,620 209,775 AMORTIZATION OF GOODWILL...................... 7,691 4,615 21,847 38,650 7,202 8,132 LOSS (GAIN) ON DISPOSAL OF ASSETS............. 37 (455) (547) 9,317 -- -- RESTRUCTURING CHARGE.......................... -- 5,134 123,083 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING INCOME (LOSS)....................... 72,754 30,722 (80,843) 154,637 24,103 45,046 INTEREST EXPENSE: Interest expense, excluding amortization of deferred financing costs.................. 62,778 38,809 170,581 237,761 52,748 54,262 Amortization of deferred financing costs.... 5,472 3,413 8,193 10,667 3,336 2,779 ---------- ---------- ---------- ---------- ---------- ---------- 68,250 42,222 178,774 248,428 56,084 57,041 PROVISION FOR EARTHQUAKE LOSSES............... 4,504 -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- LOSS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY CHARGE........................ -- (11,500) (259,617) (93,791) (31,981) (11,995) PROVISION FOR INCOME TAXES.................... 2,700 -- 500 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- LOSS BEFORE EXTRAORDINARY CHARGE.............. (2,700) (11,500) (260,117) (93,791) (31,981) (11,995) EXTRAORDINARY CHARGE.......................... -- -- 23,128 -- -- 47,983 ---------- ---------- ---------- ---------- ---------- ---------- NET LOSS...................................... $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (31,981) $ (59,978) ========== ========== ========== ========== ========== ========== PREFERRED STOCK ACCRETION..................... 8,767 6,139 3,960 -- -- -- LOSS APPLICABLE TO COMMON SHARES.............. $ (11,467) $ (17,639) $ (287,205) $ (93,791) $ (31,981) $ (59,978) ========== ========== ========== ========== ========== ========== LOSS PER COMMON SHARE: Loss before extraordinary charge............ $ (7.63) $ (11.72) $ (174.72) $ (61.95) $ (21.12) $ (7.92) Extraordinary charge........................ -- -- (15.30) -- -- $ (31.70) ---------- ---------- ---------- ---------- ---------- ---------- Net loss.................................... $ (7.63) $ (11.72) $ (190.02) $ (61.95) $ (21,12) $ (39.62) ========== ========== ========== ========== ========== ========== Average Number of Common Shares Outstanding............................... 1,503,828 1,504,425 1,511,453 1,513,938 1,513,938 1,513,938 ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. F-5 111 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS 12 WEEKS 12 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, APRIL 21, APRIL 27, 1994 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Cash received from customers................. $ 2,585,160 $ 1,556,522 $ 4,335,109 $ 5,516,259 $1,230,808 $1,276,222 Cash paid to suppliers and employees......... (2,441,353) (1,507,523) (4,197,875) (5,160,532) (1,156,304) (1,237,729) Interest paid................................ (56,762) (33,553) (157,441) (230,620) (20,596) (30,112) Income taxes refunded (paid)................. (247) 1,087 256 8,344 -- (8) Interest received............................ 903 867 2,562 9,531 541 107 Other, net................................... 121 221 547 (9,317) 3 -- ----------- ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................................... 87,822 17,621 (16,842) 133,665 54,452 8,480 CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Proceeds from sale of property and equipment.................................. 11,953 7,199 21,373 29,503 31 1,497 Payment for purchase of property and equipment.................................. (57,471) (49,023) (122,355) (123,622) (34,222) (31,026) Payment of acquisition costs, net of cash acquired................................... (11,050) -- (303,301) (12,705) -- (1,468) Other, net................................... 813 (797) (1,120) (4,311) (973) 427 ----------- ----------- ----------- ----------- ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES......... (55,755) (42,621) (405,403) (111,135) (35,164) (30,570) CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Proceeds from issuance of long-term debt..... 28 -- 1,050,000 98,946 -- 713,525 Increase (decrease) in revolving loan, net... (4,900) 27,300 100,100 (28,000) (17,400) 12,100 Payments of long-term debt................... (14,224) (13,394) (576,727) (61,589) (1,623) (540,991) Restricted cash.............................. -- -- -- -- -- (161,229) Proceeds from issuance of common stock, net........................................ -- 269 -- -- -- -- Purchase of treasury stock, net.............. (1,192) (57) -- -- -- -- Payments of capital lease obligation......... (3,693) (2,278) (15,314) (25,935) (6,134) (6,574) Capital contribution from parent............. -- -- 12,108 -- -- -- Dividends.................................... -- -- (7,647) -- -- -- Deferred financing costs and other, net...... (179) (276) (91,852) (6,346) (3,572) (4,452) ----------- ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................................... (24,160) 11,564 470,668 (22,924) (28,729) 12,379 ----------- ----------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 7,907 (13,436) 48,423 (394) (9,441) (9,711) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................................... 25,089 32,996 19,560 67,983 67,983 67,589 ----------- ----------- ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 32,996 $ 19,560 $ 67,983 $ 67,589 $ 58,542 $ 57,878 =========== =========== =========== =========== =========== =========== RECONCILIATION OF NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Net loss..................................... $ (2,700) $ (11,500) $ (283,245) $ (93,791) $ (31,981) $ (59,978) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization................ 62,555 40,036 133,522 180,344 40,018 40,555 Restructuring charge......................... -- 5,134 123,083 -- -- -- Extraordinary charge......................... -- -- 23,128 -- -- 47,983 Amortization of debt discount................ -- -- -- 214 -- 107 Loss (gain) on sale of assets................ 65 (455) (547) 9,317 (3) -- Change in assets and liabilities, net of effects from acquisition of businesses: Accounts and notes receivable.............. (3,220) (3,398) (74) 14,999 136 4,985 Inventories................................ (17,125) (11,794) 762 574 19,289 3,332 Prepaid expenses and other................. (5,717) (11,239) (18,291) 2,721 500 (6,190) Accounts payable and accrued liabilities... 55,301 18,715 3,327 24,243 23,618 (22,188) Self-insurance liabilities................. (3,790) (8,965) 737 (9,402) 2,875 (118) Deferred income taxes...................... 2,506 2,794 454 3,086 -- -- Income taxes payable....................... (53) (1,707) 302 1,360 -- (8) ----------- ----------- ----------- ----------- ----------- ----------- Total adjustments............................ 90,522 29,121 266,403 227,456 86,433 68,458 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................................... $ 87,822 $ 17,621 $ (16,842) $ 133,665 $ 54,452 $ 8,480 =========== =========== =========== =========== =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Fixed assets acquired through issuance of capital leases............................. $ 2,575 $ 4,304 $ 24,008 $ 28,485 $ 2,577 $ 5,098 =========== =========== =========== =========== =========== =========== Reduction of goodwill and deferred income taxes...................................... $ 9,896 $ -- $ -- $ -- $ -- $ -- =========== =========== =========== =========== =========== =========== Acquisition of stores in fiscal year 1994 and RSI in fiscal year 1995 Fair value of assets acquired, including goodwill................................. $ 11,241 $ -- $ 2,098,220 $ -- $ -- $ -- Net cash paid in acquisition............... (11,050) -- (303,301) $ -- $ -- $ -- Capital contribution from parent........... -- -- (262,000) $ -- $ -- $ -- ----------- ----------- ----------- ----------- ----------- ----------- Liabilities assumed........................ $ 191 $ -- $ 1,532,919 $ -- $ -- $ -- =========== =========== =========== =========== =========== =========== Accretion of preferred stock................. $ 8,767 $ 6,139 $ 3,960 $ -- $ -- $ -- =========== =========== =========== =========== =========== =========== Retirement of Capital Lease.................. $ -- $ -- $ -- $ -- $ -- $ 4,693 =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. F-6 112 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED STOCK COMMON STOCK TREASURY STOCK ------------------ ------------------ ----------------- STOCK- NUMBER NUMBER NUMBER STOCK- HOLDER'S OF OF OF HOLDERS' ADD'L RETAINED EQUITY SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL DEFICIT (DEFICIT) ------- -------- --------- ------ ------- ------- -------- -------- --------- --------- BALANCES AT JUNE 26, 1993................ 50,000 $ 50,230 1,519,632 $ 15 (13,249) $(1,199) $ (714) $107,650 $ (83,119) $ 72,863 Net loss............ -- -- -- -- -- -- -- -- (2,700) (2,700) Purchase of Treasury Stock............. -- -- -- -- (3,483) (1,270) 78 -- -- (1,192) Payments of Stockholders' Notes............. -- -- -- -- -- -- 50 -- -- 50 Accretion of Preferred Stock... -- 8,767 -- -- -- -- -- -- (8,767) -- ------- -------- --------- --- ------- ------- ----- --------- --------- --------- BALANCES AT JUNE 25, 1994................ 50,000 58,997 1,519,632 15 (16,732) (2,469) (586) 107,650 (94,586) 69,021 Net loss............ -- -- -- -- -- -- -- -- (11,500) (11,500) Issuance of Treasury Stock............. -- -- -- -- 5,504 460 (191) -- -- 269 Purchase of Treasury Stock............. -- -- -- -- (1,117) (62) 5 -- -- (57) Payments of Stockholders' Notes............. -- -- -- -- -- -- 70 -- -- 70 Accretion of Preferred Stock... -- 6,139 -- -- -- -- -- -- (6,139) -- ------- -------- --------- --- ------- ------- ----- --------- --------- --------- BALANCES AT JANUARY 29, 1995............ 50,000 65,136 1,519,632 15 (12,345) (2,071) (702) 107,650 (112,225) 57,803 Net Loss............ -- -- -- -- -- -- -- -- (283,245) (283,245) Payments of Stockholders' Notes............. -- -- -- -- -- -- 100 -- -- 100 Accretion of Preferred Stock... -- 3,960 -- -- -- -- -- -- (3,960) -- Cancellation of Preferred Stock... (50,000) (69,096) -- -- -- -- -- 69,096 -- -- Cancellation of F4LSI Common Stock held as Treasury Stock............. -- -- (5,694) -- 5,694 955 -- (955) -- -- Cancellation of F4L Holdings Common Stock held as Treasury Stock.... -- -- -- -- 6,651 1,116 -- (1,116) -- -- Dividend paid to F4L Holdings, Inc..... -- -- -- -- -- -- -- -- (7,647) (7,647) Capital Contribution by F4L Holdings, Inc............... -- -- -- -- -- -- -- 282,108 -- 282,108 Issuance of Stock Options........... -- -- -- -- -- -- -- 10,000 -- 10,000 ------- -------- --------- --- ------- ------- ----- --------- --------- --------- BALANCES AT JANUARY 28, 1996............ -- -- 1,513,938 15 -- -- (602) 466,783 (407,077) 59,119 Net loss............ -- -- -- -- -- -- -- -- (93,791) (93,791) Payments of Stockholders' Notes............. -- -- -- -- -- -- 10 -- -- 10 Dividend paid to F4L Holdings, Inc. ... -- -- -- -- -- -- -- -- (900) (900) ------- -------- --------- --- ------- ------- ----- --------- --------- --------- BALANCES AT FEBRUARY 2, 1997............. -- -- 1,513,938 15 -- -- (592) 466,783 (501,768) (35,562) ======= ======== ========= === ======= ======= ===== ========= ========= ========= Net loss (unaudited)....... -- -- -- -- -- -- -- -- (59,978) (59,978) ------- -------- --------- --- ------- ------- ----- --------- --------- --------- BALANCES AT APRIL 27, 1997 (UNAUDITED).... -- $ -- 1,513,938 $ 15 -- $ -- $ (592) $466,783 $(561,746) $ (95,540) ======= ======== ========= === ======= ======= ===== ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. F-7 113 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND ACQUISITIONS Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less Supermarkets, Inc. ("F4L Supermarkets"), a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("Holdings"), is a multiple format supermarket operator that tailors its retail strategy to the particular needs of the individual communities it serves. The Company operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest. The Company has four first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc. ("Falley's"), Food 4 Less of Southern California, Inc. ("F4L-SoCal"), formerly known as Breco Holding Company, Inc. ("BHC") and Crawford Stores, Inc. Cala Foods, Inc. ("Cala Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of Cala, and Alpha Beta Company ("Alpha Beta") is a subsidiary of F4L-SoCal. Ralphs Merger On June 14, 1995, F4L Supermarkets, Food 4 Less Holdings, Inc., a California corporation ("Old Holdings"), and Food 4 Less, Inc. ("FFL") (which owned a majority of the stock of Old Holdings) completed a definitive agreement and plan of merger (the "Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and the stockholders of RSI. Pursuant to the terms of the Merger Agreement, as amended, F4L Supermarkets was merged with and into RSI (the "RSI Merger"). Immediately following the RSI Merger, pre-Merger Ralphs Grocery Company ("RGC"), which was a wholly-owned subsidiary of RSI, merged with and into RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI changed its name to Ralphs Grocery Company. Prior to the Merger, FFL merged with and into Old Holdings, which was the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Old Holdings changed its jurisdiction of incorporation by merging into a newly-formed, wholly-owned subsidiary, incorporated in Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL Merger and the Reincorporation Merger, the Company became a wholly-owned subsidiary of Holdings. The purchase price for the outstanding capital stock of RSI was $538.1 million; the Company paid $288.1 million in cash, Holdings paid $100.0 million in cash, and Holdings issued $131.5 million of its Seller Debentures and $18.5 million of its Discount Debentures as consideration for the purchase. The Company also paid fees associated with the acquisition of $47.8 million (including a prepayment premium on outstanding mortgage debt of RGC of $19.7 million), which was offset by RGC's cash on hand at the Merger date of $32.6 million. The merger has been accounted for in accordance with the purchase method of accounting and, accordingly, the net assets acquired have been included in the Company's consolidated balance sheets based upon their estimated fair values as of the effective date. The purchase price in excess of the fair market value of RSI's net assets was recorded as goodwill and is being amortized over a 40-year period. The Company finalized the allocation of the RSI's purchase price in the second quarter of fiscal 1996. The Company's consolidated statements of operations include the revenues and expenses of RSI after the effective date of the Merger. The proceeds from the 1995 Credit Facility, the 1995 10.45% Senior Notes and the 1995 11% Senior Subordinated Notes (all as defined below) provided the sources of financing required to pay the Company's portion of the purchase price and to repay outstanding bank debt of F4L Supermarkets and RGC of $176.5 million and $228.9 million, respectively, and to repay existing mortgage debt of $174.0 million of RGC. In addition, the Company exchanged certain of its newly issued senior notes and senior subordinated notes for outstanding indebtedness of RGC and F4L Supermarkets. Proceeds from the 1995 Credit Facility also were used to pay certain exchange and consent solicitation fees associated with the above transactions, and to pay accrued interest on all exchanged debt securities in the amount of $27.8 million, to pay $17.8 million to the holders of the RGC Equity Appreciation Rights and to loan $5.0 million to an affiliate for the benefit of such F-8 114 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) holders, to pay approximately $93.3 million of fees and expenses of the Merger and the related financing and to pay $3.5 million to purchase shares of common stock of Old Holdings from certain dissenting shareholders. In addition, Holdings issued $22.5 million of its Discount Debentures in consideration for certain Merger-related services. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The results of operations of pre-Merger Ralphs Grocery Company and all previous acquisitions have been excluded from the consolidated financial statements for periods prior to their respective acquisition dates. All intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Statements The consolidated balance sheet of the Company as of April 27, 1997 and the consolidated statements of operations and cash flows for the 12 weeks ended April 21, 1996 and April 27, 1997 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 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. Fiscal Year The Company operates within a conventional 52 or 53-week accounting fiscal year. F4L Supermarkets, together with its subsidiaries, changed its fiscal year-end from the last Saturday in June to the Sunday closest to January 31, resulting in a 31-week transition period ended January 29, 1995. As a result of the fiscal year-end change, the 52-week period ended June 25, 1994 is referred to as fiscal 1994, the 31-week period ended January 29, 1995 is referred to as the 1995 transition period, the 52-week period ended January 28, 1996 is referred to as fiscal 1995 and the 53-week period ended February 2, 1997 is referred to as fiscal 1996. Information presented below concerning subsequent fiscal years starts with fiscal year 1997, which will cover the 52 weeks ended February 1, 1998 and will proceed sequentially forward. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories, which consist of grocery products, are stated at the lower of cost or market. Cost has been principally determined using the last-in, first-out ("LIFO") method. If inventories had been valued using the F-9 115 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) first-in, first-out ("FIFO") method, inventories would have been higher by $16.5 million, $18.7 million, $24.3 million and $26.1 million (unaudited) at January 29, 1995, January 28, 1996, February 2, 1997 and April 27, 1997, respectively, and gross profit and operating income would have been greater by $0.7 million, $2.7 million, $2.2 million $5.6 million, $1.3 million (unaudited) and $1.7 million (unaudited) for fiscal year 1994, the 1995 transition period, fiscal year 1995, fiscal year 1996, the 12 weeks ended April 21, 1996 and the 12 weeks ended April 27, 1997, respectively. Pre-opening Costs Certain costs associated with opening new stores are deferred and amortized over one year following the opening of each new store. Closed Store Reserves When a store is closed, the Company provides a reserve for the net book value of its property and equipment, net of salvage value, and the net present value of the remaining lease obligation, net of sublease income. 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. Property and Equipment Property and equipment are stated at cost. Depreciation expense includes amortization of capital lease assets. Depreciation is provided using the straight-line method over the following estimated useful lives: Buildings and improvements.......................... 5-40 years Equipment and fixtures.............................. 3-10 years Property under capital leases and leasehold interests......................................... 3-45 years (lease term)
Deferred Financing Costs Costs incurred in connection with the issuance of debt are amortized over the term of the related debt using the effective interest method. Long-Lived Assets Goodwill, representing 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. In the first quarter of fiscal 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). The adoption of SFAS 121 had no impact on the Company's financial position or on its results of operations. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). 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 F-10 116 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 proposed changes in the tax law or rates. Notes Receivable from Stockholders of Parent Notes receivable from stockholders of parent represent loans to employees of the Company for purchases of Holdings' common stock. The notes are due over various periods, bear interest at the prime rate, and are secured by each stockholder's shares of Holdings' common stock. Self-Insurance The Company is self-insured for its workers' compensation, general liability and vehicle accident claims. The Company establishes reserves based on an independent actuary's valuation of open claims reported and an estimate of claims incurred but not yet filed. Discounts and Promotional Allowances Promotional allowances and vendor discounts are recorded as a reduction of cost of sales in the accompanying consolidated statements of operations. Allowance proceeds received in advance are deferred and recognized in the period earned. Provision for Earthquake Losses On January 17, 1994, Southern California was struck by a major earthquake which resulted in the temporary closure of 31 of the Company's stores. The closures were caused primarily by loss of electricity, water, inventory or structural damage. All but one of the closed stores reopened within a week of the earthquake. The final closed store reopened on March 24, 1994. The Company is insured against earthquake losses (including business interruption), subject to certain deductibles. The pre-tax loss, net of insurance recoveries, was approximately $4.5 million. Extraordinary Items For the 52 weeks ended January 28, 1996, the Company recorded an extraordinary charge relating to the refinancing of F4L Supermarkets' Old Credit Facility, 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes"), 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes"), the repayment of Holdings' 15.25% Senior Discount Notes due 2004 in connection with the Merger and the write-off of their related debt issuance costs. Loss Per Common Share Loss per common share is computed based on the weighted average number of shares outstanding during the applicable period. Fully diluted loss per share has been omitted as it is anti-dilutive for all periods presented. Derivative Financial Instruments The Company utilizes an interest rate collar agreement to set interest rate limits on its Term Loans to satisfy the interest rate protection requirements under its Credit Facility. Favorable or unfavorable movements of interest rates outside of the interest rate limits are recorded as adjustments to interest expense in the period in which the unfavorable movement occurs. F-11 117 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Reclassifications Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the fiscal year 1997 presentation. (3) PREFERRED STOCK On December 31, 1992, the Company issued 50,000 shares of $.01 par value Series A cumulative convertible preferred stock (the "Preferred Stock") with a liquidation value of $1,000 per share and 121,118 shares of its $.01 par value common stock (the "Common Stock") to its parent company, Holdings, in exchange for gross proceeds of $50.0 million. The Preferred Stock had a stated dividend rate of $152.50 per share, per annum. In order to finance the purchase of the Preferred Stock and Common Stock from the Company, Holdings issued $103.6 million aggregate principal amount of 15.25% Senior Discount Notes due 2004 (the "Holdings Notes") and 121,118 Common Stock Purchase Warrants (the "Warrants") for gross proceeds of $50.0 million. In connection with the Merger, the Preferred Stock was cancelled. The accreted amount of the Preferred Stock at the date of the Merger was contributed to the Company's capital and is reflected in the Consolidated Statement of Stockholder's Equity (Deficit) as a component of additional paid-in capital. Also, at the time of the Merger, Holdings repaid its borrowings under the Holdings Notes. (4) SENIOR DEBT AND SENIOR SUBORDINATED DEBT The Company's senior debt is summarized as follows (in thousands):
AS OF ------------------------------------------- JANUARY 29, JANUARY 28, FEBRUARY 2, 1995 1996 1997 ----------- ----------- ----------- Term Loans.............................................. $ -- $ 590,426 $ 541,432 Old Term Loan........................................... 125,732 -- -- 10.45% Senior Notes, principal due 2004 with interest payable semi-annually in arrears...................... -- 520,326 520,326 10.45% Senior Notes, principal due 2004 with interest payable semi-annually in arrears, net of unamortized debt discount of $5,161 at February 2, 1997, 11.5% yield to maturity..................................... -- -- 94,839 10.45% Senior Notes, principal due 2000 with interest payable semi-annually in arrears...................... 175,000 4,674 4,674 Revolving Facility...................................... -- 127,400 99,400 Old Revolving Loan...................................... 27,300 -- -- 10.0% secured promissory note, collateralized by the stock of Bell, due June 1996, interest payable quarterly............................................. 8,000 8,000 -- Other senior debt....................................... 7,132 7,211 6,936 --------- ----------- ----------- 343,164 1,258,037 1,267,607 Less--current portion................................... 22,263 31,735 4,465 --------- ----------- ----------- $ 320,901 $ 1,226,302 $ 1,263,142 ========= =========== ===========
Senior Debt As part of the Merger financing, the Company entered into a bank credit agreement (the "Credit Facility") comprised of a $600.0 million term loan facility (the "Term Loans") and a revolving credit facility F-12 118 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of $325.0 million (the "Revolving Facility") under which working capital loans may be made and commercial or standby letters of credit in the maximum aggregate amount of up to $150.0 million may be issued. The Credit Facility is collateralized by inventory, receivables, certain fixed assets, deposit accounts, collection proceeds and certain intangibles. At February 2, 1997, $541.4 million was outstanding under the Term Loans, $99.4 million was outstanding under the Revolving Facility, and $89.1 million of standby letters of credit had been issued on behalf of the Company. A commitment fee of one-half of one percent per annum is charged on the average daily unused portion of the Revolving Facility; such commitment fees are due quarterly in arrears. At February 2, 1997, the weighted average interest rate on the Term Loans was 8.99 percent and the interest rate on the Revolving Facility was 8.68 percent. The Company has entered into an interest rate collar agreement with the Credit Facility Administrative Agent that effectively sets interest rate limits on the Company's term loans. The notational principal amount at February 2, 1997 and January 28, 1996 was $325 million. The agreement, which was entered into on October 11, 1995 and expires on October 21, 1997, limits the interest rate fluctuation of the 3-month Adjusted Eurodollar Rate (as defined) to a range between 4.5 percent and 8.0 percent. The agreement requires quarterly cash settlement for interest rate fluctuations outside of the limits. The agreement satisfies the interest rate protection requirements under the Credit Facility. As of February 2, 1997 and January 28, 1996, the 3-month Adjusted Eurodollar Rate was 5.56 percent and 5.50 percent, respectively. No adjustments to interest expense were recorded during fiscal year 1996 or 1995 as a result of this agreement. In November 1996, the Company amended the Term Loans to pay down $125.0 million on one of the original tranches (Tranche A) and initiated new tranches, Tranche E, Tranche F, and Tranche G, in the amounts of $75.0 million, $25.0 million and $25.0 million, respectively. The amortization of the new tranches mirrors the maturity of the initial Tranche B, initial Tranche C and initial Tranche D. Quarterly principal installments on the Term Loans continue to December 2003, with amounts payable in each year as follows: $4.3 million in fiscal 1997, $4.3 million in fiscal 1998, $29.0 million in fiscal 1999, $66.4 million in fiscal 2000, $118.2 million in fiscal 2001 and $319.2 million thereafter. The principal installments can be accelerated if the Company receives proceeds on the sale of certain of its assets in the future. To the extent that borrowings under the Revolving Facility are not paid earlier, they are due in December 2003. The common stock of the Company and certain of its direct and indirect subsidiaries has been pledged as security under the Credit Facility. The Company issued $350.0 million of 10.45% Senior Notes due 2004 (the "1995 10.45% Senior Notes") and exchanged $170.3 million principal amount of 1995 10.45% Senior Notes for an equal amount of the 10.45% F4L Senior Notes due 2000 (the "Old F4L Senior Notes") (together with the 1995 10.45% Senior Notes, the "Senior Notes"), leaving an outstanding balance of $4.7 million of the Old F4L Senior Notes. The Old F4L Senior Notes are due in two equal sinking fund payments on April 15, 1999 and 2000. The Senior Notes are senior unsecured obligations of the Company and rank "pari passu" in right of payment with other senior unsecured indebtedness of the Company. However, the Senior Notes are effectively subordinated to all secured indebtedness of the Company and its subsidiaries, including indebtedness under the Credit Facility. Interest on the 1995 10.45% Senior Notes is payable semiannually in arrears on each June 15 and December 15. Interest on the Old F4L Senior Notes is payable semiannually in arrears on each April 15 and October 15. In June 1996, the Company issued $100.0 million aggregate principal amount of 10.45% Senior Notes due 2004 (the "1996 10.45% Senior Notes"). The terms of the 1996 10.45% Senior Notes are substantially identical to those of the Company's 1995 10.45% Senior Notes, which were issued in a registered offering in June 1995 and of which $520.3 million aggregate principal amount is outstanding. The 1996 10.45% Senior F-13 119 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Notes were issued with original issue discount resulting in gross proceeds to the Company of $94.6 million. In July 1996, the Company initiated an offer to exchange (the "Exchange Offer") $1,000 principal amount of its 1996 10.45% Senior Notes, which exchange has been registered under the Securities Act of 1933, as amended, for each $1,000 principal amount of its 1996 10.45% Senior Notes. The Exchange Offer was completed in August 1996. The $94.6 million of gross proceeds from the 1996 10.45% Senior Notes was used to (i) repay $22.7 million of Term Loans, which was due within the following twelve months, (ii) repay $21.7 million of additional Term Loans, pro rata over the term thereof, (iii) repay $47.6 million in borrowings under the Revolving Facility (without any reduction in amounts available for future borrowing thereunder) and (iv) pay fees and expenses related to the 1996 10.45% Senior Notes of approximately $2.6 million. The 1995 10.45% Senior Notes and the 1996 10.45% Senior Notes (the "New Senior Notes") may be redeemed, at the option of the Company, in whole at any time or in part from time to time, beginning in fiscal 2000, at a redemption price of 105.2 percent. The redemption price declines ratably to 100 percent in fiscal 2003. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more public equity offerings to redeem up to an aggregate of 35 percent of the principal amount of the New Senior Notes originally issued, at a redemption price equal to 110.4 percent, 108.9 percent, and 107.5 percent of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in each case plus accrued and unpaid interest, if any, to the redemption date. The Old F4L Senior Notes may be redeemed beginning in fiscal year 1996 at 104.5 percent, declining ratably to 100 percent in fiscal year 1999. Scheduled maturities of principal of senior debt at February 2, 1997 are as follows (in thousands):
FISCAL YEAR ------------------------------------------------- 1997............................................. $ 4,465 1998............................................. 4,571 1999............................................. 30,571 2000............................................. 71,292 2001............................................. 118,401 Later years...................................... 1,038,307 ---------- $1,267,607 ==========
The Company's senior subordinated debt is summarized as follows (in thousands):
AS OF ---------------------------------------------- JANUARY 29, JANUARY 28, FEBRUARY 2, 1995 1996 1997 ------------ ------------ ------------ 11.00% Senior Subordinated Notes principal due 2005 with interest payable semi-annually in arrears....... $ -- $524,005 $524,005 13.75% Senior Subordinated Notes principal due 2005 with interest payable semi-annually in arrears....... -- 140,184 140,184 13.75% Senior Subordinated Notes principal due 2001 with interest payable semi-annually in arrears....... 145,000 4,816 4,816 Other Senior Subordinated debt........... -- 2,217 2,217 -------- -------- -------- $145,000 $671,222 $671,222 ======== ======== ========
F-14 120 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Senior Subordinated Debt Concurrent with the Merger, the Company issued $100.0 million of 11% Senior Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes") and (i) exchanged $142.2 million principal amount of the RGC 9% Senior Subordinated Notes due 2003 (the "Old RGC 9% Notes") and $281.8 million principal amount of the RGC 10.25% Senior Subordinated Notes due 2002 (the "Old RGC 10.25% Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") for an equal amount of 1995 11% Senior Subordinated Notes, (ii) purchased $7.5 million principal amount of Old RGC 9% Notes and $15.2 million principal amount of Old RGC 10.25% Notes in conjunction with the offers, and (iii) subsequently purchased $0.1 million principal amount of Old RGC 9% Notes and $1.0 million principal amount of Old RGC 10.25% Notes subject to the change of control provision, leaving an outstanding balance of $0.1 million on the Old RGC 9% Notes and an outstanding balance of $2.1 million on the Old RGC 10.25% Notes. The 1995 11% Senior Subordinated Notes are senior subordinated, unsecured obligations of the Company and are subordinated in right of payment to all senior indebtedness, including the Company's obligations under the Credit Facility and the New Senior Notes and the Old F4L Senior Notes. Interest on the New RGC Notes is payable semiannually in arrears on each June 15 and December 15. The 1995 11% Senior Subordinated Notes may be redeemed at the option of the Company, in whole at any time or in part from time to time, beginning in fiscal year 2000, at an initial redemption price of 105.5 percent. The redemption price declines ratably to 100 percent in fiscal year 2003. In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more public equity offerings to redeem up to an aggregate of 35 percent of the principal amount of the 1995 11% Senior Subordinated Notes originally issued, at a redemption price equal to 111.0 percent, 109.4 percent, and 107.9 percent of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in each case plus accrued and unpaid interest, if any, to the redemption date. The Company exchanged $140.2 million 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes") for an equal amount of F4L 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes," and together with the New F4L Senior Subordinated Notes, the "13.75% Senior Subordinated Notes") of the Company, leaving an outstanding balance of $4.8 million of the Old F4L Senior Subordinated Notes. The 13.75% Senior Subordinated Notes are senior subordinated unsecured obligations of the Company and are subordinated in right of payment to all senior indebtedness, including the Company's obligations under the Credit Facility, the New Senior Notes, and the Old F4L Senior Notes and the 1995 11% Senior Subordinated Notes. Interest on the 13.75% Senior Subordinated Notes is payable semiannually in arrears on each June 15 and December 15 commencing on December 15, 1995. The New F4L Senior Subordinated Notes may be redeemed beginning in fiscal year 1996 at a redemption price of 106.111 percent. The redemption price declines ratably to 100 percent in fiscal year 2000. Scheduled maturities of principal of senior subordinated debt at February 2, 1997 are as follows (in thousands):
FISCAL YEAR -------------------------------------------------- 1997.............................................. $ -- 1998.............................................. -- 1999.............................................. -- 2000.............................................. -- 2001.............................................. 4,816 Later years....................................... 666,406 -------- $671,222 ========
F-15 121 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Financial Covenants The Credit Facility, among other things, requires the Company to maintain minimum levels of net worth (as defined), to maintain minimum levels of earnings, to maintain a hedge agreement to provide interest rate protection, and to comply with certain ratios related to fixed charges and indebtedness. During fiscal 1995, certain financial covenants and other terms of the Credit Facility were amended to, among other things, provide for the acquisition of Smith's Food and Drug Centers, Inc. ("Smith's") Riverside distribution and creamery facility, the acquisition of certain operating assets and inventory at that facility, the acquisition of nine of the Smith's Southern California stores and the closure of up to nine stores in conjunction with these acquisitions. In addition, the Credit Facility and the indentures governing the New Senior Notes, the 1995 11% Senior Subordinated Notes and the New F4L Senior Subordinated Notes limit, among other things, additional borrowings, dividends on, and redemption of, capital stock and the acquisition and the disposition of assets. At February 2, 1997, the Company was in compliance with the financial covenants of its debt agreements. At February 2, 1997, dividends and certain other payments are restricted based on terms in the debt agreements. (5) LEASES The Company's operations are conducted primarily in leased properties. Substantially all leases contain renewal options. Rental expense under operating leases was as follows (in thousands):
FOR THE ----------------------------------------------------- 31 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED JANUARY JANUARY FEBRUARY JUNE 25, 29, 28, 2, 1994 1995 1996 1997 -------- ---------- ---------- ---------- Minimum rents................... $49,788 $ 33,458 $ 97,752 $ 146,101 Rents based on sales............ 3,806 1,999 3,439 3,786
Following is a summary of future minimum lease payments under operating leases at February 2, 1997 (in thousands):
FISCAL YEAR ------------------------------------------------- 1997............................................. $ 145,675 1998............................................. 138,038 1999............................................. 135,227 2000............................................. 131,243 2001............................................. 118,973 Later years...................................... 1,279,824 ---------- $1,948,980 ==========
The Company has entered into lease agreements for new supermarket sites which were not in operation at February 2, 1997. Future minimum lease payments under such operating leases generally begin when such facilities open and at February 2, 1997 are: 1997 -- $3.6 million; 1998 -- $6.9 million; 1999 -- $6.9 million; 2000 -- $6.9 million; 2001 -- $6.9 million; later years -- $112.5 million. F-16 122 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Certain leases qualify as capital leases under the criteria established in Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and are classified on the consolidated balance sheets as leased property under capital leases. Future minimum lease payments for the property under capital leases at February 2, 1997 are as follows (in thousands):
FISCAL YEAR -------------------------------------------------- 1997.............................................. $ 42,467 1998.............................................. 36,104 1999.............................................. 28,207 2000.............................................. 22,515 2001.............................................. 14,146 Later years....................................... 101,838 -------- Total minimum lease payments.................... 245,277 Less: amounts representing interest............... 90,900 -------- Present value of minimum lease payments........... 154,377 Less: current portion............................. 28,041 -------- $126,336 ========
Accumulated depreciation related to leased property under capital leases was $27.6 million, $42.7 million and $62.0 million at January 29, 1995, January 28, 1996 and February 2, 1997, respectively. (6) INVESTMENT IN A.W.G. The investment in Associated Wholesale Grocers ("A.W.G.") consists principally of A.W.G.'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 (in thousands):
FISCAL YEAR ---------------------------------------------------- 1997................................................ $ -- 1998................................................ 757 1999................................................ 1,504 2000................................................ 1,478 2001................................................ 1,724 Later years......................................... 1,557 ------ $7,020 ======
F-17 123 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) INCOME TAXES The provision (benefit) for income taxes consists of the following (in thousands):
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS ENDED ENDED ENDED ENDED JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, 1994 1995 1996 1997 -------- ------------ ------------ ------------- Current: Federal.................................... $ 3,251 $ (2,894) $ -- $ -- State and other............................ 712 100 46 -- ------- ------- --------- -------- 3,963 (2,794) 46 -- ------- ------- --------- -------- Deferred: Federal.................................... (70) 2,794 -- -- State and other............................ (1,193) -- 454 -- ------- ------- --------- -------- (1,263) 2,794 454 -- ------- ------- --------- -------- $ 2,700 $ -- $ 500 $ ======= ======= ========= ========
A reconciliation of the provision (benefit) for income taxes to amounts computed at the federal statutory rates of 35 percent for fiscal 1994, the 1995 transition period, fiscal 1995 and fiscal year 1996 is as follows (in thousands):
52 WEEKS 31 WEEKS 52 WEEKS 53 WEEKS ENDED ENDED ENDED ENDED JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, 1994 1995 1996 1997 -------- ------------ ------------ ------------- Federal income taxes at statutory rate on loss before provision for income taxes and extraordinary charges...................... $ -- $ (4,025) $ (98,959) $ (32,827) State and other taxes, net of federal tax benefit.................................... (1) 65 (16,794) (244) Effect of permanent differences resulting primarily from amortization of goodwill.... 2,820 1,701 (1,665) 9,801 Tax credits and other........................ -- -- 3,769 (4,818) Accounting limitation (recognition) of deferred tax benefit....................... (119) 2,259 114,149 28,088 ------- ------- --------- -------- $ 2,700 $ -- $ 500 $ -- ======= ======= ========= ========
F-18 124 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The provision (benefit) for deferred taxes consists of the following (in thousands):
31 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED JANUARY JANUARY FEBRUARY JUNE 25, 29, 28, 2, 1994 1995 1996 1997 -------- ---------- ---------- ---------- Property and equipment.......................... $(1,687) $ 992 $ (461) $ 20,606 Inventory....................................... (2,415) (2,627) (8,479) 40 Capital lease obligation........................ 2,792 527 (502) (5,253) Self-insurance reserves......................... (535) 5,523 2,104 2,276 Accrued expense................................. (2,136) (3,807) (26,304) (1,435) Accrued payroll and related liabilities......... 1,721 (3,879) (6,206) (2,916) Tax intangibles................................. -- -- 6,234 10,182 State taxes..................................... -- -- (20,639) (3,879) Net operating losses............................ 5,782 (6,963) (61,219) (49,773) Tax credits..................................... (4,477) 1,711 3,601 -- Accounting limitation (recognition) of deferred tax benefit................................... (1,085) 10,494 114,149 28,088 Other, net...................................... 777 823 (1,824) 2,064 ------- ------- -------- -------- $(1,263) $ 2,794 $ 454 $ -- ======= ======= ======== ========
The significant components of the Company's deferred tax assets (liabilities) are as follows (in thousands):
JANUARY JANUARY FEBRUARY 29, 28, 2, 1995 1996 1997 ---------- ---------- ---------- Deferred tax assets: Accrued payroll and related liabilities.............. $ 6,248 $ 27,579 $ 30,495 Other accrued liabilities............................ 12,080 71,954 73,389 Obligations under capital leases..................... -- 37,584 42,837 Self-insurance liabilities........................... 25,204 49,773 47,497 Loss carryforwards................................... 27,638 154,202 203,975 Tax credit carryforwards............................. 4,157 913 913 State taxes.......................................... -- 30,210 34,090 Other................................................ 570 18,026 16,075 -------- --------- --------- Gross deferred tax assets......................... 75,897 390,241 449,271 Valuation allowance.................................. (41,643) (285,506) (313,594) -------- --------- --------- Net deferred tax assets........................... $ 34,254 $ 104,735 $ 135,677 -------- --------- --------- Deferred tax liabilities: Inventories.......................................... $(11,690) $ (9,762) $ (9,802) Property and equipment............................... (28,527) (106,116) (129,808) Obligations under capital leases..................... (9,261) -- -- Tax intangibles...................................... -- (6,234) (16,416) Other................................................ (2,310) (611) (725) -------- --------- --------- Gross deferred tax liability...................... (51,788) (122,723) (156,751) -------- --------- --------- Net deferred tax liability........................ $(17,534) $ (17,988) $ (21,074) ======== ========= =========
F-19 125 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company recorded a valuation allowance to reserve a portion of its gross deferred tax assets at February 2, 1997 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 February 2, 1997, approximately $139.0 million of the valuation allowance for deferred tax assets will reduce goodwill when the allowance is no longer required. At February 2, 1997, the Company has net operating loss carryforwards for federal income tax purposes of $583.0 million, which expire from 2007 through 2012. The Company has federal Alternative Minimum Tax ("AMT") credit carryforwards of approximately $0.9 million which are available to reduce future regular taxes in excess of AMT. Currently, there is no expiration date for these credits. A portion of the loss carryforwards described above are subject to the provisions of the Tax Reform Act of 1986, specifically Internal Revenue Code Section 382. The law limits the use of net operating loss carryforwards when changes of ownership of more than 50 percent occur during a three-year testing period. Due to the Merger, the ownership of pre-Merger F4L Supermarkets and pre-Merger RSI changed in excess of 50 percent. As a result, the Company's utilization of approximately $78.0 million of F4L Supermarkets' and $187.0 million of RSI's federal net operating losses will be subject to an annual usage limitation. The Company's annual limitations under Section 382 for F4L Supermarkets' and RSI's net operating losses are approximately $15.6 million and $15.0 million, respectively. Furthermore, all of the Company's pre-Merger RSI net operating losses and a portion of the Company's Ralphs post-Merger losses will reduce goodwill when utilized in future federal income tax returns. Holdings files a consolidated federal income tax return, under which the federal income tax liability of Holdings and its subsidiaries is determined on a consolidated basis. Holdings is a party to a federal income tax sharing agreement with the Company and certain of its subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides that in any year in which the Company is included in any consolidated tax liability of Holdings and has taxable income, the Company will pay to Holdings the amount of the tax liability that the Company would have had on such due date if it had been filing a separate return. Conversely, if the Company generates losses or credits which actually reduce the consolidated tax liability of Holdings and its other subsidiaries, Holdings will credit to the Company the amount of such reduction in the consolidated tax liability. These credits are passed between Holdings and the Company in the form of cash payments. In the event any state and local income taxes are determinable on a combined or consolidated basis, the Tax Sharing Agreement provides for a similar allocation between Holdings and the Company of such state and local taxes. The Company currently has Internal Revenue Service examinations in process covering the years 1990 through 1993. Management believes that any required adjustment to the Company's tax liabilities will not have a material adverse impact on its financial position or results of operations. (8) RELATED PARTY TRANSACTIONS The Company has a five-year consulting agreement with an affiliated company effective June 14, 1995 for management, financing, acquisition and other services. The agreement is automatically renewed on June 14 of each year for the five-year term unless 90 days' notice is given by either party. The contract provides for annual management fees equal to $4 million plus advisory fees for certain acquisition transactions if the affiliated company is retained by the Company. Management services expenses were $2.3 million during fiscal year 1994, $1.2 million during the 1995 transition period, $3.6 million during fiscal year 1995 and $4.0 million during fiscal year 1996. Advisory fees were $0.2 million during fiscal year 1994, $21.5 million during fiscal year 1995 and $1.7 million during fiscal F-20 126 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) year 1996. There were no such advisory fees for the 1995 transition period. Advisory fees for financing transactions are capitalized and amortized over the term of the related financing. (9) COMMITMENTS AND CONTINGENCIES The Company is contingently liable to former stockholders of certain predecessors for any prorated gains which may be realized within ten years of the acquisition of the respective companies resulting from the sale of certain Certified stock. Such gains are only payable if Certified is purchased or dissolved, or if the Company sells such Certified Stock within the period noted above. In connection with the bankruptcy reorganization of Federated Department Stores, Inc. ("Federated") and its affiliates, Federated agreed to pay certain potential tax liabilities relating to RGC as a member of the affiliated group of companies comprising Federated and its subsidiaries. In consideration thereof, RSI and RGC agreed to pay Federated a total of $10 million, payable $1 million on each of February 3, 1992, 1993, 1994, 1995 and 1996 and $5 million on February 3, 1997. In the event Federated is required to pay certain tax liabilities, RSI and RGC agreed to reimburse Federated up to an additional $10 million, subject to certain adjustments. Pursuant to the terms of the Merger, the $5 million payment and the potential $10 million payment will be paid in cash. The Company has entered into lease agreements with the developers of several new sites in which the Company has agreed to provide construction financing. At February 2, 1997, the Company had capitalized construction costs of $20.3 million on total commitments of $24.0 million. In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against the Company and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in and to fix the price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and December 23, 1992, respectively. To date, the Court has yet to certify any of these classes, while a demurrer to the complaints was denied. The Company will vigorously defend itself in these class action suits. On September 13, 1996 a class action lawsuit titled McCampbell, et al. v. Ralphs Grocery Company, et al. was filed in the Superior Court of the State of California, County of San Diego, against the Company and two other grocery store chains operating in the Southern California area. The complaint alleges, among other things, that the Company and others conspired to fix the retail price of eggs in Southern California. The plaintiffs' claim that the defendants' actions violate provisions of the California Cartwright Act and constitute unfair competition. Plaintiffs seek damages they purport to have sustained as a result of the defendants' alleged actions, which damages may be trebled under the applicable statute, and an injunction from future actions in restraint of trade and unfair competition. Because the case was recently filed, discovery has just commenced. Management of the Company intends to defend this action vigorously and the Company has filed an answer to the complaint denying the plaintiffs' allegations and setting forth several defenses. On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery Company, et al. was filed in the Los Angeles Superior Court against the Company. The complaint was filed by eight individual plaintiffs who were terminated in conjunction with the Company's restructuring. The plaintiffs claim that they were wrongfully terminated for discriminatory reasons and that the Company engaged in various fraudulent practices. The plaintiffs seek compensatory damages in excess of $15 million, special and punitive damages. Management of the Company believes that the plaintiff's claims are without merit and intends to defend this action vigorously. F-21 127 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In addition, the Company or its subsidiaries are defendants in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on the Company's financial position or results of operations. The Company self-insures its workers' compensation and general liability. For fiscal year 1994, the 1995 transition period, fiscal year 1995 and fiscal year 1996, the self-insurance loss provisions were $19.9 million, $6.3 million, $32.6 million and $29.2 million, respectively. During fiscal year 1994, the Company discounted its self-insurance liability using a 7.0 percent discount rate. In the 1995 transition period, the Company changed the discount rate to 7.5 percent. In fiscal 1995, the Company changed the discount rate to 7.0 percent. In fiscal 1996, the Company changed the discount rate to 7.5 percent. Management believes that this rate approximates the time value of money over the anticipated payout period (approximately 10 years) for essentially risk-free investments. The Company's historical self-insurance liability at the end of the three most recent fiscal years and the 1995 transition period is as follows (in thousands):
AS OF ------------------------------------------------------------ JUNE 25, JANUARY 29, JANUARY 28, FEBRUARY 2, 1994 1995 1996 1997 --------- ------------ ------------ ------------ Self-insurance liability...................... $ 90,898 $ 84,286 $ 161,391 $ 151,465 Less: Discount................................ (9,194) (11,547) (12,406) (11,882) ------- ------- -------- -------- Net self-insurance liability.................. $ 81,704 $ 72,739 $ 148,985 $ 139,583 ======= ======= ======== ========
The Company expects that cash payments for claims will aggregate approximately $52.6 million, $37.5 million, $23.9 million, $14.5 million and $8.7 million for the fiscal year 1997, the fiscal year 1998, the fiscal year 1999, the fiscal year 2000 and the fiscal year 2001, respectively. Environmental Matters In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that the Company conduct a subsurface characterization of its Glendale Facility property located in the Atwater District of Los Angeles, near Glendale, California. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where the Glendale Facility 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 Company's Glendale Facility. Since that time, the Regional Board has requested further investigation by the Company. The Company conducted the requested investigations and reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Glendale Facility. The Company is not a party to the Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on its property. On or about October 12, 1995, the EPA mailed a Special Notice Letter to 44 parties, including the Company as owner and operator of the Glendale Facility property, naming them as potentially responsible parties ("PRPs"). On November 26, 1996, the EPA issued an Administrative Order for Remedial Action (EPA Docket No. 97-06) against more than 60 respondents, including the Company, in connection with the Superfund site. Under the order, these PRP's are required to take certain actions, over an approximately 270-day period, in connection with the implementation F-22 128 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of interim remedies for the treatment of groundwater. The PRP's have also agreed to an Alternative Dispute Resolution Process to allocate the costs among themselves. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. The Company removed underground storage tanks and remediated soil contamination at the Glendale Facility 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 Glendale Facility property, management does not believe that the costs of remediating such contamination will have a material adverse effect on the Company's financial condition or results of operations. Apart from the Glendale Facility, the Company has had environmental assessments performed on most of its facilities, including warehouse and distribution facilities. The Company believes that any responsive actions required at the examined properties as a result of such assessments will not have a material adverse effect on its financial condition or results of operations. At the time that Food 4 Less acquired Alpha Beta in 1991, it learned that certain underground storage tanks located on the site of the La Habra facility may have previously released hydrocarbons. In connection with the acquisition of Alpha Beta, the seller (who is also the lessor of the La Habra facility) agreed to retain responsibility, subject to certain limitations, for remediation of the release. The Company is subject to a variety of environmental laws, rules, regulations and investigative or enforcement activities, as are other companies in the same or similar business. The Company believes it is in substantial compliance with such laws, rules and regulations. These laws, rules, regulations and agency activities change from time to time, and such changes may affect the ongoing business and operations of the Company. (10) EMPLOYEE BENEFIT PLANS As a result of the Merger, the Company adopted certain employee benefit plans previously sponsored by RGC. These employee benefit plans include the Ralphs Grocery Company Retirement Plan (the "Pension Plan"), the Ralphs Grocery Company Supplemental Executive Retirement Plan (the "SERP"), and the Ralphs Grocery Company Retirement Supplement Plan (the "Retirement Supplement Plan"). Pension Plan The Pension Plan covers substantially all employees not already covered by collective bargaining agreements with at least one year of service during which 1,000 hours have been worked. Employees who were employed by F4L Supermarkets and who are otherwise eligible to participate in the Pension Plan became eligible to participate in fiscal year 1995. The Company's policy is to fund pension costs at or above the minimum annual requirement. SERP The SERP covers certain key officers of the Company. The Company has purchased split dollar life insurance policies for certain participants under this plan. Under certain circumstances, the cash surrender value of the split dollar life insurance policies will offset the Company's obligations under the SERP. F-23 129 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Retirement Supplement Plan The Retirement Supplement Plan is a non-qualified retirement plan designed to provide eligible participants with benefits based on earnings over the indexed amount of $150,000. The following actuarially determined components were included in the net pension expense for the above plans for fiscal year 1996 (dollars in thousands): Service cost....................................................... $ 6,187 Interest cost on projected benefit obligation...................... 5,293 Actual return on assets............................................ (5,684) Net amortization and deferral...................................... 1,907 ------- Net pension expense...................................... $ 7,703 =======
Following are the assumptions used in determining the net pension expense: Discount rate...................................................... 7.00% Expected long term rate of return on plan assets................... 9.00% Rate of pay increase............................................... 5.00%
The funded status of the Pension Plan (based on December 1996 asset values) is as follows:
AS OF FEBRUARY 2, 1997 ---------------------- (DOLLARS IN THOUSANDS) Assets Exceed Accumulated Benefits: Actuarial present value of benefit obligations: Vested benefit obligation............................... $(45,965) Accumulated benefit obligation.......................... (46,351) Projected benefit obligation............................ (66,858) Plan assets at fair value............................... 50,189 -------- Projected benefit obligation in excess of Plan Assets..... (16,669) Unrecognized net gain..................................... (3,376) Unrecognized prior service cost........................... 1,023 -------- Accrued pension cost.................................... $(19,022) ========
F-24 130 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The funded status of the SERP and Retirement Supplement Plan (based on December 1996 asset values) is as follows:
AS OF FEBRUARY 2, 1997 ---------------------- (DOLLARS IN THOUSANDS) Accumulated Benefits Exceed Assets: Actuarial present value of benefit obligations: Vested benefit obligation............................... $ (5,006) Accumulated benefit obligation.......................... (5,236) Projected benefit obligation............................ (10,033) Plan assets at fair value............................... -- -------- Projected benefit obligation in excess of Plan Assets..... (10,033) Unrecognized net loss..................................... 607 Unrecognized prior service cost........................... 1,725 Adjustment required to recognize minimum liability........ (2) -------- Accrued pension cost.................................... $ (7,703) ========
Following are the assumptions used in determining the funded status: Discount rate........................................................ 7.50% Rate of pay increase................................................. 5.00%
The assets of the Pension Plan consist primarily of common stocks, bonds, debt securities, and a money market fund. Plan benefits are based primarily on years of service and on average compensation during the last years of employment. Employee Stock Ownership Plans The Company implemented Statement of Position No. 93-6 (the "SOP"), "Employer Accounting for Employee Stock Ownership Plans," effective June 26, 1994. The implementation of the SOP did not have a material effect on the accompanying consolidated financial statements. The full-time employees of Falley's who are not members of a collective bargaining agreement are covered under a 401(k) plan, a portion of which is invested in Holdings stock (the "Falley's ESOP"). As is required pursuant to IRS and ERISA requirements, any participant who receives stock from the Falley's ESOP has the right to put that stock to Falley's or an affiliate of Falley's. However, as part of the original stock sale agreement among the then stockholders of Falley's, FFL and the Falley's ESOP, which has been amended from time to time, a partnership which owns stock of Holdings entered into an agreement with Falley's and Holdings to assume the obligation to purchase any Holdings shares as to which terminated plan participants exercise a put option under the terms of Falley's ESOP. As a result, neither Falley's nor the Company is required to make cash payments to redeem the shares. As part of that agreement, the Company may elect, after providing a right of first refusal to the partnership, to purchase Holdings shares put under the provisions of the plan. However, the partnership's obligation to purchase such Holdings shares is unconditional, and any repurchase of shares by the Company is at the Company's sole election. During fiscal year 1996, the Company did not purchase any of the Holdings shares. As of February 2, 1997, the fair value of the shares allocated which are subject to repurchase obligation by the partnership referred to above was approximately $10.9 million. F-25 131 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In addition, the Company also sponsors two ESOPs for employees of the Company who are members of certain collective bargaining agreements (the "Union ESOPs"). The Union ESOPs provide for annual contributions based on hours worked at a rate specified by the terms of the collective bargaining agreements. The Company contributions are made in the form of Holdings stock or cash for the purchase of Holdings stock and are to be allocated to participants based on hours worked. During fiscal year 1995 and the 1995 transition period, the Company recorded a charge against operations of approximately $0.8 million and $0.3 million, respectively, for benefits under the Union ESOPs. There were no shares issued to the Union ESOPs or to the Company's profit sharing plan at January 28, 1996 or February 2, 1997. Defined Contribution Plan The Company sponsors the Ralphs Grocery Company Savings Plan Plus -- Primary, the Ralphs Grocery Company Savings Plan Plus -- Basic and the Ralphs Grocery Company Savings Plan Plus -- ESOP (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 service during which 1,000 hours has been worked. The 401(k) Plan provides for both pre-tax and after-tax contributions by participating employees. With certain limitations, participants may elect to contribute on a pre-tax basis to the 401(k) Plan. The Company has committed to match a minimum of 20 percent of an employee's contribution to the 401(k) Plan that does not exceed 5 percent of the employee's eligible compensation. Expenses under the 401(k) Plan for fiscal year 1994, 1995 and 1996 were $0.7 million, $0.7 million and $0.8 million, respectively. Multi-Employer Benefit Plans The Company contributes to multi-employer benefit plans administered by various trustees. Contributions to these plans are based upon negotiated wage contracts. These plans may be deemed to be defined benefit plans. Information related to accumulated plan benefits and plan net assets as they may be allocated to the Company at January 28, 1996 is not available. The Company contributed $57.2 million, $21.6 million, $102.1 million and $138.8 million to these plans for fiscal year 1994, the 1995 transition period, fiscal year 1995 and fiscal year 1996, respectively. Management is not aware of any plans to terminate such plans. The United Food and Commercial Workers health and welfare plans were over-funded and those employers who contributed to the plans received a pro rata share of the excess reserves in the plans through reduction of current contributions. The Company's share of the excess reserve was $24.2 million, of which $8.1 million, $14.3 million and $1.8 million was recognized in fiscal year 1994, the 1995 transition period, and fiscal year 1995, respectively. Offsetting the reduction in employer contributions was a $5.5 million union contract ratification bonus and contractual wage increases in the 1995 transition period. As part of the renewal of the Southern California UFCW contract in October 1995, employers contributing to UFCW health and welfare plans received a pro rata share of the excess reserves in the plans through a reduction of current employer contributions. The Company's share of the excess reserves recognized in fiscal 1996 was $17.8 million. Offsetting the reduction was a $3.5 million union bonus in fiscal year 1996. Postretirement Medical Benefit Plans The Company adopted postretirement medical benefit plans ("Postretirement Medical Plans"), previously sponsored by RGC, which cover substantially all employees who are not members of a collective bargaining agreement and who retire under certain age and service requirements. The Postretirement Medical Plans are insured plans and provide outpatient, inpatient and various other covered services. The Company's policy is to fund the Plans as insurance premiums are incurred. For persons who are less than age 65 at retirement and for certain executives, the calendar 1996 year deductible is $1,000 per individual, indexed to the medical care component of the Consumer Price Index. F-26 132 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The net postretirement benefit cost of the Postretirement Medical Plans include the following components for fiscal year 1996 (dollars in thousands): Service cost........................................................ $ 909 Interest cost....................................................... 989 Return on plan assets............................................... -- Net amortization and deferral....................................... (281) ------ Net postretirement benefit cost........................... $1,617 ======
Following are the assumptions used in determining the net postretirement benefit cost: Discount rate......................................................... 7.00% Expected long term rate of return on plan assets...................... N/A Medical cost trend.................................................... 9.00%*
- --------------- * 1997 percentage decreases by 0.50% per year until 6.00% in 2002 and all future years. The funded status of the postretirement benefit plan (based on December 31, 1996 asset values) is as follows (dollars in thousands): Accumulated postretirement benefit obligation: Retirees.......................................................... $ (2,242) Fully eligible plan participants.................................. (1,777) Other active plan participants.................................... (10,126) Plan assets at fair value......................................... -- -------- Accumulated postretirement obligations in excess of plan assets... (14,145) Unrecognized gain................................................. (1,580) Unrecognized prior service cost................................... (2,965) -------- Accrued post retirement benefit obligation........................ $(18,690) ========
Following are the assumptions used in determining the funded status: Discount rate......................................................... 7.50% Expected long term rate of return on plan assets...................... N/A Medical cost trend.................................................... 8.50%*
- --------------- * 1997 percentage decreases by 0.50% per year until 6.00% in 2002 and all future years The effect of a 1.00 percent increase in the medical cost trend would increase the fiscal 1996 service and interest cost by $0.7 million. The accumulated postretirement benefit obligation at February 2, 1997 would also increase by $5.1 million. Stock Plans Holdings has one employee stock option plan, the Food 4 Less Holdings, Inc. 1995 Stock Option Plan (the "Plan"). The Plan provides for an aggregate of 3,000,000 shares of the Holdings' common stock to be available for grants to officers and other key employees of Holdings or its subsidiaries. Grants may be at the fair market value at the date of grant or at a price determined by a committee consisting of two or more non-employee directors of Holdings (the "Committee"). If a grantee owns 10 percent or more of the total combined voting power of all classes of capital stock of Holdings, the option exercise price shall be at least F-27 133 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 110 percent of the Fair Market Value of Common Stock on the date of grant. Options expire ten years from the date of grant and become exercisable at the rate of 20 percent per year, or over a vesting period determined by the Committee. To date, options issued under the Plan have been granted exclusively to employees of the Company. The following table summarizes stock options available for grant:
52 WEEKS 53 WEEKS ENDED ENDED JANUARY 28, FEBRUARY 2, 1996 1997 ------------ ------------ Beginning balance..................................... -- 715,000 Authorized............................................ 3,000,000 -- Granted............................................... (2,415,000) (727,500) Canceled.............................................. 130,000 210,250 ---------- -------- Available for future grant............................ 715,000 197,750 ========== ========
A summary of the status of the Plan as of fiscal year 1996 and fiscal year 1995 and changes during the years ending on those dates is presented below:
FISCAL YEAR 1995 FISCAL YEAR 1996 ----------------------- ----------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE --------- --------- --------- --------- Outstanding at beginning of year............... -- $ -- 2,285,000 $ 5.78 Granted........................................ 2,415,000 5.86 727,500 10.00 Exercised...................................... -- -- -- -- Canceled....................................... (130,000) 5.39 (210,250) 5.72 --------- ----- --------- ----- Outstanding at end of year..................... 2,285,000 5.89 2,802,250 6.97 ========= ===== ========= ===== Exercisable at end of year..................... 2,225,000 5.78 2,254,000 6.23 ========= ===== ========= ===== Weighted-average fair value of options granted during the year.............................. $3.35 $ 3.55 ===== =====
The following table summarizes information about stock options outstanding at February 2, 1997:
WEIGHTED- WEIGHTED- WEIGHTED- NUMBER AVERAGE AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE EXERCISE PRICES AT 02/02/97 CONTRACTUAL LIFE PRICE AT 02/02/97 PRICE - ---------------- ----------- ---------------- --------- ------------ --------- $0.79 to $1.09 224,357 8.2years $ 0.84 224,357 $ 0.84 $1.58 to $2.31 172,083 8.2 1.82 172,083 1.82 $2.73 to $4.00 172,500 8.2 3.04 172,500 3.04 $4.29 to $6.00 120,833 8.2 4.76 120,833 4.76 $6.67 to $7.32 1,120,227 8.2 7.15 1,120,227 7.15 $10.00 992,250 8.9 10.00 444,500 10.00 --------- --- ----- --------- ----- $0.79 to $10.00 2,802,250 8.5years $ 6.97 2,254,500 $ 6.23 ========= === ===== ========= =====
At February 2, 1997, 3.0 million shares of Holdings' Common Stock were reserved for issuance under Holdings' stock option plan. F-28 134 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company applies APB Opinion 25 and related Interpretations in accounting for the Plan and, accordingly, no compensation cost has been recognized. Pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123"), and has been determined as if the Company had accounted for employee stock options under the fair value method of SFAS No. 123. The fair value for stock options was estimated at the date of grant using the minimum value method with the following assumptions for fiscal 1995 and 1996, respectively: weighted average risk-free interest rates of 6.01 percent and 6.46 percent and a weighted average expected life of the options of 7.0 years and 7.0 years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. At the time of Merger, 2.3 million Stock Options were granted, 2.2 million of which became immediately vested. As a result, the effects of applying SFAS 123 for providing pro forma disclosures in fiscal year 1996 and 1995 are not likely to be representative of the effects on reported net income for future years. The Company's pro forma information follows:
FISCAL YEAR FISCAL YEAR ENDED ENDED JANUARY 28, FEBRUARY 2, 1996 1997 ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET LOSS: As reported: Loss before extraordinary charge..................... $ (260,117) $ (93,791) Extraordinary charge................................. 23,128 -- Net loss............................................. (283,245) (93,791) Pro forma: Loss before extraordinary charge..................... $ (264,524) $ (94,299) Extraordinary charge................................. 23,128 -- Net loss............................................. (287,652) (94,299) LOSS PER COMMON SHARE: As reported: Loss before extraordinary charge..................... $ (174.72) $ (61.95) Extraordinary charge................................. (15.30) -- Net loss............................................. (190.02) (61.95) Pro forma: Loss before extraordinary charge..................... $ (177.64) $ (62.29) Extraordinary charge................................. (15.30) -- Net loss............................................. (192.94) (62.29)
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents The carrying amount approximates fair value as a result of the short maturity of these instruments. F-29 135 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Short-Term Notes and Other Receivables The carrying amount approximates fair value as a result of the short maturity of these instruments. Interest Rate Derivatives The carrying amount of the interest rate collar agreement, which represents favorable or unfavorable movements of interest rates outside of the interest rate limits, approximates fair value. Investments In and Notes Receivable From Supplier Cooperatives The Company maintains a non-current deposit with Certified in the form of Class B shares of Certified. Certified is not obligated in any fiscal year to redeem more than a prescribed number of the Class B shares issued. Therefore, it is not practicable to estimate the fair value of this investment. The Company maintains non-current notes receivable from A.W.G. There are no quoted market prices for this investment and a reasonable estimate could not be made without incurring excessive costs. Additional information pertinent to the value of this investment is provided in Note 6. Long-Term Debt The fair value of the New Senior Notes, the 1995 11% Senior Subordinated Notes and the 13.75% Senior Subordinated Notes is based on quoted market prices. The Term Loans and the Revolving Facility are estimated to be recorded at the fair value of the debt. Market quotes for the fair value of the remainder of the Company's debt are not available, and a reasonable estimate of the fair value could not be made without 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 (in thousands):
AS OF FEBRUARY 2, 1997 ------------------------- CARRYING FAIR AMOUNT VALUE ---------- ---------- Cash and cash equivalents........................... $ 67,589 $ 67,589 Short-term notes and other receivables.............. 531 531 Interest rate collar................................ -- -- Investments in and notes receivable from supplier cooperatives (not practicable).................... 11,965 -- Long-term debt for which it is: - Practicable to estimate fair values............. 1,920,186 2,000,740 - Not practicable................................. 18,643 --
(12) RESTRUCTURING CHARGE During fiscal 1995, the Company recorded a $75.2 million charge associated with the closure of 58 former F4L Supermarkets stores and one former F4L Supermarkets warehouse facility. The stores were closed to comply with a settlement agreement with the State of California in connection with the Merger or to improve the Company's future operating results. Three RGC stores were also required to be sold to comply with the settlement agreement. During fiscal year 1995, the Company utilized $34.7 million of the reserve for restructuring costs ($50.0 million of costs partially offset by $15.3 million of proceeds from the divestiture of stores). During fiscal year 1996, the Company utilized $15.1 million of the reserve for restructuring costs, F-30 136 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) consisting mainly of write-downs of property and equipment, expenditures associated with the closed stores and the warehouse facility and lease termination expenses ($15.2 million) partially offset by proceeds from the sale of certain related assets. During the quarter ended April 27, 1997, the Company utilized $1.4 million (unaudited) of the reserve for restructuring costs, consisting primarily of writedowns of property and equipment and lease termination expenses. On December 29, 1995, the Company consummated an agreement with Smith's to sublease its one million square foot distribution center and creamery facility in Riverside, California for approximately 23 years, with renewal options through 2043, and to acquire certain operating assets and inventory at that facility. In addition, the Company also acquired nine of Smith's Southern California stores which became available when Smith's withdrew from the California market. As a result of the acquisition of the Riverside distribution center and creamery, the Company closed its La Habra distribution center in the first quarter of fiscal year 1996. Also, the Company closed nine of its smaller and less efficient stores which were near the stores acquired from Smith's. During the fourth quarter of fiscal year 1995, the Company recorded a $47.9 million restructuring charge to recognize the cost of closing these facilities. During fiscal year 1996, the Company utilized $33.9 million of the reserve for restructuring costs, consisting mainly of write-downs of property and equipment ($18.3 million) and lease termination expenses ($15.6 million). During the quarter ended April 27, 1997, the Company utilized $0.1 million (unaudited) of the reserve for restructuring costs, consisting primarily of lease termination expenses. (13) SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED) The tables below set forth the selected quarterly financial information for fiscal year 1995 and fiscal year 1996 (in thousands, except per share amounts):
12 WEEKS 12 WEEKS 12 WEEKS 16 WEEKS ENDED ENDED ENDED ENDED FISCAL YEAR 1995 04/23/95 07/16/95 10/08/95 01/28/96 - -------------------------------------------------- -------- --------- ---------- ---------- Net Sales......................................... $623,598 $ 857,344 $1,207,093 $1,647,074 Gross Profit...................................... 106,400 157,720 222,498 321,371 Loss Before Extraordinary Items................... (2,812) (102,534) (49,750) (105,021) Net Loss.......................................... (2,812) (125,662) (49,750) (105,021) Loss Applicable to Common Shares.................. (5,188) (127,246) (49,750) (105,021) Loss Per Common Share: Loss Before Extraordinary Items................... $ (3.44) $ (68.96) $ (32.86) $ (69.37) Loss Per Common Share............................. $ (3.44) $ (84.28) $ (32.86) $ (69.37)
12 WEEKS 12 WEEKS 12 WEEKS 17 WEEKS ENDED ENDED ENDED ENDED FISCAL YEAR 1996 04/21/96 07/14/96 10/06/96 02/02/97 - ------------------------------------------------ ---------- ---------- ---------- ---------- Net Sales....................................... $1,230,808 $1,243,768 $1,221,018 $1,820,665 Gross Profit.................................... 237,925 252,544 264,033 381,516 Net Loss........................................ (31,981) (21,539) (11,865) (28,406) Loss Per Common Share........................... $ (21.12) $ (14.23) $ (7.84) $ (18.76)
(14) SUBSEQUENT EVENT On March 26, 1997, the Company issued $155 million of 11% Senior Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes") and called all of the 13.75% Senior Subordinated Notes. The terms of the 1997 11% Senior Subordinated Notes are substantially identical to those of the Company's 11% Senior Subordinated Notes due 2005 issued in June 1995. The 1997 11% Senior Subordinated Notes were issued at a F-31 137 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) premium price of 105.5, resulting in gross proceeds of $163.5 million. The proceeds were used to (i) redeem an aggregate of $145.0 million of its outstanding 13.75% Senior Subordinated Notes and (ii) pay accrued interest, call premiums, fees and expenses related to the 1997 11% Senior Subordinated Notes. The redemption price was 106.1 percent of the principal amount outstanding. On April 17, 1997, the Company amended and restated its existing credit facilities (the "Refinanced Credit Facility") with a facility with lower interest rates and a longer average life. The refinancing was structured as an amendment and restatement of the existing Credit Facility and the amended facility consists of a $325.0 million Revolving Credit Facility, a $200.0 million Term Loan A Facility and a $350.0 million Term Loan B Facility. At the time of the amendment and restatement the outstanding principal balance of term loans under the existing term loan facility was $540.4 million. Borrowings under the Refinanced Credit Facility bear interest at the bank's Base Rate (as defined) plus a margin ranging from 0.25 percent to 1.25 percent for the Revolving Credit Facility and the Term Loan A Facility and the bank's Base Rate (as defined) plus a margin ranging from 0.75 percent to 1.75 percent for the Term Loan B Facility or the Eurodollar Rate (as defined) plus a margin ranging from 1.25 percent to 2.25 percent for the Revolving Credit Facility and the Term Loan A Facility and the Eurodollar Rate (as defined) plus a margin ranging from 1.75 percent to 2.75 percent for the Term Loan B Facility. The interest rate for the Revolving Credit Facility and the Term Loan A Facility currently is the bank's Base Rate (as defined) plus a margin of 0.75 percent or the Eurodollar Rate (as defined) plus a margin of 1.75 percent. The interest rate for the Term Loan B Facility currently is the bank's Base Rate (as defined) plus a margin of 1.25 percent or the Eurodollar rate (as defined) plus a margin of 2.25 percent. Quarterly principal installments on the Refinanced Credit Facility continue to 2004, with amounts payable in each year as follows: $2.6 million in fiscal 1997, $3.5 million in fiscal 1998, $25.5 million in fiscal 1999, $62.6 million in fiscal 2000, $87.5 million in fiscal 2001 and $368.3 million thereafter. Certain other terms and provisions of the previous Credit Facility were also changed, including, but not limited to, application of proceeds of selected asset sales and stock offerings and permitted capital expenditures. Management believes that this refinancing provides increased operational and financial flexibility through lower interest costs and lower short-term loan amortization. As a result of the refinancings described above, the Company will incur an extraordinary loss in the first quarter of fiscal 1997 of approximately $48.9 million, consisting of the call premium on the 13.75% Senior Subordinated Notes and write-off of deferred financing costs. F-32 138 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Ralphs Supermarkets, Inc.: We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of Ralphs Supermarkets, Inc. and subsidiaries for the years ended January 30, 1994 and 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Ralphs Supermarkets, Inc. and subsidiaries for the years ended January 30, 1994 and January 29, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Los Angeles, California March 9, 1995 F-33 139 RALPHS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED JANUARY 30, 1994 JANUARY 29, 1995 ------------------- ------------------- Sales............................................... $2,730,157 100.0% $2,724,604 100.0% Cost of sales....................................... 2,093,727 76.7 2,101,033 77.1 ---------- ----- ---------- ----- Gross profit...................................... 636,430 23.3 623,571 22.9 Selling, general and administrative expenses...... 471,000 17.2 467,022 17.2 Amortization of excess cost over net assets acquired....................................... 10,996 0.4 10,996 0.4 Provision for restructuring....................... 2,374 0.1 -- -- ---------- ----- ---------- ----- Operating income.................................. 152,060 5.6 145,553 5.3 Other expenses: Interest, expense, net............................ 108,755 4.0 112,651 4.1 Loss on disposal of assets........................ 1,940 0.1 784 0.0 Provision for earthquake losses................... 11,048 0.4 -- -- ---------- ----- ---------- ----- Earnings before income taxes........................ 30,317 1.1 32,118 1.2 Income tax expense (benefit)........................ (108,049) (4.0) -- -- ---------- ----- ---------- ----- Net earnings........................................ $ 138,366 5.1% $ 32,118 1.2% ========== ===== ========== =====
See accompanying notes to consolidated financial statements. F-34 140 RALPHS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- Cash flows from operating activities: Net earnings......................................................... $ 138,366 $ 32,118 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization..................................... 74,452 76,043 Amortization of discounts an deferred debt issuance costs......... 9,768 9,032 LIFO charge (credit).............................................. (2,054) 2,085 Loss on sale of assets............................................ 4,314 784 Provision for post-retirement benefits............................ 3,370 2,555 Other changes in assets and liabilities: Accounts receivable.................................................. 326 (13,177) Inventories at replacement cost...................................... 6,724 (21,120) Prepaid expenses and other current assets............................ (1,658) (1,682) Other assets......................................................... 4,449 (7,287) Interest payable..................................................... (4,822) (2,419) Accounts payable and accrued liabilities............................. (1,622) (1,047) Income taxes payable................................................. (1,480) (2,906) Deferred tax asset................................................... (109,125) (3,366) Business interruption credit......................................... (581) -- Earthquake losses.................................................... (11,048) -- Self insurance reserves.............................................. 7,031 (7,503) Other liabilities.................................................... (12,407) (6,692) --------- --------- Cash provided by operating activities................................ 104,003 55,418 --------- --------- Cash flows from investing activities: Capital expenditures................................................. (62,181) (64,018) Proceeds from sale of property, plant and equipment.................. 16,700 13,257 --------- --------- Cash used in investing activities.................................... (45,481) (50,761) --------- --------- Cash flows from financing activities: Net borrowings under lines of credit................................. (31,100) 51,500 Capitalized financing and acquisition costs.......................... (5,108) (2,496) Increase (decrease) in bank overdrafts............................... 655 7,952 Proceeds from issuance of long-term debt............................. 150,000 -- Dividends paid....................................................... -- (10,000) Principal payments on long-term debt................................. (164,081) (71,568) --------- --------- Cash provided by (used in) financing activities...................... (49,634) (24,612) --------- --------- Net increase (decrease) in cash and cash equivalents................... 8,888 (19,955) Cash and cash equivalents at beginning of period....................... 46,192 55,080 --------- --------- Cash and cash equivalents at end of period............................. $ 55,080 $ 35,125 ========= =========
See accompanying notes to consolidated financial statements. F-35 141 RALPHS SUPERMARKETS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
RALPHS RALPHS GROCERY COMPANY SUPERMARKETS, INC. ------------------------ -------------------- ADDITIONAL OUTSTANDING COMMON PAID-IN- ACCUMULATED SHARES STOCK CAPITAL DEFICIT TOTAL ----------- ------ ---------- ----------- --------- 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-36 142 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) THE COMPANY Ralphs Supermarkets, Inc. operates conventional format grocery stores in the Southern California area. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation These consolidated financial statements present the statements of operations and cash flows of Ralphs Supermarkets, Inc. and subsidiary (Ralphs Grocery Company) for the two years ended January 30, 1994 and January 29, 1995. (b) Reporting Period Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal year-ends are as follows: 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. (d) Inventories Inventories are stated at the lower cost or market. Cost is determined primarily using the last-in, first-out (LIFO) method. (e) Depreciation and Capitalized Interest Depreciation of plant and equipment is calculated using the straight-line method over the estimated useful lives of assets. Plant and equipment held under capital leases and leasehold improvements are amortized using the straightline method over the shorter of the lease term or the estimated useful life of the asset. Useful lives range from 10 to 40 years for buildings and improvements and 3 to 20 years for fixtures and equipment. Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. Interest cost capitalized during fiscal 1993 and 1994 was $.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. F-37 143 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (h) Self Insurance Reserves Ralphs is self-insured for a portion of workers' compensation, general liability and automobile accident claims. Ralphs establishes reserve provisions based on an independent actuary's review of claims filed and an estimate of claims incurred but not yet filed. (i) Excess of Cost Over Net Assets Acquired The excess of cost over net assets acquired, resulting from the May 3, 1988 acquisition of Ralphs is being amortized using the straight-line method over 40 years. Ralphs assesses the recoverability of this intangible asset by determining whether the amortization of the asset balance over its remaining life can be recovered through projected undiscounted operating income (including interest, depreciation and all amortization expense except amortization of excess of cost over net assets acquired) over the remaining amortization period of the excess of cost over net assets acquired. The amount of excess of cost over net assets acquired impairment, if any, is measured based on projected discounted future results using a discount rate reflecting Ralphs' average cost of funds. (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) Reclassification Certain amounts in the accompanying financial statements have been reclassified to conform to the current year's presentation. (m) 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. (n) 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-38 144 RALPHS SUPERMARKETS, INC. 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. (o) Advertising The Company expenses the production costs of advertising the first time the advertising takes place. Advertising expense was $16.4 million and $18.2 million in fiscal 1993 and 1994, respectively. (p) 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) 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-39 145 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Total rent expense is summarized as follows:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Capital Leases Contingent rental............................................. $ 2,241 $ 2,256 Rentals from subleases........................................ (2,048) (1,734) Operating Leases Minimum rentals............................................... 54,965 55,906 Contingent rentals............................................ 3,645 3,763 Rentals from subleases........................................ (1,150) (1,791) -------- -------- $ 57,653 $ 58,400 ======== ========
(4) SELF-INSURANCE Ralphs is a qualified self-insurer in the State of California for worker's compensation and for automobile liability. For fiscal 1993 and 1994 self insurance loss provisions amounted to (in thousands) $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. 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. (5) COMMITMENTS AND CONTINGENCIES In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against Ralphs and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in the retail market for fluid milk and to fix the retail price of fluid milk above competitive prices. Specifically, class actions were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14, and December 23, 1992, respectively. The Court has yet to certify any of these classes. A demurrer to the complaints was denied. Notwithstanding that it believes there is no merit to these cases, Ralphs had reached an agreement in principle to settle them. However, no settlement agreement has been signed. The Company does not believe that the resolution of these cases will have a material adverse effect on its future financial condition. Any settlement would be subject to court approval. On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates") commenced an action in San Diego Superior Court alleging that Ralphs breached an alleged utility rate consulting agreement. In December 1992, a jury returned a verdict of approximately $4.9 million in favor of Koteen Associates and in March 1993, attorney's fees and certain other costs were awarded to the plaintiff. Ralphs has appealed the judgment and fully reserved in Fiscal 1992 against an adverse ruling by the appellate courts. F-40 146 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In April 1994, Ralphs was served with a complaint filed by over 240 former employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery Plaintiffs"). The action was commenced in the United States District Court for the Central District of California, and, among other claims, the Bakery Plaintiffs alleged that Ralphs breached its collective bargaining agreement and violated the Workers Adjustment Retraining Notification Act (the "WARN Act") when it downsized and subsequently closed the bakery. In their complaint, the Bakery Plaintiffs are seeking damages for lost wages and benefits as well as punitive damages. The Bakery Plaintiffs also named Ralphs and two of its management employees in fraud, conspiracy and emotional distress causes of action. In addition, the Bakery Plaintiffs sued their union local for breach of its duty of fair representation and other alleged misconduct, including fraud and conspiracy. The defendants have answered the complaint and discovery is ongoing. Trial is set for February, 1996, and Ralphs is vigorously defending this suit. Management believes, based on its assessment of the facts, that the resolution of this case will not have a material effect on the Company's financial position or results of operations. In addition, Ralphs is a defendant in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on Ralphs' financial position or results of operations. Environmental Matters In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a subsurface characterization of Ralphs' Atwater property. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where Ralphs' Atwater property is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, because of regional groundwater contamination. On June 18, 1991, the EPA made its own request for information concerning the Atwater property. Since that time, the Regional Board has requested further investigation by Ralphs. Ralphs has conducted the requested investigations and has reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Atwater property. Ralphs is not a party to the Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on Ralphs' property. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. Ralphs has removed underground storage tanks and remediated soil contamination at the Atwater property. In some instances the removals and the contamination were associated with grocery business operations, in others they were associated with prior property users. Although the possibility of other 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 F-41 147 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. (6) 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 1993 and fiscal 1994. 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 =======
F-42 148 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) INCOME TAXES Income tax expense (benefit) consists of the following:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Current: Federal................................................... $ (2,424) $ 713 State..................................................... 3,500 2,653 --------- ------- $ 1,076 $ 3,366 --------- ------- Deferred: Federal................................................... $(109,125) $(3,366) State..................................................... $ -- $ -- --------- ------- $(109,125) $(3,366) --------- ------- Total income tax expense (benefit)........................ $(108,049) $ -- ========= =======
Income tax expense (benefit) has been classified in the accompanying statements of operations as follows:
1993 1994 --------- -------- Earnings before extraordinary items........................... $(108,049) $ -- Extraordinary item............................................ -- -- --------- -------- Net tax expense (benefit)..................................... $(108,049) $ -- ========= ========
The differences between income tax expense and income taxes computed using the top marginal U.S. Federal income tax rate of 35% for fiscal 1993 and fiscal 1994 applied to earnings (loss) before income taxes were as follows:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Amount of expected expense (benefit) computed using the statutory Federal rate........................................ $ 10,611 $ 11,241 Utilization of financial operating loss....................... (10,611) (11,241) Amortization of excess cost over net assets acquired.......... -- -- State income taxes, net of Federal income tax benefit......... 3,500 2,653 Accounting limitation (recognition) of deferred tax benefit... (109,125) (3,366) Alternative minimum tax....................................... 625 -- Other, net.................................................... (3,049) 713 --------- -------- Total income tax expense (benefit)......................... $ (108,049) $ -- ========= ========
In connection with a reorganization plan filed under Chapter 11, Title 11 of the United States Bankruptcy Code by Ralphs former ultimate parent, Federated, Ralphs entered into a "Tax Indemnity Agreement" with Federated and certain of its affiliates (the "Affiliated Group"). The agreement required that one of the affiliated companies, Federated Department Stores, pay certain tax liabilities, if any, related to Ralphs Grocery Company being a member of the Affiliated Group. The Tax Indemnity Agreement provides a F-43 149 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) formula to determine the amount of additional tax liabilities through February 3, 1992 that Ralphs Grocery 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. On October 15, 1992, Ralphs filed an election with the Internal Revenue Service under Section 338(h)(10). Under this Section, Ralphs is required to restate, for Federal tax purposes, its assets and liabilities to fair market value as of February 3, 1992. The effect of this transaction is to record a new Federal tax basis to reflect a change of control for Federal tax purposes resulting from the Internal Reorganization. No change of control for financial reporting purposes was affected. In August, 1993, The Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted. The Act increased the Federal income tax rate from 34 to 35 percent for filers whose taxable income exceeded $10.0 million. In the current year, the effect of the Federal income tax rate change was to increase the net deferred tax assets. In addition, the Act also provided for the deductibility of certain intangibles, including costs in excess gross assets acquired. The Act has significantly impacted the aggregate deferred tax asset position of Ralphs at January 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 F-44 150 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) $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. (8) 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. 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 ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Service cost................................................ $ 2,228 $ 2,901 Interest cost on projected benefit obligation............... 2,838 3,821 Actual return on assets..................................... (2,695) (1,447) Net amortization and deferral............................... (46) (1,100) ------- ------- Net pension expense.................................... $ 2,325 $ 4,175 ======= =======
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 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 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. F-45 151 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Multi-employer pension plans................................ $17,687 $ 8,897 ======= ======= Multi-employer health and welfare........................... $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 1993 and 1994 were $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 1993 and 1994 was $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 1993 and 1994 was $3.0 million and $3.1 million, respectively. The aforementioned incentive plans may be cancelled by the Board of Directors at any time. Ralphs sponsors a postretirement medical benefit plan (Postretirement Medical Plan) covering substantially all employees who are not members of a collective bargaining agreement and who retire under certain age and service requirements. The Postretirement Medical Plan is a traditional type medical plan providing outpatient, inpatient and various other covered services. Such benefits are funded from Ralphs' general assets. The calendar year deductible is $1,270 per individual, indexed to the Medical Consumer Price Index. F-46 152 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The net periodic cost of the Postretirement Medical Plan includes the following components:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Service cost................................................ $ 1,767 $ 1,396 Interest cost............................................... 1,603 1,387 Return on plan assets....................................... -- -- Net amortization and deferment.............................. -- (228) ------ ------- Net postretirement benefit cost........................... $ 3,370 $ 2,555 ====== =======
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%. (9) 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 ======== ====== ====== ======= ======
F-47 153 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (10) SUPPLEMENTAL CASH FLOW INFORMATION
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Supplemental cash flow disclosures: Interest paid, net of amounts capitalized................. $93,738 $99,067 Income taxes paid......................................... $ 2,423 $ 6,270 Capital lease assets and obligations assumed.............. $15,395 $41,131
(11) 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. The following table summarizes the Ralphs Non-qualified Stock Option Plan.
NUMBER OF PRICE OPTIONS RANGE --------- ------ Options Outstanding at January 30, 1994: Beginning of year............................................. 3,162,235 $20.21 Granted....................................................... -- -- Exercised..................................................... -- -- Cancelled..................................................... -- -- Expired....................................................... -- -- End of year................................................ 3,162,235 $20.21 --------- ------ Exercisable at end of year...................................... 811,760 -- --------- ------ Available for grant at end of year.............................. -- -- --------- ------ Options Outstanding at January 29, 1995: Beginning of year............................................. 3,162,235 $20.21 Granted....................................................... -- -- Exercisable................................................... -- -- Cancelled..................................................... -- -- Expired....................................................... -- -- End of year................................................ 3,162,235 $20.21 --------- ------ Exercisable at end of year...................................... 1,330,924 -- --------- ------ Available for grant at end of year.............................. -- -- --------- ------
The option price for outstanding options at January 29, 1995 assumes a grant date fair market value of Common Stock of the Company equal to $20.21 per share, which represents the high end of a range of estimated values of the Common Stock of the Company on February 3, 1992, the date of the grant. F-48 154 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (12) THE MERGER (UNAUDITED) On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food 4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4 Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (as amended from time to time, the "Merger Agreement") with Ralphs Supermarkets, Inc. (the "Holding Company") and its stockholders. Pursuant to the terms of the Merger Agreement, Food 4 Less will be merged with and into Holding Company (the "RSI Merger") and Holding Company will continue as the surviving corporation. Food 4 Less is a multiple format supermarket operator that operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest. Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which is currently a wholly-owned subsidiary of Holding Company, will merge with and into Holding Company (the "RGC Merger," and together with the RSI Merger, the "Merger"), and Holding Company will change its name to Ralphs Grocery Company (the "New Company"). Prior to the Merger, FFL will merge with and into Holdings, which will be the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging with a newly-formed, wholly-owned subsidiary ("Holdings"), incorporated in Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL Merger and the Reincorporation Merger, the New Company will become a wholly-owned subsidiary of Holdings. Agreement has been reached with each of the California Attorney General and the Federal Trade Commission for approval of the Merger. Food 4 Less and Ralphs have agreed in a settlement agreement with the Attorney General to divest 27 specific stores in Southern California. Under the agreement, the Company must divest 14 stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. In order to consummate the Merger, Food 4 Less has made an Offer to Exchange and Offer to Purchase and Solicit Consents with respect to the holders of the 9% Senior Subordinated Notes (the "Old RGC 9% Notes") due April 1, 2003 of RGC and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the "Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") (i) to exchange (as so amended and restated, the "Exchange Offers") such Old RGC Notes for New Senior Subordinated Notes due 2005 (the "Notes") plus a cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC Notes tendered for exchange or (ii) to purchase (the "Cash Offers," and together with the Exchange Offers, the "Offers") Old RGC Notes for $1,010 in cash per $1,000 principal amount of Old RGC Notes accepted for purchase, in each case, plus accrued and unpaid interest to the date of exchange of purchase. The Offers are subject to the terms and conditions set forth in an Amended and Restated Prospectus and Solicitation Statement, filed by Food 4 Less with the Securities and Exchange Commission and which is subject to further change (the "Prospectus"), including: (1) satisfaction of a minimum tender amount (i.e., at least a majority of the aggregate principal amount of the outstanding Old RGC Notes being validly tendered for exchange for Notes and not withdrawn pursuant to the Offers prior to the date of expiration); (2) the receipt of the requisite consents to certain amendments to the indentures (the "Indentures") under which the Old RGC Notes were issued (i.e., consents from holders of Old RGC Notes representing at least a majority in aggregate principal amount of each issue of Old RGC Notes held by persons other than Ralphs and its affiliates) on or prior to the date of expiration; (3) the satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the Merger; (4) the prior or contemporaneous consummation of other exchange offers, consent solicitations and public offerings contemplated by the Prospectus; and (5) the prior or contemporaneous consummation of the bank financing and the equity investment described in the Prospectus. As a result of the RSI Merger and the RGC Merger, the Notes and any outstanding Old RGC Notes not tendered in the Offers will be the obligations of the New Company. Conditions to the consummation of the RSI Merger include the receipt of necessary consents and the completion of financing of the transaction. The purchase price for Holding Company is approximately $1.5 billion, including the assumption or repayment of debt. The consideration payable to the stockholders of F-49 155 RALPHS SUPERMARKETS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Holding Company consists of $375 million in cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be issued to the selling shareholders of Holding Company (the "Seller Debentures") by Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures"). Holdings will use $100 million of the cash received from a new equity investment (the "1995 Equity Investment"), together with the Seller Debentures and the New Discount Debentures, to acquire approximately 48% of the capital stock of Holding Company immediately prior to consummation of the RSI Merger. Holdings will then contribute the $250 million of purchased shares of Holding Company stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company stock will be acquired for $275 million in cash. Standard & Poor's has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline pursuant to the Indentures. The consummation of the Merger and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline, would constitute a Change of Control Triggering Event under the Indentures. Although RGC does not anticipate that there will be a significant amount of Old RGC Notes outstanding following consummation of the Exchange Offers, upon such a Change of Control Triggering Event, the New Company would be obligated to make the Change of Control Offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Due to the increased size, dual format strategy and integration related costs, after giving effect to or in connection with the Merger, RGC believes that its future operating results will not be directly comparable to the historical operating results of RGC. Upon consummation of the Merger, the operations and activities of RGC will be significantly impacted due to conversions of some existing stores to Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. This consolidation is expected to result in a restructuring charge for the New Company. The restructuring charge may be material in relation to the stockholders' equity and financial position of RGC and the New Company. Following the consummation of the Merger, the New Company will be highly leveraged. F-50 156 ====================================================== NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE OF EXCHANGE NOTES FOR PRIVATE NOTES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Summary............................... 3 Risk Factors.......................... 15 The Exchange Offer.................... 20 Use of Proceeds....................... 28 Capitalization........................ 29 Selected Historical Financial Data of the Company......................... 31 Selected Historical Financial Data of RSI................................. 33 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 35 Business.............................. 47 Management............................ 58 Executive Compensation................ 61 Principal Stockholders................ 65 Certain Relationships and Related Transactions........................ 66 Description of Capital Stock.......... 68 Description of the Notes.............. 70 Description of the Credit Facility.... 97 Description of Holdings' Indebtedness........................ 99 Book Entry; Delivery and Form......... 101 Certain Federal Income Tax Consequences........................ 103 Plan of Distribution.................. 103 Legal Matters......................... 104 Experts............................... 104 Available Information................. 104 Index to Financial Statements......... F-1 ============================================
====================================================== -------------------- PROSPECTUS -------------------- RALPHS GROCERY COMPANY $155,000,000 11% SENIOR SUBORDINATED NOTES DUE 2005 , 1997 ====================================================== 157 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Ralphs Grocery Company and its subsidiaries Cala Co. and Food 4 Less of Southern California, Inc., are Delaware corporations and their Certificates of Incorporation and Bylaws provide for indemnification of their officers and directors to the fullest extent permitted by law. Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") eliminates the liability of a corporation's directors to a corporation or its stockholders, except for liabilities related to breach of duty of loyalty, actions not in good faith, and certain other liabilities. Section 145 of the DGCL provides for the indemnification by a Delaware corporation of its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against liabilities and expenses incurred in any such action, suit or proceeding. Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Foods, Inc., Crawford Stores, Inc., Food 4 Less of California, Inc., Food 4 Less GM, Inc. and Food 4 Less Merchandising, Inc. are California corporations and their Certificates of Incorporation and Bylaws provide for indemnification of their officers and directors to the fullest extent permitted by law. Section 204(10) of the California General Corporation Law (the "CGCL") eliminates the liability of a corporation's directors for monetary damages to the fullest extent permissible under California law. Pursuant to Section 204(11) of the CGCL, a California corporation may indemnify Agents (as defined in Section 317 of the CGCL), subject only to the applicable limits set forth in Section 204 of the CGCL with respect to actions for breach of duty to the corporation and its shareholders. As permitted by Section 317 of the CGCL, indemnification may be provided by a California corporation of its Agents (as defined in Section 317 of the CGCL), to the maximum extent permitted by the CGCL, in connection with any proceeding arising by reason of the fact that such person is or was such a director or officer, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in any such proceeding. Falley's, Inc. is a Kansas corporation and its Bylaws provide for indemnification of its officers and directors to the fullest extent permitted by law. Section 17-6305(a) of the Kansas General Corporation Code (the "KGCC") provides for the indemnification by a Kansas corporation of its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against liabilities and expenses incurred in any such action, suit or proceeding. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits A list of exhibits filed with this Registration Statement on Form S-4 is set forth in the Index to Exhibits on page E-1, and is incorporated herein by reference. (b) Financial Statement Schedules: (i) Ralphs Grocery Company Schedule II -- Valuation and Qualifying Accounts (ii) Ralphs Supermarkets, Inc. Schedule II -- Valuation and Qualifying Accounts SCHEDULES OMITTED Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto. II-1 158 ITEM 22. UNDERTAKINGS. (a) The undersigned registrants hereby undertake that insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim of indemnification against such liabilities (other than the payment by the registrant of expenses incurred or the registrant in the successful defense of any action, suit paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into this prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-2 159 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 6, 1997. RALPHS GROCERY COMPANY By: /s/ WAYNE S. BELL ------------------------------------ Wayne S. Bell Assistant Secretary Each person whose signature appears below constitutes and appoints Wayne S. Bell his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ----------------- /s/ GEORGE G. GOLLEHER Chief Executive Officer and June 6, 1997 - --------------------------------------------- Director (Principal George G. Golleher Executive Officer) /s/ ALFRED A. MARASCA President, Chief Operating June 6, 1997 - --------------------------------------------- Officer and Director Alfred A. Marasca /s/ GREG MAYS Executive Vice President -- June 6, 1997 - --------------------------------------------- Finance/Administration Greg Mays /s/ JOHN T. STANDLEY Senior Vice President and June 6, 1997 - --------------------------------------------- Chief Financial Officer John T. Standley (Principal Financial Officer) /s/ CHRISTOPHER HALL Group Vice June 6, 1997 - --------------------------------------------- President -- Finance, Christopher Hall Controller and Chief Accounting Officer (Principal Accounting Officer) /s/ RONALD W. BURKLE Chairman of the Board and June 6, 1997 - --------------------------------------------- Director Ronald W. Burkle /s/ ROBERT I. BERNSTEIN Director June 6, 1997 - --------------------------------------------- Robert I. Bernstein /s/ ROBERT BEYER Director June 6, 1997 - --------------------------------------------- Robert Beyer /s/ JOE S. BURKLE Director June 6, 1997 - --------------------------------------------- Joe S. Burkle
II-3 160
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ----------------- /s/ PETER COPSES Director June 6, 1997 - --------------------------------------------- Peter Copses /s/ PATRICK L. GRAHAM Director June 6, 1997 - --------------------------------------------- Patrick L. Graham /s/ LAWRENCE K. KALANTARI Director June 6, 1997 - --------------------------------------------- Lawrence K. Kalantari /s/ JOHN KISSICK Director June 6, 1997 - --------------------------------------------- John Kissick
II-4 161 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 6, 1997. 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/ WAYNE S. BELL ------------------------------------- Wayne S. Bell Assistant Secretary Each person whose signature appears below constitutes and appoints Wayne S. Bell his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ----------------- /s/ GEORGE G. GOLLEHER Chief Executive Officer and June 6, 1997 - --------------------------------------------- Director (Principal George G. Golleher Executive Officer) of each Registrant /s/ JOHN T. STANDLEY Chief Financial Officer June 6, 1997 - --------------------------------------------- (Principal Financial Officer John T. Standley of each Registrant) /s/ CHRISTOPHER HALL Vice President and Controller June 6, 1997 - --------------------------------------------- (Principal Accounting Christopher Hall Officer of each Registrant) /s/ RONALD W. BURKLE Director and Chairman of the June 6, 1997 - --------------------------------------------- Board of each Registrant Ronald W. Burkle
II-5 162 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 6, 1997. CRAWFORD STORES, INC. By: /s/ WAYNE S. BELL ------------------------------------ Wayne S. Bell Assistant Secretary Each person whose signature appears below constitutes and appoints Wayne S. Bell his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ----------------- /s/ ALFRED A. MARASCA President, Chief Operating June 6, 1997 - --------------------------------------------- Officer and Director Alfred A. Marasca (Principal Executive Officer) /s/ JOHN T. STANDLEY Chief Financial Officer June 6, 1997 - --------------------------------------------- (Principal Financial John T. Standley Officer) /s/ CHRISTOPHER HALL Vice President and Controller June 6, 1997 - --------------------------------------------- (Principal Accounting Christopher Hall Officer) /s/ RONALD W. BURKLE Director June 6, 1997 - --------------------------------------------- Ronald W. Burkle /s/ GEORGE G. GOLLEHER Director June 6, 1997 - --------------------------------------------- George G. Golleher
II-6 163 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 6, 1997. ALPHA BETA COMPANY By: /s/ WAYNE S. BELL ------------------------------------ Wayne S. Bell Assistant Secretary Each person whose signature appears below constitutes and appoints Wayne S. Bell his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ----------------- /s/ RONALD W. BURKLE Chairman of the Board, Chief June 6, 1997 - --------------------------------------------- Executive Officer and Ronald W. Burkle Director (Principal Executive Officer) /s/ JOHN T. STANDLEY Chief Financial Officer June 6, 1997 - --------------------------------------------- (Principal Financial John T. Standley Officer) /s/ CHRISTOPHER HALL Vice President and Controller June 6, 1997 - --------------------------------------------- (Principal Accounting Christopher Hall Officer) /s/ GEORGE G. GOLLEHER Director June 6, 1997 - --------------------------------------------- George G. Golleher
II-7 164 SIGNATURES (continued) Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on June 6, 1997. FALLEY'S, INC. By: /s/ WAYNE S. BELL ------------------------------------ Wayne S. Bell Assistant Secretary Each person whose signature appears below constitutes and appoints Wayne S. Bell his true and lawful attorney and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming that said attorney and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ----------------- /s/ JOE S. BURKLE Chief Executive Officer June 6, 1997 - --------------------------------------------- (Principal Executive Joe S. Burkle Officer) /s/ JOHN T. STANDLEY Chief Financial Officer June 6, 1997 - --------------------------------------------- (Principal Financial John T. Standley Officer) /s/ CHRISTOPHER HALL Vice President and Controller June 6, 1997 - --------------------------------------------- (Principal Accounting Christopher Hall Officer) /s/ RONALD W. BURKLE Director and Chairman of the June 6, 1997 - --------------------------------------------- Board Ronald W. Burkle /s/ GEORGE G. GOLLEHER Director June 6, 1997 - --------------------------------------------- George G. Golleher
II-8 165 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Ralphs Grocery Company: We have audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Ralphs Grocery Company (formerly Food 4 Less Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial Statements) and subsidiaries as of January 29, 1995, January 28, 1996, and February 2, 1997 and the related consolidated statements of operations, stockholder's equity (deficit) and cash flows for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997, and have issued our report thereon dated March 21, 1997 (except with respect to the matter discussed in Note 14, as to which the date is April 17, 1997). Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule on page S-2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California March 21, 1997 (except with respect to the matter discussed in Note 14, as to which the date is April 17, 1997) S-1 166 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS 53 WEEKS ENDED FEBRUARY 2, 1997, 52 WEEKS ENDED JANUARY 28, 1996, 31 WEEKS ENDED JANUARY 29, 1995 AND 52 WEEKS ENDED JUNE 25, 1994 (DOLLARS IN THOUSANDS)
PROVISIONS CHARGED BALANCE AT CHARGED TO BALANCE BEGINNING TO INTEREST OTHER AT END OF PERIOD EXPENSE EXPENSE(a) PAYMENTS CHANGES(b) OF PERIOD ---------- ---------- ---------- -------- ---------- --------- Self-insurance liabilities 53 weeks ended February 2, 1997... $ 148,985 $ 29,184 $ 10,818 $49,494 -- $ 139,583 ========= ======== ======== ======== ======== ========= 52 weeks ended January 28, 1996... $ 72,739 $ 32,603 $ 10,287 $42,153 $ 75,509 $ 148,985 ========= ======== ======== ======== ======== ========= 31 weeks ended January 29, 1995... $ 81,704 $ 6,304 $ 3,453 $18,722 $ -- $ 72,739 ========= ======== ======== ======== ======== ========= 52 weeks ended June 25, 1994...... $ 85,494 $ 19,880 $ 5,836 $29,506 $ -- $ 81,704 ========= ======== ======== ======== ======== =========
- --------------- (a) Amortization of discount on self-insurance reserves charged to interest expense. (b) Reflects self-insurance reserve of Ralphs Grocery Company which was acquired on June 14, 1995. S-2 167 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Ralphs Grocery Company: The audits referred to in our report dated March 9, 1995, included the financial statement schedule for the two years ended January 29, 1995, included in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the headings "Selected Historical Financial Data of Ralphs", "Summary of Historical Financial Data of Ralphs" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Los Angeles, California June 5, 1997 S-3 168 RALPHS SUPERMARKETS, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS 52 WEEKS ENDED JANUARY 29, 1995 AND 52 WEEKS ENDED JANUARY 30, 1994 (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
- --------------- (a) Includes short-term portion. (b) Amortization of discount on self-insurance reserves to interest expense. S-4 169 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 3.1 Restated Certificate of Incorporation, as amended, of Ralphs Grocery Company (incorporated herein by reference to Exhibit 3.1 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................................................... 3.2 Restated Bylaws of Ralphs Grocery Company (formerly known as Ralphs Supermarkets, Inc.) (incorporated herein by reference to Exhibit 3.2 of Ralphs Grocery Company's Registration Statement on Form S-4, No. 333-07005, as filed with the Securities and Exchange Commission on June 22, 1996)............................................................... 4.1 Amended and Restated Credit Agreement dated as of April 17, 1997 among Food 4 Less Holdings, Inc., Ralphs Grocery Company, the lenders listed therein and Bankers Trust Company, as agent............................. 4.2.1 Indenture for the 10.45% Senior Notes due 2004, dated as of June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)........................................ 4.2.2 First Supplemental Indenture for the 10.45% Senior Notes due 2004, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein, Crawford Stores, Inc. and Norwest Bank Minnesota, National Association, trustee (incorporated herein by reference to Exhibit 4.4.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)............................... 4.3.1 Indenture for the 11% Senior Subordinated Notes due 2005, dated as of June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.6.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)........................................ 4.3.2 First Supplemental Indenture for the 11% Senior Subordinated Notes due 2005, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein, Crawford Stores, Inc. and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.6.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................... 4.4.1 Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as of July 29, 1992, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.3 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 19, 1992).......................... 4.4.2 First Supplemental Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as of May 30, 1995, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.1 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended April 23, 1995)...................................................................
E-1 170
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 4.4.3 Second Supplemental Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as of June 14, 1995, by and between Ralphs Grocery Company (as successor) and United States Trust Company of New York, as Trustee (incorporated herein by reference to Exhibit 4.7.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).................................................... 4.5.1 Indenture for the 9% Senior Subordinated Notes due 2003, dated as of March 30, 1993, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.1 of Ralphs Grocery Company's Registration Statement on Form S-4, No. 33-61812)................................................. 4.5.2 First Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of June 23, 1993, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2 of Ralphs Grocery Company's Registration Statement on Form S-4, No. 33-61812)....................... 4.5.3 Second Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of May 30, 1995, by and between Ralphs Grocery Company and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.2 of Ralphs Grocery Company's Quarterly Report on Form 10-Q, for the quarter ended April 23, 1995).............. 4.5.4 Third Supplemental Indenture for the 9% Senior Subordinated Notes due 2003, dated as of June 14, 1995, by and between Ralphs Grocery Company (as successor) and United States Trust Company of New York, as trustee (incorporated herein by reference to Exhibit 4.8.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................................................... 4.6.1 Senior Note Indenture, dated as of April 15, 1992, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form S-1, No. 33-46750)............................................................... 4.6.2 First Supplemental Indenture, dated as of July 24, 1992, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.1.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 27, 1992).................................................... 4.6.3 Second Supplemental Indenture for the 10.45% Senior Notes due 2000, dated as of June 14, 1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.9.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)............................... 4.6.4 Third Supplemental Indenture for the 10.45% Senior Notes due 2000, dated as of June 14, 1995, by and among Ralphs Grocery Company (as successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.9.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter year ended July 16, 1995)....................................................
E-2 171
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 4.7 Indenture for the 10.45% Senior Notes due 2004, dated as of June 6, 1996, by and among Ralphs Grocery Company, the subsidiary guarantors identified therein and Norwest Bank Minnesota, National Association, as trustee (incorporated herein by reference to Exhibit 4.9 of Ralphs Grocery Company's Registration Statement on Form S-4, No. 333-07005, as filed with the Securities and Exchange Commission on June 27, 1996)..... 4.8 Indenture for the 11% Senior Subordinated Notes due 2005 dated as of March 26, 1997 by and among Ralphs Grocery Company, the subsidiary guarantors identified therein, and United States Trust Company of New York, as trustee........................................................ 5.1 Opinion of Latham & Watkins regarding the validity of the Exchange Notes and the guarantees of certain of the Subsidiary Guarantors, including consent................................................................. 5.2 Opinion of Clutter, Hinkel & Aadalen, LLP regarding the guarantee of Falley's Inc., including consent........................................ 8 Opinion of Latham & Watkins regarding certain federal income tax matters, including consent.............................................. 10.1 Second Amended and Restated Tax Sharing Agreement dated as of June 14, 1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the subsidiaries of Ralphs Grocery Company (incorporated herein by reference to Exhibit 10.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)................ 10.2 Stockholders Agreement of Food 4 Less Holdings, Inc. dated as of June 14, 1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the investors listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.2 of Food for Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)...... 10.3 Consulting Agreement dated as of June 14, 1995 by and among The Yucaipa Companies, Food 4 Less Holdings, Inc. and Ralphs Grocery Company (incorporated herein by reference to Exhibit 10.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................................................... 10.4 Employment Agreement dated as of June 14, 1995 between Food Less Holdings, Inc., Ralphs Grocery Company and George G. Golleher (incorporated herein by reference to Exhibit 10.11 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).......................................................... 10.5 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Alfred A. Marasca (incorporated herein by reference to Exhibit 10.9 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995).................................... 10.6 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Greg Mays (incorporated herein by reference to Exhibit 10.10 of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)............................................ 10.7 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Harley DeLano (incorporated herein by reference to Exhibit 10.8 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996).....................................
E-3 172
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 10.8 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery Company and Tony Schnug (incorporated herein by reference to Exhibit 10.10 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)..................................... 10.9 Management Stockholders Agreement dated as of June 14, 1995 between Food 4 Less Holdings, Inc. and the management employees listed on the signature pages thereto (incorporated herein by reference to Exhibit 10.12 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)........................................ 10.10 Consulting Agreement dated as of June 27, 1988 by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.38 to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form S-1, No. 33-31152)...................................................... 10.11 Letter Agreement dated as of December 10, 1990 amending Consulting Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit 10.17.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 29, 1991)................................................................... 10.12 Distribution Center Transfer Agreement, dated as of November 1, 1995, by and between Smith's Food & Drug Centers, Inc., a Delaware corporation, and Ralphs Grocery Company, relating to the Riverside, California property (incorporated herein by reference to Exhibit 10.1 to Ralphs Grocery's Company's Quarterly Report on Form 10-Q for the quarter ended October 8, 1995)........................................................ 10.13.1 Ralphs Grocery Company Retirement Supplement Plan, effective as of January 1, 1994 (incorporated herein by reference to Exhibit 10.15.1 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)................................................. 10.13.2 Amendment to the Retirement Supplement Plan, effective as of January 1, 1995 (incorporated herein by reference to Exhibit 10.15.2 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)....................................................... 10.13.3 Second Amendment to the Retirement Supplement Plan, effective as of June 14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery Company Retirement Supplement Plan (incorporated herein by reference to Exhibit 10.15.3 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)............................. 10.14.1 Ralphs Grocery Company Supplemental Executive Retirement Plan, amended and restated as of April 9,1994 (incorporated herein by reference to Exhibit 10.16.1 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)............................. 10.14.2 Amendment to the Amended and Restated Supplemental Executive Retirement Plan, effective as of January 1, 1995 (incorporated herein by reference to Exhibit 10.16.2 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)........................ 10.14.3 Second Amendment to the Supplemental Executive Retirement Plan, dated as of June 14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery Company Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.16.3 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)...................................................................
E-4 173
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ------------------------------------------------------------------------ ------------ 10.14.4 Third Amendment to the Ralphs Grocery Company Supplemental Executive Plan, effective as of July 1, 1995 (incorporated herein by reference to Exhibit 10.16.4 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996)............................. 10.15 Purchase Agreement for the 11% Senior Subordinated Notes due 2005 dated as of March 21, 1997 by and among Ralphs Grocery Company, the subsidiary guarantors identified therein, and BT Securities Corporation, Bankers Trust International, PLC CIBC Wood Gundy Securities Corp., Credit Suisse First Boston, and Donaldson, Lufkin & Jenrette Securities Corporation... 10.16 Registration Rights Agreement for the 11% Senior Subordinated Notes due 2005 dated as of March 26, 1997 by and among Ralphs Grocery Company, the subsidiary guarantors identified therein, and BT Securities Corporation, Bankers Trust International, PLC, CIBC Wood Gundy Securities Corp., Credit Suisse First Boston and Donaldson, Lufkin & Jenrette Securities Corporation............................................................. 12 Computation of Ratio of Earnings to Fixed Charges....................... 21 Subsidiaries (incorporated herein by reference to Exhibit 21 of Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1997)....................................................... 23.1 Consent of Arthur Andersen LLP, independent public accountants.......... 23.2 Consent of KPMG Peat Marwick LLP, independent certified public accountants............................................................. 23.3 Consent of Latham & Watkins (included in the opinions filed as Exhibits 5.1 and 8 to the Registration Statement)................................ 23.4 Consent of Irwin, Clutter & Severson (included in the opinion filed as Exhibit 5.2 to the Registration Statement).............................. 24.1 Power of Attorney of Directors and Officers of Ralphs Grocery Company (included in the signature pages in Part II of the Registration Statement).............................................................. 24.2 Power of Attorney of Directors and Officers of Crawford Stores, Inc. (included in the signature pages in Part II of the Registration Statement).............................................................. 24.3 Power of Attorney of Directors and Officers of Alpha Beta Company (included in the signature pages in Part II of the Registration Statement).............................................................. 24.4 Power of Attorney of Directors and Officers of Falley's, Inc. (included in the signature pages in Part II of the Registration Statement)........ 99.1 Letter of Transmittal with respect to the Exchange Offer................ 99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer........ 99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.....................................................
E-5 EX-4.1 2 AMENDED AND RESTATED CREDIT AGREEMENT 1 EXHIBIT 4.1 ================================================================================ $875,000,000 AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF APRIL 17, 1997 AMONG FOOD 4 LESS HOLDINGS, INC., AS GUARANTOR, RALPHS GROCERY COMPANY, AS BORROWER, THE LENDERS LISTED HEREIN, AS LENDERS, AND BANKERS TRUST COMPANY, AS AGENT ================================================================================ 2 FOOD 4 LESS HOLDINGS, INC. AND RALPHS GROCERY COMPANY AMENDED AND RESTATED CREDIT AGREEMENT TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 2 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 2 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement . . . . . .. . . . 43 1.3 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 43 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 44 2.1 Term Loans and Commitments; Making of Loans; the Register; Notes . . . . . . . . . . . . . . .. . . . 44 2.2 Interest on the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 51 2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 55 2.4 Repayments, Prepayments and Reductions in Revolving Loan Commitments; General Provisions Regarding Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 56 2.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 68 2.6 Special Provisions Governing Eurodollar Rate Loans . . . . . . . . . . . . . . . . . . . . . .. . . . 69 2.7 Increased Costs; Taxes; Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 71 2.8 Obligation of Lenders and Issuing Lenders to Mitigate; Replacement of Lender . . . . . . . . .. . . . 76 SECTION 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 77 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein . . . . . . . . .. . . . 77 3.2 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 81 3.3 Drawings and Reimbursement of Amounts Drawn Under Letters of Credit . . . . . . . . . . . . . .. . . . 81 3.4 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 84 3.5 Indemnification; Nature of Issuing Lenders' Duties . . . . . . . . . . . . . . . . . . . . . .. . . . 85 3.6 Increased Costs and Taxes Relating to Letters of Credit . . . . . . . . . . . . . . . . . . . .. . . . 86 SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 88 4.1 Conditions to Initial Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 88 4.2 Conditions to All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 93 4.3 Conditions to Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 94
i CREDIT AGREEMENT 3 SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries . . . . . . . . . . . . . 95 5.2 Authorization of Borrowing, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 5.3 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 5.4 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 5.5 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 5.6 Litigation; Adverse Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 5.7 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 5.8 Performance of Agreements; Materially Adverse Agreements . . . . . . . . . . . . . . . . . . . . . . . 100 5.9 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5.10 Securities Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5.11 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5.12 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 5.13 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 5.14 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 5.15 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 5.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 5.17 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 5.18 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 6.1 Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 6.2 Corporate Existence, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 6.3 Payment of Taxes and Claims; Tax Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 6.4 Maintenance of Properties; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 6.5 Inspection; Lender Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 6.6 Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 6.7 Environmental Disclosure and Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 6.8 Loan Parties' Remedial Action Regarding Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . 114 6.9 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 6.10 Execution of Guaranty and Collateral Documents by Future Subsidiaries . . . . . . . . . . . . . . . . . 115 6.11 Additional Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 6.12 Redemption of Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 SECTION 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 7.2 Liens and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 7.3 Investments; Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 7.4 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 7.5 Restricted Junior Payments; Other Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . 128 7.6 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions . . . . . . . . . . . . . . . . . . . 133 7.8 Consolidated Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 7.9 Restriction on Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
ii CREDIT AGREEMENT 4 7.10 Sales and Lease-Backs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 7.11 Sale or Discount of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 7.12 Transactions with Shareholders and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 7.13 Disposal of Subsidiary Stock; Restrictions on Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 138 7.14 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 7.15 Amendments of Certain Documents; No Prepayments of Certain Indebtedness . . . . . . . . . . . . . . . . 140 7.16 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 8.1 Failure to Make Payments When Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 8.2 Default in Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 8.3 Breach of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 8.4 Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 8.5 Other Defaults Under Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 142 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 142 8.8 Judgments and Attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.9 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.11 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.12 Invalidity of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.13 Failure of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 8.14 Action Under Related Financing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 SECTION 9. HOLDINGS GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 9.1 Guarantied Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 9.2 Terms of Holdings Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 SECTION 10. AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 10.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 10.2 Powers; General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 10.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness . . . . . . . . . . 152 10.4 Right to Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 10.5 Successor Agent and Swing Line Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 10.6 Guaranties and Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 11.1 Assignments and Participations in Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . 153 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 11.3 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 11.4 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 11.5 Ratable Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 11.6 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
iii CREDIT AGREEMENT 5 11.7 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 11.9 Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . . . . . . 161 11.10 Failure or Indulgence Not Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . 161 11.11 Marshalling; Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 11.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 11.13 Obligations Several; Independent Nature of Lenders' Rights . . . . . . . . . . . . . . . . . . . . . . 162 11.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 11.15 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 11.16 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 11.17 Consent to Jurisdiction and Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 11.18 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 11.19 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 11.20 Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Signature pages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
iv CREDIT AGREEMENT 6 EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF REQUEST FOR LETTER OF CREDIT IV FORM OF TRANCHE A TERM NOTE V FORM OF TRANCHE B TERM NOTE VI FORM OF REVOLVING NOTE VII FORM OF SWING LINE NOTE VIII FORM OF COMPLIANCE CERTIFICATE IX FORM OF GUARANTY X FORM OF PLEDGE AGREEMENT XI FORM OF SECURITY AGREEMENT XII FORM OF TRADEMARK SECURITY AGREEMENT XIII FORM OF DEED OF TRUST XIV FORM OF DEPOSIT ACCOUNTS SECURITY AGREEMENT XV-A FORM OF OPINION OF LATHAM & WATKINS XV-B FORM OF OPINION OF WAYNE BELL, ESQ. XV-C FORM OF OPINION OF KANSAS COUNSEL XVI FORM OF OPINION OF O'MELVENY & MYERS LLP XVII FORM OF ASSIGNMENT AGREEMENT XVIII FORM OF AUDITOR'S LETTER XIX FORM OF FINANCIAL CONDITION CERTIFICATE XX FORM OF MASTER ASSIGNMENT AGREEMENT XXI FORM OF ACKNOWLEDGEMENT AND CONSENT v CREDIT AGREEMENT 7 SCHEDULES 1.1A EXISTING LETTERS OF CREDIT 1.1B PLANNED DISPOSITIONS 1.1C SELECTED ASSETS 1.1D PLANNED IMPROVEMENT PROPERTIES 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 4.1F REAL PROPERTY ASSETS 5.1 HOLDINGS AND SUBSIDIARIES OF HOLDINGS 5.3 CERTAIN ACCOUNTING MATTERS 5.11 ERISA MATTERS 5.12 BROKER'S OR FINDER'S FEES 5.13 ENVIRONMENTAL MATTERS 5.17 INTELLECTUAL PROPERTY 5.18 CERTAIN MATTERS RELATING TO PERMITS 7.1 EXISTING INDEBTEDNESS 7.2 EXISTING LIENS 7.3 EXISTING INVESTMENTS 7.4 EXISTING CONTINGENT OBLIGATIONS vi CREDIT AGREEMENT 8 DEFINITIONS A. CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings: "ADAMS/VERMONT PARTNERSHIP" means Adams/Vermont Renaissance Plaza, Ltd., a California limited partnership in which Company holds a 75% partnership interest, as a general partner, which partnership was formed to develop a shopping center located at Adams and Vermont Streets in Los Angeles, California, including a store to be leased to or operated by Company or one of its Subsidiaries. "ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum obtained by dividing (i) the arithmetic average (rounded upward to the nearest 1/16 of one percent) of the offered quotation, if any, to first class banks in the interbank Eurodollar market by each of the Reference Lenders for U.S. Dollar deposits of amounts in same day funds comparable to the principal amount of the Eurodollar Rate Loan of that Reference Lender for which the Adjusted Eurodollar Rate is then being determined with maturities comparable to such Interest Period as of approximately 10:00 A.M. (New York City time) on such Interest Rate Determination Date by (ii) a percentage equal to 100% minus the stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable on such Interest Rate Determination Date to any member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" as defined in Regulation D (or any successor category of liabilities under Regulation D); provided that if any Reference Lender fails to provide Agent with its aforementioned quotation then the Adjusted Eurodollar Rate shall be determined based on the quotation(s) provided to Agent by the other Reference Lender(s). "AFFECTED LENDER" has the meaning assigned to that term in subsection 2.6C. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means (i) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise, or (ii) the ownership of more than 10% of the voting securities of that Person; provided that Bankers Trust New York Corporation and each of its Affiliates (as defined above) shall not be considered to be an "Affiliate" of Holdings or any of its Subsidiaries. "AGENT" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor administrative agent appointed pursuant to subsection 10.5A. 9 "AGREEMENT" means this Amended and Restated Credit Agreement dated as of April 17, 1997, as it may be amended, supplemented or otherwise modified from time to time. "ALPHA BETA" means Alpha Beta Company, a California corporation. "AMOUNT OF UNFUNDED BENEFIT LIABILITY" means, with respect to any Pension Plan, (i) if set forth on the most recent actuarial valuation report with respect to such Pension Plan, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA) and (ii) otherwise, the excess of (a) the greater of the current liability (as defined in Section 412(1)(7) of the Internal Revenue Code) or the actuarial present value of the accrued benefits with respect to such Pension Plan over (b) the market value of the assets of such Pension Plan. "APPLICABLE TRANCHE A BASE RATE MARGIN" means, as of any date of determination, a percentage per annum set forth below opposite the applicable Leverage Ratio; provided that for the period from the Effective Date until the first delivery after the Effective Date of a Margin Determination Certificate pursuant to subsection 6.1(xviii), the Applicable Tranche A Base Rate Margin shall be 0.75% per annum; provided further that, if Company has failed to provide a Margin Determination Certificate at the time required pursuant to subsection 6.1, the Applicable Tranche A Base Rate Margin shall be 1.25% per annum for the period from the date such Margin Determination Certificate was required to be delivered until such Margin Determination Certificate is actually delivered:
LEVERAGE RATIO APPLICABLE TRANCHE A BASE RATE MARGIN greater than 6.5:1.0 1.25% less than or equal to 6.5:1.0 1.00% but greater than 6.0:1.0 less than or equal to 6.0:1.0 0.75% but greater than 5.5:1.0 less than or equal to 5.5:1.0 0.625% but greater than 5.0:1.0 less than or equal to 5.0:1.0 0.50% but greater than 4.75:1.0 less than or equal to 4.75:1.0 0.375% but greater than 4.5:1.0 less than or equal to 4.5:1.0 0.25%
"APPLICABLE TRANCHE A EURODOLLAR MARGIN" means, as of any date of determination, a percentage per annum set forth below opposite the applicable Leverage Ratio; provided that for the period from the Effective Date until the first delivery after the Effective Date of a Margin Determination Certificate pursuant to subsection 6.1(xviii), the Applicable Tranche A Eurodollar Margin shall be 1.75% per annum; provided further that, if 10 Company has failed to provide a Margin Determination Certificate at the time required pursuant to subsection 6.1, the Applicable Tranche A Eurodollar Margin shall be 2.25% per annum for the period from the date such Margin Determination Certificate was required to be delivered until such Margin Determination Certificate is actually delivered:
LEVERAGE RATIO APPLICABLE TRANCHE A EURODOLLAR RATE MARGIN greater than 6.5:1.0 2.25% less than or equal to 6.5:1.0 2.00% but greater than 6.0:1.0 less than or equal to 6.0:1.0 1.75% but greater than 5.5:1.0 less than or equal to 5.5:1.0 1.625% but greater than 5.0:1.0 less than or equal to 5.0:1.0 1.50% but greater than 4.75:1.0 less than or equal to 4.75:1.0 1.375% but greater than 4.5:1.0 less than or equal to 4.5:1.0 1.25%
"APPLICABLE TRANCHE B BASE RATE MARGIN" means, as of any date of determination, a percentage per annum set forth below opposite the applicable Leverage Ratio; provided that for the period from the Effective Date until the first delivery after the Effective Date of a Margin Determination Certificate pursuant to subsection 6.1(xviii), the Applicable Tranche B Base Rate Margin shall be 1.25% per annum; provided further that if Company has failed to provide a Margin Determination Certificate at the time required pursuant to subsection 6.1, the Applicable Tranche B Base Rate Margin shall be 1.75% per annum for the period from the date such Margin Determination Certificate was required to be delivered until such Margin Determination Certificate is actually delivered: 11
LEVERAGE RATIO APPLICABLE TRANCHE B BASE RATE MARGIN greater than 6.5:1.0 1.75% less than or equal to 6.5:1.0 1.50% but greater than 6.0:1.0 less than or equal to 6.0:1.0 1.25% but greater than 5.5:1.0 less than or equal to 5.5:1.0 1.125% but greater than 5.0:1.0 less than or equal to 5.0:1.0 1.00% but greater than 4.75:1.0 less than or equal to 4.75:1.0 0.875% but greater than 4.5:1.0 less than or equal to 4.5:1.0 0.75%
"APPLICABLE TRANCHE B EURODOLLAR MARGIN" means, as of any date of determination, a percentage per annum set forth below opposite the applicable Leverage Ratio; provided that for the period from the Effective Date until the first delivery after the Effective Date of a Margin Determination Certificate pursuant to subsection 6.1(xviii), the Applicable Tranche B Eurodollar Margin shall be 2.25% per annum; provided further that if Company has failed to provide a Margin Determination Certificate at the time required pursuant to subsection 6.1, the Applicable Tranche B Eurodollar Margin shall be 2.75% per annum for the period from the date such Margin Determination Certificate was required to be delivered until such Margin Determination Certificate is actually delivered: 12
LEVERAGE RATIO APPLICABLE TRANCHE B EURODOLLAR RATE MARGIN greater than 6.5:1.0 2.75% less than or equal to 6.5:1.0 2.50% but greater than 6.0:1.0 less than or equal to 6.0:1.0 2.25% but greater than 5.5:1.0 less than or equal to 5.5:1.0 2.125% but greater than 5.0:1.0 less than or equal to 5.0:1.0 2.00% but greater than 4.75:1.0 less than or equal to 4.75:1.0 1.875% but greater than 4.5:1.0 less than or equal to 4.5:1.0 1.75%
"ASSET SALE" means (i) the sale, lease, assignment or other transfer (whether voluntary or involuntary) for value (collectively, a "transfer") by Company or any of its Subsidiaries to any Person other than Company or any of its wholly-owned Subsidiaries of (a) any of the stock of any of Company's Subsidiaries, (b) substantially all of the assets of any division or line of business of Company or any of its Subsidiaries, or (c) any other assets (whether tangible or intangible) of Company or any of its Subsidiaries, excluding (1) any Cash Equivalents or inventory sold in the ordinary course of business, (2) any such transfer to the extent that the aggregate value of the stock or assets transferred in any single transaction or related series of transactions is equal to $100,000 or less, or $1,000,000 or less in the aggregate in any Fiscal Year for all such excluded transfers and all excluded occurrences described in clause (ii) below, and (3) any transfer in an arm's-length transaction by Company or a Subsidiary of Company to a Developer of a Development Site constituting a Development Investment permitted under subsection 7.3(vii), or (ii) the occurrence of any complete or partial loss, damage or destruction of any assets of Company or any of its Subsidiaries giving rise to insurance proceeds, excluding any such occurrence to the extent that the aggregate value of the assets lost, destroyed or damaged in any single occurrence or related series of occurrences is equal to $100,000 or less, or $1,000,000 or less in the aggregate in any Fiscal Year for all such excluded occurrences and all excluded transfers described in clause (i)(2) above. "ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the form of Exhibit XVII annexed hereto. "AUDITOR'S LETTER" means a letter, substantially in the form of Exhibit XVIII annexed hereto, acknowledged and agreed to by Company and Arthur Andersen LLP, which shall be delivered to Agent pursuant to subsection 4.1M. 13 "BANKERS" has the meaning assigned to that term in the introduction to this Agreement. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BASE RATE" means, at any time, the higher of (x) the Prime Rate or (y) the rate which is .50% per annum in excess of the Federal Funds Effective Rate. "BASE RATE LOANS" means Loans bearing interest at rates determined by reference to the Base Rate as provided in subsection 2.2A. "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or the State of California or is a day on which banking institutions located in the State of New York or in the State of California are authorized or required by law or other governmental action to close. "CALA" means Cala Co., a Delaware corporation. "CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is required to be accounted for as a capital lease on the balance sheet of that Person. "CASH" means money, currency or a credit balance in a Deposit Account. "CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, the highest rating obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; (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 $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's; and (vi) repurchase agreements with respect to, and which are fully secured by a security interest in, obligations of the type described in clause (i) or clause (ii) above and are with any commercial bank described in clause (iv) above. 14 "CASH PROCEEDS" means, with respect to any Asset Sale, Cash payments (including any Cash received by way of deferred payment pursuant to, or monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale. "CERTIFICATE RE NON-BANK STATUS" means a certificate in form and substance satisfactory to Agent delivered by a Lender to Agent pursuant to subsection 2.7B(iii) pursuant to which such Lender certifies that it is not (i) a "bank" as such term is defined in subsection 881(c)(3) of the Internal Revenue Code; (ii) a 10 percent shareholder of Company within the meaning of Section 871(h)(3)(B) or Section 881(c)(3)(B) of the Internal Revenue Code; or (iii) a "controlled" foreign corporation related to Company within the meaning of Section 864(d)(4) of the Internal Revenue Code. "CHANGE OF CONTROL" means any of (a) the failure at any time of Ronald W. Burkle (other than as a result of death or incapacity) to have economic ownership of, directly or indirectly (including through his ownership interest in the Yucaipa Investors), a percentage (calculated without regard to any dilution resulting from (i) the accretion on the Holdings Preferred Stock, (ii) the exercise of warrants to purchase Holdings Voting Stock which were outstanding on the Closing Date; provided, however, that in the event any such warrant (of which Ronald W. Burkle had direct or indirect economic ownership on the Closing Date) is exercised, in addition to the percentage of Holdings Voting Stock otherwise required to be maintained under this clause (a), Ronald W. Burkle shall continue to have economic ownership of, directly or indirectly (including through his ownership interest in the Yucaipa Investors), at least 50% of the number of shares of Holdings Voting Stock in which he had such economic interest under such warrant on the Closing Date, or (iii) the exercise of employee stock options) of issued and outstanding shares of Holdings Voting Stock, which percentage shall be at least 50% of the percentage of the issued and outstanding Holdings Voting Stock economically owned, directly or indirectly (including through his ownership interest in the Yucaipa Investors), by Ronald W. Burkle on the Closing Date, (b) the failure at any time of Yucaipa and the Yucaipa Investors collectively to beneficially own and control and to have economic ownership of, directly or indirectly, a percentage (calculated without regard to any dilution resulting from (i) the accretion on the Holdings Preferred Stock, (ii) the exercise of warrants to purchase Holdings Voting Stock which were outstanding on the Closing Date; provided, however, that in the event any such warrant (of which the Yucaipa Investors had direct or indirect economic ownership on the Closing Date) is exercised, in addition to the percentage of Holdings Voting Stock otherwise required to be maintained under this clause (b), Yucaipa and the Yucaipa Investors collectively shall continue to have economic ownership of, directly or indirectly, at least 50% of the number of shares of Holdings Voting Stock in which they had such economic interest under such warrant on the Closing Date, or (iii) the exercise of employee stock options) of issued and outstanding Holdings Voting Stock, which percentage shall be at least 50% of the percentage of the issued and outstanding Holdings Voting Stock beneficially owned and controlled or economically owned, directly or indirectly, by Yucaipa and the Yucaipa Investors collectively on the Closing Date, (c) the failure at any time of Ronald W. Burkle, directly or indirectly, to have the ability to elect a majority of the members of the Board of Directors of Holdings and of Company; provided that no Change in Control shall be deemed to have occurred under this clause (c) as a result of the death or incapacity of Ronald W. Burkle for a period of 60 days after such death or incapacity, (d) the failure at any time of Holdings to 15 beneficially own and control 100% of the issued and outstanding shares of capital stock of Company or the failure at any time of Holdings to have the ability to elect all of the Board of Directors of Company, or (e) the occurrence of any "Change of Control" as defined in any of the Subordinated Debt Indentures or the Senior Debt Indentures. As used herein, the term "beneficially own" or "beneficial ownership" shall have the meaning set forth in the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "CLASS" means, with respect to Lenders, each class of Lenders under this Agreement, with there being two separate classes of Lenders, i.e., (i) Lenders having Term Loan Exposure with respect to Tranche A Term Loans and/or Revolving Loan Exposure (taken together as a single class) and (ii) Lenders having Term Loan Exposure with respect to Tranche B Term Loans. "CLOSING DATE" means June 14, 1995, the date on which the initial Loans were made. "CO-AGENTS" has the meaning assigned to that term in the introduction to this Agreement. "COLLATERAL" means all the real, personal and mixed property made subject to a Lien pursuant to the Collateral Documents. "COLLATERAL ACCOUNT" has the meaning assigned to that term in the Collateral Account Agreement. "COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account Agreement executed and delivered by Company and Agent on the Closing Date, pursuant to which Company may pledge cash to Agent to secure the obligations of Company to reimburse Issuing Lenders for payments made under one or more Letters of Credit as provided in Section 8, as such Collateral Account Agreement may be amended, supplemented or otherwise modified from time to time. "COLLATERAL DOCUMENTS" means the Holdings Pledge Agreement, the Pledge Agreements, the Security Agreement, the Trademark Security Agreement, the Deposit Accounts Security Agreement, the Deeds of Trust, the F4L GM Security Agreement, the Collateral Account Agreement and all other instruments or documents delivered by Holdings, Company or any of Company's Subsidiaries in order to grant to Agent for the benefit of Lenders Liens on any of their respective property. "COMMERCIAL LETTER OF CREDIT" means any letter of credit or similar instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by Company or any of its Subsidiaries in the ordinary course of business of Company or such Subsidiary. "COMMITMENT FEE PERCENTAGE" means, as of any date of determination, a percentage per annum set forth below opposite the applicable Leverage Ratio; provided that for the period from the Effective Date until the first delivery after the Effective Date of a 16 Margin Determination Certificate pursuant to subsection 6.1(xviii), the Commitment Fee Percentage shall be 0.500% per annum; provided further that if Company has failed to provide a Margin Determination Certificate at the time required pursuant to subsection 6.1, the Commitment Fee Percentage shall be 0.500% per annum for the period from the date such Margin Determination Certificate was required to be delivered until such Margin Determination Certificate is actually delivered:
LEVERAGE RATIO COMMITMENT FEE PERCENTAGE greater than 5.5:1.0 0.500% less than or equal to 5.5:1.0 0.425% but greater than 5.0:1.0 less than or equal to 5.0:1.0 0.375% but greater than 4.5:1.0 less than or equal to 4.5:1.0 0.325%
"COMMITMENTS" means the commitments of Lenders to make Loans as set forth in subsection 2.1A. "COMPANY" has the meaning assigned to that term in the preamble to this Agreement. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit VIII annexed hereto delivered to Agent and Lenders by Company pursuant to subsection 6.1(iv). "CONSOLIDATED ADJUSTED EBITDA" means, for any period, without duplication, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Cash Interest Expense, (iii) provisions for taxes based on income, (iv) total depreciation expense, (v) total amortization expense, (vi) Restructuring Charges, (vii) Smith's-Related Restructuring Charges and (viii) other non-cash items reducing Consolidated Net Income less other non-cash items increasing Consolidated Net Income, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, an amount equal to (i) the sum of (a) the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) by Company and its Subsidiaries during that period that, in conformity with GAAP, are included in "property, plant or equipment" or comparable items reflected in the consolidated balance sheets of Company and its Subsidiaries plus (b) to the extent not covered by clause (i)(a) of this definition, the aggregate of all expenditures by Company and its Subsidiaries during that period to acquire (by purchase or otherwise) the business, property or fixed assets (other than current assets consisting of inventory or accounts receivable) of any Person, or the stock or 17 other evidence of beneficial ownership of any Person that, as a result of such acquisition, becomes a Subsidiary of Company minus (ii) the sum (without duplication) of (a) Consolidated Capital Expenditures (as defined in clause (i) above) constituting Development Investments permitted under subsection 7.3(vii), (b) the principal amounts of Indebtedness permitted under subsections 7.1(iii) and 7.1(viii), (c) an amount equal to the proceeds received by Company or any of its Subsidiaries from a sale-leaseback transaction of a store or equipment permitted under subsection 7.10 so long as such transaction occurs within 270 days of the completion of such store or acquisition of such equipment and to the extent prior expenditures, up to an equivalent amount for the asset so sold and leased back, constituted Consolidated Capital Expenditures (as defined above) in such period or in any prior period, and (d) expenditures in an amount not to exceed the proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments received from third parties, so long as such expenditures were made for purposes permitted pursuant to subsection 2.4B(iii)(a)(v) and so long as such expenditures are made not later than 18 months after receipt of such proceeds. "CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, total interest expense net of any interest income received in Cash by Company or any of its Subsidiaries (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, plus all dividends on capital stock of Company paid or payable in Cash and used by Holdings to pay interest on Indebtedness of Holdings, including without limitation the Holdings Discount Debentures and the Seller Debentures, but excluding, however, (i) any amounts referred to in subsection 2.3 payable to Agent and Lenders on or before the Effective Date and (ii) any interest expenses not payable in Cash (including amortization of discounts and premiums and amortization of debt issuance costs). "CONSOLIDATED EXCESS CASH FLOW" means, for any Fiscal Year, an amount equal to (i) the sum (without duplication) of the amounts for such Fiscal Year of (a) Consolidated Net Income, (b) any after-tax gains attributable to returned surplus assets of any Pension Plan, (c) the amount of Net Cash Proceeds of Asset Sales received in such Fiscal Year that are not otherwise included in Consolidated Net Income and that are required to be used to prepay the Term Loans and/or permanently reduce the Revolving Loan Commitments pursuant to subsection 2.4B(iii)(a), but excluding amounts returned to Company pursuant to the last sentence of subsection 2.4B(iv)(b) which are not used by Company to prepay the Term Loans and/or permanently reduce the Revolving Loan Commitments, (d) the aggregate amount of Cash proceeds (net of underwriting discounts, similar placement fees and commissions and other reasonable costs and expenses associated therewith) from the issuance after the Closing Date of any debt or equity Securities of Holdings or any of its Subsidiaries that are required to be used to prepay the Loans pursuant to subsections 2.4B(iii)(b) or 2.4B(iii)(c), as the case may be, but excluding amounts returned to Company pursuant to the last sentence of subsection 2.4B(iv)(b) which are not used by Company to prepay the Terms Loans and/or permanently reduce the Revolving Loan Commitments, (e) consolidated depreciation and amortization expense for such Fiscal Year, (f) other non-cash charges reducing Consolidated Net Income, including the net decrease (if any) in deferred tax assets 18 and the net increase (if any) in deferred tax liabilities of Company and its Subsidiaries, (g) (to the extent not included in Consolidated Net Income) any cash extraordinary gains, (h) an amount equal to the Net Cash Proceeds of Asset Sales excluded from mandatory prepayments required to be made under subsection 2.4B(iii)(a) pursuant to clauses (i), (ii) and (iv) of the first proviso thereof; provided that such Net Asset Sale Proceeds which meet the following requirements ("Excluded Proceeds") shall not be added pursuant to this clause (h): (x) they have not been reinvested as permitted pursuant to such clauses (i), (ii) and (iv) and (y) the period for permitted reinvestment pursuant to such clauses (i), (ii) and (iv) extends beyond the last date of the Fiscal Year, (i) all Cash proceeds received by Company or any of its Subsidiaries in payment or repayment of any Development Investment previously made by Company or such Subsidiary and (j) an amount equal to the Excluded Proceeds from the previous Fiscal Year; minus (ii) the sum (without duplication) of the amounts for such Fiscal Year of (a) Consolidated Capital Expenditures permitted under subsection 7.8 made during such Fiscal Year, (b) payments of principal made in respect of any outstanding Indebtedness of Company or any of its Subsidiaries to the extent such payments are permanent reductions in Funded Debt and not prohibited under subsection 7.5, (c) the net increase (if any) in deferred tax assets and the net decrease (if any) in deferred tax liabilities, (d) the amount of all Development Investments paid or payable in cash permitted under subsection 7.3(vii) made during such Fiscal Year and (e) other non-cash charges increasing Consolidated Net Income, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP. "CONSOLIDATED FIXED CHARGES" means, without duplication, for any period, the sum of the amounts for such period of (i) Consolidated Cash Interest Expense, (ii) Consolidated Rental Payments, and (iii) scheduled principal payments attributable to Capital Leases of Company and its Subsidiaries, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP after deductions for (a) the aggregate dividends paid by Company to Holdings with respect to capital stock of Company during such period or during any prior period to the extent that such dividends are or were used by Holdings to pay amounts recognized as expenses by Holdings during such period in conformity with GAAP and (b) to the extent not included in the immediately preceding clause (a), the aggregate dividends paid by Company to Holdings with respect to capital stock of Company during such period to the extent that such dividends are used by Holdings to pay interest on Indebtedness of Holdings, including without limitation the Holdings Discount Debentures and the Seller Debentures; provided that there shall be excluded (i) the income (or loss) of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person's assets are acquired by Company or any of its Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any 19 agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (v) (to the extent not included in clauses (i) through (iv) above) any net extraordinary gains or net non-cash extraordinary losses. "CONSOLIDATED NET WORTH" means, as at any date of determination, without duplication, the sum of (i) the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficits) of Company and its Subsidiaries on a consolidated basis determined in conformity with GAAP, (ii) the after tax impact (if any) of the cumulative amount of Restructuring Charges incurred or reflected subsequent to the Closing Date, (iii) the amount, not to exceed $50,000,000, for the write-off of goodwill taken by Company and its Subsidiaries on a consolidated basis determined in conformity with GAAP, (iv) to the extent that the net value of the capital stock of Holdings held by any employee stock ownership plan of Company or any of its Subsidiaries as shown on the consolidated balance sheet of Company and its Subsidiaries is not included in clause (i) above, such net value and (v) the after tax impact (if any) of the Smith's-Related Restructuring Charges; provided that for purposes of this definition, notwithstanding any adjustment made or required to be made after the Closing Date as a result of the receipt on the Closing Date of debt Securities of Holdings by the selling stockholders of Ralphs Supermarkets, Inc. and the other Persons receiving such debt Securities on such date, (a) the value assigned to the Seller Debentures, and to any capital contribution made by Holdings to Company on the Closing Date the amount of which is calculated with reference to the value of the Seller Debentures, will be $131,500,000 (as adjusted from time to time pursuant to any adjustments required to be made after the Closing Date other than as a result of the receipt on the Closing Date of debt Securities of Holdings by such selling stockholders and the other Persons receiving such debt Securities on the such date) and (b) the value assigned to the Holdings Discount Debentures, and to any capital contribution made to Company by Holdings on the Closing Date the amount of which is calculated with reference to the value of the Holdings Discount Debentures, will be $100,000,000 (as adjusted from time to time pursuant to any adjustments required to be made after the Closing Date other than as a result of the receipt on the Closing Date of debt Securities of Holdings by such selling stockholders and the other Persons receiving such debt Securities on such date). "CONSOLIDATED RENTAL PAYMENTS" means, for any period, the aggregate amount of all rents paid or payable by Company and its Subsidiaries on a consolidated basis during that period under all Operating Leases to which Company or any of its Subsidiaries is a party as lessee (net of sublease income). "CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that through and including April 30, 1997, the 1992 13.75% Senior Subordinated Notes and the 1995 13.75% Senior Subordinated Notes shall not be included as Indebtedness of Company for purposes of any calculation of Company's Consolidated Total Debt. "CONSULTING AGREEMENT" means that certain Consulting Agreement dated as of the Closing Date among Holdings, Company and Yucaipa, as such Consulting Agreement 20 may be amended from time to time after the Closing Date to the extent permitted under subsection 7.15A. "CONTINGENT OBLIGATION", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Interest Rate Agreements and Currency Agreements. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. "CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "COVERED REAL PROPERTY" has the meaning assigned to that term in subsection 6.11. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement designed to protect Company or any of its Subsidiaries against fluctuations in currency values. "DEED OF TRUST" means each Deed of Trust executed and delivered by any Loan Party on the Closing Date and each other deed of trust, mortgage, security agreement and fixture filing relating to any fee or leasehold interest of any Loan Party in real property substantially in the form of Exhibit XIII annexed hereto, in each case (i) with appropriate insertions and deletions based upon the nature of the real property interest (i.e., fee or leasehold) to be encumbered thereby and (ii) containing such schedules and including such additional provisions and other deviations from such Exhibit as are satisfactory to Agent and 21 not inconsistent with the provisions of subsection 6.11 or as are necessary to conform such Exhibit to applicable local law, and which shall be dated the date of delivery thereof and made by such Loan Party as trustor or mortgagor, as the case may be, in favor of Agent, as beneficiary or mortgagee, delivered for the purpose of securing all Obligations hereunder, as the same may be amended, supplemented or otherwise modified from time to time. "DEFERRED TRADE PAYABLES" means promissory notes (whether interest bearing or non-interest bearing) executed by Company or any of its Subsidiaries in favor of such entity's suppliers to finance the purchase price and delivery costs of inventory in connection with such entity's opening or acquisition of new stores or remodeling of existing stores. "DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "DEPOSIT ACCOUNTS SECURITY AGREEMENT" means each Deposit Accounts Security Agreement executed and delivered by Company and certain of Company's Subsidiaries on the Closing Date and each other Deposit Accounts Security Agreement substantially in the form of Exhibit XIV annexed hereto, to be executed and delivered by Subsidiaries of Company from time to time in accordance with subsection 6.10, pursuant to which Company and such Subsidiaries shall grant to Agent a security interest in all of its Deposit Accounts maintained with commercial banks or other depository institutions located in California or in any other jurisdiction which permits the perfection of a security interest in Deposit Accounts by notifying the institution that maintains the Deposit Accounts of such security interest, as each such Deposit Accounts Security Agreement may be amended, supplemented or otherwise modified from time to time, and "DEPOSIT ACCOUNTS SECURITY AGREEMENTS" means all such Deposit Account Security Agreements, collectively. "DEVELOPER" means any Person which owns, leases or otherwise controls or intends to acquire an interest in a Development Site. "DEVELOPMENT INVESTMENT" means (a) a loan by Company or a Subsidiary of Company to a Developer, the proceeds of which are to be used to finance a Development Project of such Developer, (b) a cash contribution by Company or a Subsidiary of Company to the capital of a Developer, the proceeds of which are to be used to finance a Development Project of such Developer, or (c) a contribution by Company or a Subsidiary of Company to the capital of a Developer of an interest of Company or such Subsidiary in a Development Site. The amount of any Development Investment shall be the amount of cash loaned or contributed to a Developer for the purpose specified above or the fair market value of the interest of a Development Site contributed to the capital of a Developer, which fair market value shall be determined, without regard to the proposed investment, at the time of such contribution in good faith by resolution of the Board of Directors of Company, in each case minus the amount of cash received by Company or any of its Subsidiaries in repayment of such Development Investment. "DEVELOPMENT PROJECT" means a project for the development by or at the direction of a Developer of a Development Site, including the construction, remodeling, 22 expansion or renovation of a store thereon, which store is to be leased to and operated by Company or one of its Subsidiaries. "DEVELOPMENT SITE" means real property which is identified by Company or one of its Subsidiaries as the intended location for a store or a shopping center and related improvements to be constructed, remodeled, expanded or renovated by or at the direction of the Developer thereof, which in each case shall include a store intended to be leased to and operated by Company or one of its Subsidiaries. "DOLLARS" and the sign "$" mean the lawful money of the United States of America. "EFFECTIVE DATE" means the date on or before May 31, 1997 which the conditions precedent to the purchase of the Loans and the making of the initial Revolving Loans set forth in subsection 4.1 are satisfied. "ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized under the laws of the United States or any state thereof; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (iii) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (x) such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iv) any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including, but not limited to, insurance companies, mutual funds and lease financing companies, in each case (under clauses (i) through (iv) above) that is reasonably acceptable to Agent; and (B) any Lender and any Affiliate of any Lender and, with respect to any Lender that is a fund that invests in loans, any other fund that invests in loans and is managed by the same investment advisor of such Lender or by an Affiliate of such investment advisor; provided that no Affiliate of Company shall be an Eligible Assignee. "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA (i) which is, or, at any time within the five calendar years immediately preceding the date hereof, was at any time, maintained or contributed to by the Loan Parties or any of their respective ERISA Affiliates or (ii) with respect to which any Loan Party retains any liability, including any potential joint and several liability as a result of an affiliation with an ERISA Affiliate or a party that would be an ERISA Affiliate except for the fact the affiliation ceased more than five calendar years prior to the date hereof. "ENVIRONMENTAL CLAIM" means any accusation, allegation, notice of violation, claim, demand, abatement order or other order or direction (conditional or otherwise) by any governmental authority or any Person for any damage, including, without limitation, personal injury (including sickness, disease or death), tangible or intangible property damage, contribution, indemnity, indirect or consequential damages, damage to the environment, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restrictions, in each case relating to, resulting from or in connection with 23 Hazardous Materials and relating to Company, any of its Subsidiaries, any of their respective Affiliates or any Facility. "ENVIRONMENTAL INDEMNITY" means the Environmental Indemnity executed and delivered by Company on the Closing Date, as such Environmental Indemnity may be amended, supplemented or otherwise modified from time to time. "ENVIRONMENTAL LAWS" means all statutes, ordinances, orders, rules, regulations, plans, policies or decrees and the like relating to (i) environmental matters, including, without limitation, those relating to fines, injunctions, penalties, damages, contribution, cost recovery compensation, losses or injuries resulting from the Release or threatened Release of Hazardous Materials, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any of their respective properties, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), each as amended or supplemented, and any analogous future or present local, state and federal statutes and regulations promulgated pursuant thereto, each as in effect as of the date of determination. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA AFFILIATE", as applied to any Person, means (i) any corporation which is, or was at any time within the five calendar years immediately preceding the date hereof, a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is, or was at any time within the five calendar years immediately preceding the date hereof, a member; (ii) any trade or business (whether or not incorporated) which is, or was at any time within the five calendar years immediately preceding the date hereof, a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is, or was at any time within the five calendar years immediately preceding the date hereof, a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is, or was at any time within the five calendar years immediately preceding the date hereof, a member. "ERISA EVENT" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the 24 Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by any of the Loan Parties or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Sections 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on any of the Loan Parties or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal by any of the Loan Parties or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by any of the Loan Parties or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could reasonably be expected to give rise to the imposition on any of the Loan Parties or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against any of the Loan Parties or any of their respective ERISA Affiliates in connection with any such Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "EURODOLLAR RATE LOANS" means Loans bearing interest at rates determined by reference to the Adjusted Eurodollar Rate as provided in subsection 2.2A. "EVENT OF DEFAULT" means each of the events set forth in Section 8. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "EXCLUDED SITE" means, as of any date, provided that there shall not then exist a Potential Event of Default or an Event of Default, all of the following, excluding any fee interest in Real Property Assets on which Agent shall have been granted a Lien in accordance with the terms hereof: (a) any fee interest in undeveloped land acquired by 25 Company or any of its Subsidiaries for the development of a grocery store, so long as less than a year has elapsed since the date such fee interest was first acquired by Company or any of its Subsidiaries (the "Acquisition Date"), (b) any fee interest in Real Property Assets owned by Company or any of its Subsidiaries consisting of a grocery store under construction, so long as less than a year has elapsed since the date such construction commenced, and (c) any fee interest in a grocery store, the construction of which is complete, which fee interest was not previously a Covered Real Property, so long as not more than 180 days has elapsed since the date of completion of such construction; provided that the maximum length of time that a property may be characterized as an Excluded Site is two years from its Acquisition Date; provided further that if on any date there are more than five (5) properties that meet the foregoing definition of "Excluded Site", only the five (5) such properties with the earliest Acquisition Dates (and on which Agent shall not have been granted a Lien in accordance with the terms hereof) shall constitute "Excluded Sites". "EXCLUDED SITE" shall also include any Real Property Asset located outside of California, so long as Agent has been notified by Company in writing of the nature and address of such Real Property Asset and of the amount of expenditures made or to be made to acquire or develop such Real Property Asset and Agent has not requested a Deed of Trust with respect thereto. There shall be no limitation on the number of Real Property Assets constituting Excluded Sites pursuant to the foregoing sentence. "EXISTING CREDIT AGREEMENT" has the meaning assigned to that term in the introduction to this Agreement. "EXISTING LETTERS OF CREDIT" means the Letters of Credit listed on Schedule 1.1A annexed hereto. "F4L GM SECURITY AGREEMENT" means the Security Agreement executed and delivered on the Closing Date by Food 4 Less GM, Inc., a California corporation, pursuant to which Food 4 Less GM, Inc. grants a security interest in its general partnership interest in Golden Alliance to Agent, as such Security Agreement may be amended, supplemented or otherwise modified from time to time. "F4L MERCHANDISING" means Food 4 Less Merchandising, Inc., a California corporation. "FACILITIES" means any and all real property (including, without limitation, all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by any of the Loan Parties or any of their respective predecessors or Affiliates. "FALLEY'S" means Falley's, Inc., a Kansas corporation. "FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day 26 on such transactions received by Agent from three Federal funds brokers of recognized standing selected by Agent. "FISCAL PERIOD" means a fiscal period of Company and its Subsidiaries, consisting of a four-week period or five-week period, as the case may be. "FISCAL QUARTER" means a fiscal quarter of Company and its Subsidiaries, consisting of, in the case of each of the first three Fiscal Quarters of each Fiscal Year, a 12-week period and, in the case of the fourth Fiscal Quarter of each Fiscal Year, a 16 or 17-week period. "FISCAL YEAR" means the fiscal year of Company and its Subsidiaries, consisting of a 52- or 53-week period, ending on the date which is the Sunday closest to January 31 of the following calendar year. For purposes of this Agreement, any particular Fiscal Year shall be designated by reference to the calendar year in which such Fiscal Year commences. "FLOOD HAZARD PROPERTY" means a Real Property Asset subject to a Deed of Trust located in an area designated by the Federal Emergency Management Agency as having special flood or mudslide hazards. "FUNDED DEBT", as applied to any Person, means all Indebtedness of that Person which by its terms or by the terms of any instrument or agreement relating thereto matures more than one year from, or is directly renewable or extendable at the option of the debtor to a date more than one year from (including an option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more from), the date of the creation thereof. "FUNDING AND PAYMENT OFFICE" means the office of Agent and Swing Line Lender located at One Bankers Trust Plaza, New York, New York, or such other office as shall be designated by Agent in a written notice delivered to the other parties hereto. "FUNDING DATE" means the date of the funding of a Loan. "GAAP" means, subject to the limitations on the application thereof set forth in subsection 1.2, generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination. "GOLDEN ALLIANCE" means Golden Alliance Distribution, a California general partnership, the general partners of which are Food 4 Less GM, Inc. and Grocers General Merchandise Company. "GOLDEN ALLIANCE AGREEMENT" means that certain Joint Venture Agreement of Golden Alliance Distribution dated as of April 8, 1992 by and between Food 4 Less GM, 27 Inc., a California corporation, and Grocers General Merchandise Company, a California corporation, as in effect on the Closing Date and as amended from time to time to the extent permitted pursuant to subsection 7.15B. "GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any federal, state or local governmental authority, agency or court. "GUARANTY" means the Guaranty Agreement executed and delivered by certain Subsidiaries of Company on the Closing Date, and each other Guaranty Agreement to be executed and delivered by Subsidiaries of Company from time to time in accordance with subsection 6.10, substantially in the form of Exhibit IX annexed hereto, as each such Guaranty Agreement may be amended, supplemented or otherwise modified from time to time. "HAZARDOUS MATERIALS" means (i) any chemical, material or substance at any time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "restricted hazardous waste", "infectious waste", "toxic substances" or any other formulations intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any applicable Environmental Laws or publications promulgated pursuant thereto; (ii) any oil, petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iv) any flammable substances or explosives; (v) any radioactive materials; (vi) asbestos in any form; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty parts per million; (ix) pesticides; and (x) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of the Facilities. "HOLDINGS" has the meaning assigned to that term in the preamble to this Agreement. "HOLDINGS COMMON STOCK" means the Common Stock of Holdings, par value $0.01 per share, and the Non-Voting Common Stock of Holdings, par value $0.01 per share. "HOLDINGS DISCOUNT DEBENTURE INDENTURE" means the indenture dated as of June 1, 1995 between Holdings and United States Trust Company of New York pursuant to which the Holdings Discount Debentures were issued, as such indenture may be amended from time to time to the extent permitted under subsection 7.15B. "HOLDINGS DISCOUNT DEBENTURES" means the 13-5/8% Senior Discount Debentures due 2005 issued by Holdings with an initial accreted value of not less than $100,000,000 and an aggregate face amount at maturity of $193,363,570, as such debentures may be amended from time to time to the extent permitted under subsection 7.15B. 28 "HOLDINGS GUARANTY" means the Obligations of Holdings set forth in Section 9 hereof guaranteeing the Obligations of Company under the Loan Documents and under Interest Rate Agreements relating thereto. "HOLDINGS PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered by Holdings on the Closing Date, as such Pledge Agreement may be amended, supplemented or otherwise modified from time to time. "HOLDINGS PREFERRED STOCK" means the Series A Preferred Stock of Holdings, par value $0.01 per share, and the Series B Preferred Stock of Holdings, par value $0.01 per share. "HOLDINGS VOTING STOCK" means the Holdings Common Stock, the Holdings Preferred Stock and any additional class of capital stock of Holdings entitled (without regard to the occurrence of any contingency) to vote for the election of members of the Board of Directors of Holdings. "INDEBTEDNESS", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA), which purchase price is (a) due more than twelve months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument, and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Obligations under Interest Rate Agreements and Currency Agreements constitute Contingent Obligations and not Indebtedness. "INDEMNIFICATION AGREEMENT" means that certain Indemnification Agreement, effective as of February 3, 1992, by and among Federated Department Stores, Inc., each of its subsidiaries, Allied Stores Corporation, each of its subsidiaries, Federated Stores, Inc., each of its holding companies and real estate subsidiaries, Ralphs Grocery Company and Ralphs Holding Company (now known as Ralphs Grocery Company), as such Indemnification Agreement may be amended from time to time after the Closing Date to the extent permitted under subsection 7.15A. "INDEMNITEE" has the meaning assigned to that term in subsection 11.3. "INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames, copyrights, technology, know-how and processes used in or necessary for the conduct of the business of the Loan Parties as currently conducted that are material to the condition (financial or otherwise), business or operations of Company or any of its Subsidiaries. "INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan, each March 15, June 15, September 15 and December 15 of each year, commencing on June 15, 29 1997, and (ii) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest Period of longer than three months "Interest Payment Date" shall also include the date that is three months after the commencement of such Interest Period. "INTEREST PERIOD" has the meaning assigned to that term in subsection 2.2B. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement designed to protect Company or any of its Subsidiaries against fluctuations in interest rates. "INTEREST RATE DETERMINATION DATE" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period. "INTEREST RATE EXCHANGERS" has the meaning assigned to that term in Section 9. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter. "INVESTMENT" means (i) any direct or indirect purchase or other acquisition by the Loan Parties of, or of a beneficial interest in, any Securities of any other Person (other than a Person that, prior to such purchase or acquisition, was a Subsidiary of Holdings) or (ii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by any of the Loan Parties to any other Person (other than Company and any wholly-owned Subsidiary of Company that has executed and delivered a counterpart of the Guaranty), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "ISSUING LENDER" means, with respect to any Letter of Credit, the Lender which agrees or is otherwise obligated to issue such Letter of Credit, determined as provided in subsection 3.1B(ii). "JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party. "LENDER" and "LENDERS" means the persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 11.1, and the term "Lenders" shall include Swing Line Lender unless the context otherwise requires; provided that the term "Lenders", when used in the 30 context of a particular Commitment or a particular Type of Loans, shall mean Lenders having that Commitment or that Type of Loans. "LETTER OF CREDIT" or "LETTERS OF CREDIT" means Commercial Letters of Credit and Standby Letters of Credit issued or to be issued by Issuing Lenders for the account of Company or any wholly-owned Subsidiary of Company pursuant to subsection 3.1 and the Existing Letters of Credit. "LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Lenders and not theretofore reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B). "LEVERAGE RATIO" means, as at any date of determination, the ratio of Consolidated Total Debt as of the last day of the Fiscal Quarter immediately preceding the Fiscal Quarter in which such date of determination occurs to Consolidated Adjusted EBITDA for the four Fiscal Quarters ending as of such last day of such immediately preceding Fiscal Quarter. "LIEN" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "LOAN" or "LOANS" means one or more of the Term Loans, Revolving Loans or Swing Line Loans or any combination thereof. "LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty, the Environmental Indemnity, the Collateral Documents and the Letters of Credit (and any applications for, or other documents or certificates executed by any Loan Party in favor of an Issuing Lender relating to, the Letters of Credit). "LOAN PARTY" means each of Holdings, Company and any of Company's Subsidiaries from time to time executing a Loan Document, and "LOAN PARTIES" means all such Persons, collectively. "MARGIN DETERMINATION CERTIFICATE" means an Officers' Certificate of Company delivered with the financial statements required pursuant to subsections 6.1(ii) or 6.1(iii) setting forth in reasonable detail the Leverage Ratio which is applicable as of the last day of the fiscal period for which such financial statements and Officers' Certificate are being delivered. "MARGIN STOCK" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. 31 "MASTER ASSIGNMENT AGREEMENT" means that certain Master Assignment Agreement substantially in the form of Exhibit XX annexed hereto, among Company, the lenders under the Existing Credit Agreement, the lenders under this Agreement and the Agent pursuant to which all lenders under the Existing Credit Agreement assign their loans and/or revolving loan commitments to the Agent, and Agent assigns to each Lender under this Agreement, and each such lender purchases from Agent, the Loans and/or Revolving Loan Commitments as set forth on Schedule 2.1 attached to this Agreement. "MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Loan Parties, taken as a whole, or (ii) the material impairment of the ability of any Loan Party to perform, or the impairment of the ability of Agent or Lenders to enforce, the Obligations or any of the Loan Documents. "MULTIEMPLOYER PLAN" means a "multiemployer plan", as defined in Section 3(37) of ERISA, (i) to which any of the Loan Parties or any of their respective ERISA Affiliates is contributing, or, at any time within the five calendar years immediately preceding the date hereof, has contributed, (ii) to which any of the Loan Parties or any of their respective ERISA Affiliates has, or, at any time within the five calendar years immediately preceding the date hereof, has had, an obligation to contribute or (iii) with respect to which any of the Loan Parties retains any liability, including any potential joint and several liability as a result of an affiliation with an ERISA Affiliate or a party that would be an ERISA Affiliate except for the fact the affiliation ceased more than five calendar years prior to the date hereof. "NET CASH PROCEEDS" means, with respect to any Asset Sale, Cash Proceeds of such Asset Sale net of bona fide direct costs of sale including (i) income taxes reasonably estimated to be actually payable as a result of such Asset Sale within two years of the date of such Asset Sale and (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on, any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale. "1992 10-1/4% SENIOR SUBORDINATED NOTE INDENTURE" means the indenture dated as of July 29, 1992 between Company (as the successor to Ralphs Grocery Company) and United States Trust Company of New York pursuant to which the 1992 10-1/4% Senior Subordinated Notes were issued, as amended by the First Supplemental Indenture dated as of May 30, 1995 and the Second Supplemental Indenture dated as of June 14, 1995, and as such indenture may be further amended from time to time to the extent permitted under subsection 7.15B. "1992 10-1/4% SENIOR SUBORDINATED NOTES" means Company's $300,000,000 in initial aggregate principal amount of 10-1/4% Senior Subordinated Notes due July 15, 2002, as such notes may be amended from time to time to the extent permitted under subsection 7.15B. "1992 13.75% SENIOR SUBORDINATED NOTE INDENTURE" means the indenture dated as of June 15, 1991 among Company (as the successor to Food 4 Less Supermarkets, 32 Inc.), the subsidiary guarantors named therein and United States Trust Company of New York pursuant to which the 1992 13.75% Senior Subordinated Notes were issued, as amended by the First Supplemental Indenture dated as of April 18, 1992, the Second Supplemental Indenture dated as of May 18, 1992, the Third Supplemental Indenture dated as of July 24, 1992, the Fourth Supplemental Indenture dated as of May 30, 1995 and the Fifth Supplemental Indenture dated as of June 14, 1995, and as such indenture may be further amended from time to time to the extent permitted under subsection 7.15B. "1992 13.75% SENIOR SUBORDINATED NOTES" means Company's $145,000,000 in initial aggregate principal amount of 13.75% Senior Subordinated Notes due April 15, 2001, as such notes may be amended from time to time to the extent permitted under subsection 7.15B. "1992 10.45% SENIOR NOTE INDENTURE" means the indenture dated as of April 15, 1992 among Company (as the successor to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors named therein and Norwest Bank Minnesota, National Association, pursuant to which the 1992 10.45% Senior Notes were issued, as amended by the First Supplemental Indenture dated July 24, 1992, the Second Supplemental Indenture dated as of May 30, 1995 and the Third Supplemental Indenture dated as of June 14, 1995, and as such indenture may be further amended from time to time to the extent permitted under subsection 7.15B. "1992 10.45% SENIOR NOTES" means Company's $175,000,000 in initial aggregate principal amount of 10.45% Senior Notes due June 15, 2000, as such notes may be amended from time to time to the extent permitted under subsection 7.15B. "1993 9% SENIOR SUBORDINATED NOTE INDENTURE" means the indenture dated as of March 30, 1993 between Company (as the successor to Ralphs Grocery Company) and United States Trust Company of New York pursuant to which the 1993 9% Senior Subordinated Notes were issued, as amended by the First Supplemental Indenture dated as of June 23, 1993, the Second Supplemental Indenture dated as of May 30, 1995 and the Third Supplemental Indenture dated as of June 14, 1995, and as such indenture may be further amended from time to time to the extent permitted under subsection 7.15B. "1993 9% SENIOR SUBORDINATED NOTES" means Company's $150,000,000 in initial aggregate principal amount of 9% Senior Subordinated Notes due April 1, 2003, as such notes may be amended from time to time to the extent permitted under subsection 7.15B. "1995 11% SENIOR SUBORDINATED NOTE INDENTURE" means the indenture dated as of June 1, 1995 among Company (as the successor to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors named therein and United States Trust Company of New York pursuant to which the 1995 11% Senior Subordinated Notes were issued, as amended by a First Supplemental Indenture dated as of June 14, 1995, and as it may be further amended from time to time to the extent permitted under subsection 7.15B. "1995 11% SENIOR SUBORDINATED NOTES" means the $524,055,000 in initial aggregate principal amount of 11% Senior Subordinated Notes due 2005 of the Company, as 33 such notes may be amended from time to time to the extent permitted under subsection 7.15B. "1995 13.75% SENIOR SUBORDINATED NOTE INDENTURE" means the indenture dated as of June 1, 1995 among Company (as the successor to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors named therein and United States Trust Company of New York pursuant to which the 1995 13.75% Senior Subordinated Notes were issued, as amended by a First Supplemental Indenture dated as of June 14, 1995, and as it may be further amended from time to time to the extent permitted under subsection 7.15B. "1995 13.75% SENIOR SUBORDINATED NOTES" means Company's $140,184,000 in initial aggregate principal amount of Senior Subordinated Notes due 2005, as such notes may be amended from time to time to the extent permitted under subsection 7.15B. "1995 10.45% SENIOR NOTE INDENTURE" means the indenture dated as of June 1, 1995 among Company (as the successor to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors named therein and Norwest Bank Minnesota, National Association pursuant to which the 1995 10.45% Senior Notes were issued, as amended by a First Supplemental Indenture dated as of June 14, 1995, and as it may be further amended from time to time to the extent permitted under subsection 7.15B. "1995 10.45% SENIOR NOTES" means Company's $520,326,000 in initial aggregate principal amount of 10.45% Senior Notes due 2004, as such notes may be amended from time to time to the extent permitted under subsection 7.15B. "1996 10.45% SENIOR NOTE INDENTURE" means the indenture dated as of June 6, 1996 among Company, the subsidiary guarantors named therein and Norwest Bank Minnesota, National Association, pursuant to which the 1996 10.45% Senior Notes were issued, as such indenture may be further amended from time to time to the extent permitted under subsection 7.15B. "1996 10.45% SENIOR NOTES" means Company's $100,000,000 in initial aggregate principal amount of 10.45% Senior Notes due 2004, as such notes may be amended from time to time to the extent permitted under subsection 7.15B. "1997 11% SENIOR SUBORDINATED NOTE INDENTURE" means the indenture dated as of March 26, 1997 among Company, the subsidiary guarantors named therein and United States Trust Company of New York pursuant to which the 1997 11% Senior Subordinated Notes were issued, as amended from time to time to the extent permitted under subsection 7.15B. "1997 11% SENIOR SUBORDINATED NOTES" means Company's $155,000,000 in initial aggregate principal amount of 11% Senior Subordinated Notes due 2005, as such notes may be amended from time to time to the extent permitted under subsection 7.15B. "NON-RECOURSE INDEBTEDNESS" means, as applied to any Person, all Indebtedness of that Person secured by Liens on specified assets of that Person under the terms of which (i) no recourse may be had against that or any other Person for the payment 34 of the principal of or interest or premium on such Indebtedness or for any claim based thereon and (ii) the enforcement of all obligations relating to such Indebtedness is limited to foreclosure or other actions with respect to such specified assets, in each case other than customary exceptions for fraud, waste or environmental indemnification. "NOTES" means one or more of the Term Notes, Revolving Notes or Swing Line Note or any combination thereof. "NOTICE OF BORROWING" means a notice substantially in the form of Exhibit I annexed hereto delivered by Company to Agent pursuant to subsection 2.1B with respect to a proposed borrowing. "NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in the form of Exhibit II annexed hereto delivered by Company to Agent pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "REQUEST FOR LETTER OF CREDIT" means a notice substantially in the form of Exhibit III annexed hereto delivered by Company to Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter of Credit. "OBLIGATIONS" means all obligations of every nature of each Loan Party from time to time owed to Agent, Lenders or any of them under the Loan Documents, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnification or otherwise. "OFFICERS' CERTIFICATE" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chairman or vice chairman of the board (if an officer) or its president or one of its executive or senior vice presidents and by its chief financial officer or its treasurer; provided that every Officers' Certificate with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with; and provided further that any Officers' Certificate required pursuant to subsection 2.4B(iii) may be executed by any one of the officers referred to in this definition. "OPERATING LEASE" means, as applied to any Person, any lease (including, without limitation, leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor thereto). 35 "PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "PERMITTED ENCUMBRANCES" means the following types of Liens (other than any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA): a. Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; b. statutory Liens of landlords and banks and rights of offset, and Liens of carriers, warehousemen, workmen, repairmen, mechanics and materialmen and of growers on inventory consisting of agricultural products and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; c. Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, utility payments, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); d. any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; e. leases or subleases granted to others not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries; f. easements, rights-of-way, restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries; g. any (a) interest or title of a lessor or sublessor (other than any Loan Party) under any lease permitted by subsection 7.9, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to (including without limitation ground leases or other prior leases of the demised premises, mortgages, mechanics liens, tax liens and easements), or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b); h. Liens arising from filing UCC financing statements for precautionary purposes relating solely to true leases of personal property permitted by this Agreement under which Company or any of its Subsidiaries is a lessee; 36 i. Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; j. any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; k. Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of Company and its Subsidiaries; and l. any other title exception with respect to Real Property Assets disclosed by the preliminary title report, title commitment report or other search of title provided to Agent unless disapproved by Agent prior to the Closing Date. "PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "PLANNED DISPOSITION" means the sale of any store identified in Schedule 1.1B annexed hereto or of all or any portion of the real property or personal property related to any such store. "PLANNED IMPROVEMENT FINANCED AMOUNT" means with respect to any NonRecourse Indebtedness incurred by Company or any of its Subsidiaries with respect to any Planned Improvement Property pursuant to subsection 7.1(xiv), the initial principal amount of such Non-Recourse Indebtedness, and with respect to any sale and concurrent lease-back by Company or any of its Subsidiaries of any Planned Improvement Property pursuant to clause (b) of subsection 7.10, the amount of the sales price for such Planned Improvement Property. "PLANNED IMPROVEMENT PROPERTIES" means the Real Property Assets set forth on Schedule 1.1D annexed hereto. "PLEDGE AGREEMENT" means each Pledge Agreement executed and delivered by Company and certain Subsidiaries of Company on the Closing Date and each other Pledge Agreement to be executed and delivered by Subsidiaries of Company from time to time in accordance with subsection 6.10, substantially in the form of Exhibit X annexed hereto, as each such Pledge Agreement may hereafter be amended, supplemented or otherwise modified from time to time, and "PLEDGE AGREEMENTS" means all such Pledge Agreements, collectively. "POTENTIAL EVENT OF DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. 37 "PRIME RATE" means the rate that Bankers announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Bankers or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "PRO RATA SHARE" means, on any date of determination, (i) with respect to all payments, computations and other matters relating to a Type of Term Loan of any Lender, the percentage obtained by dividing (x) the Term Loan Exposure of such Type of that Lender on such date by (y) the aggregate Term Loan Exposure of such Type of all Lenders on such date, (ii) with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or any Letters of Credit issued or participations therein purchased by any Lender or any participations in any Swing Line Loans purchased by any Lender, the percentage obtained by dividing (x) the Revolving Loan Exposure of that Lender on such date by (y) the aggregate Revolving Loan Exposure of all Lenders on such date, and (iii) for all other purposes with respect to each Lender, the percentage obtained by dividing (x) the sum of the Term Loan Exposure of all Types of that Lender on such date plus the Revolving Loan Exposure of that Lender on such date by (y) the sum of the aggregate Term Loan Exposure of all Types of all Lenders on such date plus the aggregate Revolving Loan Exposure of all Lenders on such date, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 11.1. The initial Pro Rata Share of each Lender for purposes of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. "REAL PROPERTY ASSETS" means interests in land, buildings, improvements and fixtures attached thereto or used in the operation thereof, in each case owned or leased (as lessee) by any Loan Party. "REDEMPTION AMOUNT" means, at any time, $25,000,000; provided that (i) if the Leverage Ratio (calculated on a pro forma basis giving effect to any redemption or repurchase of Subordinated Indebtedness and/or Senior Indebtedness of Holdings or Company and/or repurchase of capital stock of Holdings and all Indebtedness incurred in connection therewith) (the "ADJUSTED LEVERAGE RATIO") at such time is less than 4.00:1.00, the Redemption Amount shall be increased to $50,000,000; and (ii) if the Adjusted Leverage Ratio at such time is less than 3.50:1.00, the Redemption Amount shall be increased to $75,000,000; provided, further, that the Redemption Amount shall be reduced by the aggregate amount of all prior repurchases and/or redemptions made pursuant to subsection 7.5A(x) and 7.5B(iv). "REFERENCE LENDERS" means Bankers, The Chase Manhattan Bank and Bank of America, N.T. & S.A. "REFUNDED SWING LINE LOANS" has the meaning assigned to that term in subsection 2.1A(iv). "REGISTER" has the meaning assigned to that term in subsection 2.1D(i). 38 "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REIMBURSEMENT AGREEMENT" means that certain Reimbursement Agreement, dated as of January 31, 1992, between Ralphs Grocery Company and The Edward J. DeBartolo Corporation, as such Reimbursement Agreement may be amended from time to time after the Closing Date to the extent permitted under subsection 7.15A. "REIMBURSEMENT DATE" has the meaning assigned to that term in subsection 3.3B. "RELATED FINANCING DOCUMENTS" means, collectively, the Subordinated Debt Indentures, the Subordinated Indebtedness, the Senior Debt Indentures, the Senior Indebtedness and all other agreements or instruments delivered pursuant to or in connection with any of the foregoing including any purchase agreement or registration rights agreement. "RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or into or out of any Facility, including the movement of any Hazardous Material through the air, soil, surface water, groundwater or property. "REPLACED LENDER" has the meaning assigned to such term in subsection 2.8. "REPLACEMENT LENDER" has the meaning assigned to such term in subsection 2.8. "REPORTING DIVISION" means each of (a) Company and its Subsidiaries on a consolidated basis, (b) until any Asset Sale of Cala, Cala and its Subsidiaries on a consolidated basis, (c) until any Asset Sale of Falley's, Falley's and its Subsidiaries on a consolidated basis and (d) Company and its Subsidiaries (other than the Subsidiaries included in the foregoing clauses (b) and (c)) on a consolidated basis. "REQUISITE CLASS LENDERS" means, at any time, (i) for the Class Lenders having Term Loan Exposure with respect to Tranche A Term Loans and/or Revolving Loan Exposure, Lenders having or holding 66 and 2/3% of the sum of the aggregate Term Loan Exposure with respect to Tranche A Term Loans of all Lenders plus the aggregate Revolving Loan Exposure of all Lenders, and, (ii) for the Class Lenders having Term Loan Exposure with respect to Tranche B Term Loans, Lenders having or holding 66 and 2/3% of the sum of the aggregate Term Loan Exposure with respect to Tranche B Term Loans of all Lenders. "REQUISITE LENDERS" means Lenders having or holding a majority of the sum of the aggregate Term Loan Exposure of all Term Lenders plus the aggregate Revolving Loan Exposure of all Revolving Lenders. "RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Holdings or Company 39 now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Holdings or Company now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Holdings or Company now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. "RESTRUCTURING CHARGES" means, for any period subsequent to the Closing Date, (i) the amount of cash restructuring charges and integration costs incurred by Company and its Subsidiaries in connection with the restructuring and integration of Company's and its Subsidiaries' operations as a result of the acquisition of Company and related transactions on the Closing Date, the divestitures of stores by and the consolidation of facilities of Company and its Subsidiaries and other similar restructurings or integrations; provided that the aggregate amount of such cash charges and costs included in Consolidated Adjusted EBITDA and Consolidated Net Worth for all periods shall not exceed $45,000,000, and (ii) the amount of non-cash restructuring charges and integration costs reflected on the consolidated financial statements of Company and its Subsidiaries; provided that the aggregate amount of such non-cash charges and costs included in Consolidated Adjusted EBITDA and Consolidated Net Worth for all periods shall not exceed $55,000,000, in each case to the extent such restructuring charges and integration costs reduce the net income of Company and its Subsidiaries. "REVOLVING LENDER" or "REVOLVING LENDERS" means the Lender or Lenders having a Revolving Loan Commitment or having Revolving Loans outstanding. "REVOLVING LOAN COMMITMENT" means the commitment of a Lender to make Revolving Loans to Company pursuant to subsection 2.1A(iii), to issue and/or purchase participations in Letters of Credit pursuant to Section 3 and, except for Swing Line Lender, to purchase participations in Swing Line Loans pursuant to subsection 2.1A(iv), and "REVOLVING LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. "REVOLVING LOAN COMMITMENT TERMINATION DATE" means February 15, 2003. "REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of any date of determination, (i) prior to the termination of the Revolving Loan Commitments, that Lender's Revolving Loan Commitment, and (ii) after the termination of the Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender plus (b) in the event that Lender is an Issuing Lender, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (in each case net of any participations purchased by other Lenders in such Letters of Credit or any unreimbursed drawings thereunder) plus (c) the aggregate amount of all participations purchased by that Lender in any outstanding Letters of Credit or any unreimbursed drawings under any Letters of Credit plus (d) in the case of Swing Line Lender, the aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein 40 purchased by other Lenders) plus (e) the aggregate amount of all participations purchased by that Lender in any outstanding Swing Line Loans. "REVOLVING LOANS" means the Loans made by Lenders to Company pursuant to subsection 2.1A(iii). "REVOLVING NOTES" means (i) the promissory notes of Company issued pursuant to subsection 2.1E on the Effective Date to evidence the Revolving Loans of any Lender and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 11.1B(i) in connection with assignments of the Revolving Loan Commitments and Revolving Loans of any Lenders, in each case substantially in the form of Exhibit VI annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SECURITY AGREEMENT" means each Security Agreement executed and delivered by Holdings, Company and certain Subsidiaries of Company on the Closing Date and each other Security Agreement to be executed and delivered by Subsidiaries of Company from time to time in accordance with subsection 6.10, substantially in the form of Exhibit XI annexed hereto, as each such Security Agreement may be amended, supplemented or otherwise modified from time to time, and "SECURITY AGREEMENTS" means all such Security Agreements, collectively. "SELECTED ASSETS" means all or the majority of the Company's existing Northern California operations, all or the majority of its existing Midwestern operations, the shares of Associated Wholesalers, Inc. owned by Falley's, and any or all of its owned warehouse facilities, in each case as set forth in Schedule 1.1C annexed hereto. "SELLER DEBENTURE INDENTURE" means the indenture dated as of June 1, 1995 between Holdings and Norwest Bank Minnesota, National Association pursuant to which the Seller Debentures were issued, as such Seller Debenture Indenture may be amended from time to time to the extent permitted under subsection 7.15B. "SELLER DEBENTURES" means the $131,500,000 principal amount of 13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 of Holdings issued on the Closing Date pursuant to the Seller Debenture Indenture, together with such 13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 issued by Holdings subsequent to the Closing Date as payment in-kind interest payments in accordance with the Seller Debenture 41 Indenture, as such debentures may be amended from time to time to the extent permitted under subsection 7.15B. "SENIOR DEBT INDENTURES" means any or all of the 1992 10.45% Senior Note Indenture, the 1995 10.45% Senior Note Indenture, the 1996 10.45% Senior Note Indenture, the Holdings Discount Debenture Indenture, and any indenture pursuant to which any senior Indebtedness permitted under subsection 7.1(xiii) is issued. "SENIOR INDEBTEDNESS" means any or all of the 1992 10.45% Senior Notes, the 1995 10.45% Senior Notes, the 1996 10.45% Senior Notes, the Holdings Discount Debentures, and any senior Indebtedness permitted under subsection 7.1(xiii). "SHAREHOLDERS AGREEMENT" means that certain Stockholders Agreement of Holdings dated as of June 14, 1995 by and among each of the purchasers and investors listed therein, Yucaipa, certain Affiliates of Yucaipa, Holdings and Company, as such Stockholders Agreement may be amended from time to time after the Closing Date to the extent permitted under subsection 7.15A. "SMITH'S-RELATED RESTRUCTURING CHARGES" means the amount of non-cash and cash restructuring charges and integration costs incurred by Company and its Subsidiaries in connection with the discontinuance of certain of Company's warehousing, manufacturing and distribution operations at its facility in La Habra, California, and the related transfer of such warehousing, manufacturing and distribution operations to the facility subleased by Company from Smith's Food & Drug Centers, Inc. ("SMITH'S") in Riverside, California (the "WAREHOUSE RESTRUCTURING"), and the disposition of up to 9 grocery stores operated by Company in southern California in connection with Company's acquisition of up to 9 grocery stores from Smith's in southern California (the "STORE RESTRUCTURING"), including in each case transition and transaction costs related thereto; provided that (x) the aggregate amount of all such cash and non-cash charges and costs and the aggregate amount of all such cash charges and costs included in Consolidated Adjusted EBITDA and Consolidated Net Worth as "Smith's-Related Restructuring Charges" for all periods with respect to the Warehouse Restructuring shall not exceed $43,600,000 and $33,200,000, respectively, and (y) the aggregate amount of all such cash and non-cash charges and costs and the aggregate amount of all such cash charges and costs included in Consolidated Adjusted EBITDA and Consolidated Net Worth as "Smith's-Related Restructuring Charges" for all periods with respect to the Store Restructuring shall not exceed $22,500,000 and $12,800,000, respectively, in each case to the extent that such restructuring charges and integration costs reduce the net income of Company and its Subsidiaries. "SOLVENT" means, with respect to any Person, that as of the date of determination both (A) (i) the then fair saleable value of the property of such Person is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they 42 become due; and (B) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SPECIFIED OFFICERS" means, with respect to any Loan Party, such Loan Party's chairman of the board, vice chairman of the board, chief executive officer, president, executive vice presidents, senior vice presidents and, to the extent not included in any of the foregoing, all officers whose functional areas include finance, real estate, law, employee benefits or human resources (including without limitation the general counsel, chief financial officer, treasurer and controller), and all other officers of such Loan Party who have functions or duties that are equivalent or similar to those of any of the foregoing. "STANDBY LETTER OF CREDIT" means any standby letter of credit issued for the purpose of supporting (i) Indebtedness of Company or any of its Subsidiaries in respect of industrial revenue or development bonds or financings, (ii) workers' compensation liabilities of Company or any of its Subsidiaries, (iii) the obligations of third party insurers of Company or any of its Subsidiaries arising by virtue of the laws of any jurisdiction requiring third party insurers, (iv) obligations with respect to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and (v) performance, payment, deposit or surety obligations of Company or any of its Subsidiaries, in any case if required by law or governmental rule or regulation or in accordance with custom and practice in the industry; provided that Standby Letters of Credit may not be issued for the purpose of supporting trade payables or any Indebtedness constituting "antecedent debt" (as that term is used in Section 547 of the Bankruptcy Code). "SUBORDINATED DEBT INDENTURES" means, collectively, the 1992 13.75% Senior Subordinated Note Indenture, the 1995 13.75% Senior Subordinated Note Indenture, the 1993 9% Senior Subordinated Note Indenture, the 1992 10-1/4% Senior Subordinated Note Indenture, the 1995 11% Senior Subordinated Note Indenture, the 1997 11% Senior Subordinated Note Indenture, the Seller Debenture Indenture, and any indenture pursuant to which any subordinated Indebtedness permitted under subsection 7.1(xiii) is issued. "SUBORDINATED INDEBTEDNESS" means (i) the 1992 13.75% Senior Subordinated Notes, the 1995 13.75% Senior Subordinated Notes, the 1995 11% Senior Subordinated Notes, the Seller Debentures, the 1993 9% Senior Subordinated Notes, the 1992 10-1/4% Senior Subordinated Notes and the 1997 11% Senior Subordinated Notes and (ii) any other Indebtedness of Holdings or Company subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to Agent and Requisite Lenders, including without limitation any subordinated Indebtedness permitted under subsection 7.1(xiii). "SUBSCRIPTION AGREEMENT" means that certain Subscription Agreement dated as of June 14, 1995 among RGC Partners, L.P., Holdings, Company and the partnership investors signatory thereto, as such Subscription Agreement may be amended from time to time after the Closing Date to the extent permitted under subsection 7.15A. 43 "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. "SWING LINE LENDER" means Bankers, or any Person serving as a successor Agent hereunder, in its capacity as Swing Line Lender hereunder and under the other Loan Documents. "SWING LINE LOAN COMMITMENT" means the commitment of Swing Line Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(iv). "SWING LINE LOANS" means the Loans made by Swing Line Lender to Company pursuant to subsection 2.1A(iv). "SWING LINE NOTE" means (i) the promissory note of Company issued pursuant to subsection 2.1E on the Effective Date to evidence the Swing Line Loans of Swing Line Lender and (ii) any promissory note issued by Company to any successor Agent and Swing Line Lender pursuant to the last sentence of subsection 10.6B, in each case substantially in the form of Exhibit VII annexed hereto, as it may be amended, supplemented or otherwise modified from time to time. "TAX" or "TAXES" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "TAX ON THE OVERALL INCOME" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person's principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person is organized or is deemed to be doing business on all or part of the net income, profits, gains or receipts of that Person (whether worldwide, or only insofar as such income, profits, gains or receipts are considered to arise in or to relate to a particular jurisdiction, or otherwise). "TAX ELECTION AGREEMENT" means that certain Tax Election Agreement, effective as of February 3, 1992, by and among The Edward J. DeBartolo Corporation, Federated Department Stores, Inc., Federated Stores, Inc., and Ralphs Holding Company (now Company), as such Tax Election Agreement may be amended from time to time after the Closing Date to the extent permitted under subsection 7.15A. "TERM LOAN EXPOSURE" means, with respect to a Lender of a Type of Term Loan as of any date of determination the outstanding principal amount of the Term Loan of such Type of that Lender. "TERM LOANS" means one or more of the Tranche A Term Loans or the Tranche B Term Loans. 44 "TERM NOTES" means (i) the promissory notes of Company evidencing the Term Loans of a Type of Term Loan issued pursuant to subsection 2.1E on the Effective Date, and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 11.1B(i) in connection with assignments of the Term Loans of such Type, in each case substantially in the form of Exhibits IV-V annexed hereto in the case of Tranche A Term Loans and Tranche B Term Loans, respectively, in each case as they may be amended, supplemented or otherwise modified from time to time. "TITLE INSURANCE POLICIES" means ALTA loan title insurance policies issued by a title insurance company reasonably satisfactory to Agent, in the amounts reasonably satisfactory to Agent with respect to any particular Real Property Assets subject to a Deed of Trust, assuring Agent that the applicable Deed of Trust creates a valid and enforceable first priority lien on the respective Real Property Asset subject to such Deed of Trust, free and clear of all defects and encumbrances except Permitted Encumbrances, which Title Insurance Policies shall be in form and substance reasonably satisfactory to Agent and shall include an endorsement for any matters that Agent may reasonably request and for future advances under this Agreement, the Notes and the other Loan Documents, and shall provide for affirmative insurance and such reinsurance as Agent may request, all of the foregoing in form and substance reasonably satisfactory to Agent. "TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans plus (ii) the aggregate principal amount of all outstanding Swing Line Loans plus (iii) the Letter of Credit Usage. "TRADEMARK SECURITY AGREEMENT" means each Trademark Collateral Security Agreement and Conditional Assignment executed and delivered by Company and certain Subsidiaries of Company on the Closing Date and each other Trademark Security Agreement to be executed and delivered by Subsidiaries of Company from time to time in accordance with subsection 6.10, substantially in the form of Exhibit XII annexed hereto, as each such Trademark Collateral Security Agreement and Conditional Assignment may be amended, supplemented or otherwise modified from time to time, and "TRADEMARK SECURITY AGREEMENTS" means all such Trademark Collateral Security Agreements and Conditional Assignments, collectively. "TRANCHE A TERM LENDER" or "TRANCHE A TERM LENDERS" means the Lender or Lenders having a Tranche A Term Loan outstanding. "TRANCHE A TERM LOANS" means the Loans of the Tranche A Term Lenders pursuant to subsection 2.1A(i). "TRANCHE B TERM LENDER" or "TRANCHE B TERM LENDERS" means the Lender or Lenders having a Tranche B Term Loan outstanding. "TRANCHE B TERM LOANS" means the Loans of the Tranche B Term Lenders pursuant to subsection 2.1A(ii). 45 "TRANSACTION DOCUMENTS" means any or all of the Loan Documents, the Related Financing Documents, the Tax Election Agreement, the Indemnification Agreement, the Shareholders Agreement, the Consulting Agreement, the Reimbursement Agreement and any guaranties relating to any of the foregoing, and all other agreements or instruments delivered pursuant to or in connection with any of the foregoing, including any purchase agreement or registration rights agreement. "TRANSFER AND ASSUMPTION AGREEMENT" means that certain Transfer and Assumption Agreement, dated as of June 23, 1989, between Company (as successor to Food 4 Less Supermarkets, Inc.) and Holdings (as successor to Food 4 Less Holdings, Inc.), as it may be amended from time to time after the Closing Date to the extent permitted under subsection 7.15A. "TYPE" means a Term Loan, a Revolving Loan or a Swing Line Loan (each of which is a "TYPE" of Loan) and with respect to a Term Loan, a Tranche A Term Loan or a Tranche B Term Loan (each of which is a "TYPE" of Term Loan). "YUCAIPA" means The Yucaipa Companies, a California general partnership, or any successor thereto (i) which is an Affiliate of Ronald W. Burkle, (ii) 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 such other form acceptable to Agent in its sole discretion and (iii) the form and structure of which has been approved by Agent in its sole discretion. "YUCAIPA INVESTORS" means Ronald W. Burkle; F4L Equity Partners, L.P.; FFL Partners; Yucaipa Capital Fund L.P.; Yucaipa/F4L Partners; The Yucaipa Companies and any other entity formed after the Closing Date which is an Affiliate of Ronald W. Burkle; provided, however, that, in the event that F4L Equity Partners, L.P. is dissolved in accordance with the terms of its governing partnership documents following the Closing Date, the shares of Holdings Voting Stock which would have been distributable to Angeles Development, BV if F4L Equity Partners, L.P. had been dissolved on the Closing Date (which shares shall not exceed 20% of the total number of shares of Holdings Voting Stock owned by F4L Equity Partners, L.P. on the Closing Date) shall be deemed not to have been owned (economically or beneficially) by the Yucaipa Investors on the Closing Date for purposes of this Agreement. B. ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER AGREEMENT. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to clauses (i), (ii) and (iii) of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in subsection 6.1(v)). Calculations in connection with the definitions, covenants and other provisions of this Agreement shall (i) utilize accounting principles and policies in conformity with those used to prepare the financial statements referred to in subsection 5.3, or (ii) if any amendments to the provisions set forth in Sections 46 1, 6 or 7 are made pursuant to negotiations conducted by operation of the following sentence, accounting principles and policies in effect at the time of the effectiveness of such amendments. Notwithstanding the foregoing, if any changes in accounting principles from those used in the preparation of the financial statements referred to in subsection 5.3 hereafter occasioned by the promulgation of rules, regulations, pronouncements or opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) result in a change in the method of calculation of financial covenants, standards or terms found in Sections 1, 6 and 7 hereof, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating Holdings' and Company's financial condition shall be the same after such changes as if such changes had not been made. During the period of such negotiations, but in no event for a period longer than 60 days, Company shall not be required to deliver the additional financial statements required pursuant to subsection 6.1(v). After the parties agree on amendments to the provisions of Sections 1, 6 and 7 necessitated by such changes, Company shall not be required to deliver the additional financial statements required pursuant to subsection 6.1(v) with respect to such changes. C. OTHER DEFINITIONAL PROVISIONS. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in subsection 1.1 may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. SECTION I. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS A. TERM LOANS AND COMMITMENTS; MAKING OF LOANS; THE REGISTER; NOTES. 1. TERM LOANS AND COMMITMENTS. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Holdings and Company herein set forth, each Lender hereby severally agrees to make Loans as described in subsections 2.1A(iii) and Swing Line Lender hereby agrees to make the Loans described in subsection 2.1A(iv). a. Tranche A Term Loans. The amount of each Tranche A Term Lender's Tranche A Term Loan is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount of the Tranche A Term Loans is $200,000,000; provided that the Tranche A Term Loans of Tranche A Term Lenders shall be adjusted to give effect to any assignments of the Tranche A Term Loans pursuant to subsection 11.1B. Tranche A Term Loans repaid or prepaid may not be reborrowed. b. Tranche B Term Loans. The amount of each Tranche B Term Lender's Tranche B Term Loan is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount of the Tranche B Term Loans is $350,000,000; provided that the Tranche B Term Loans of Tranche B Term Lenders 47 shall be adjusted to give effect to any assignments of the Tranche B Term Loans pursuant to subsection 11.1B. Tranche B Term Loans repaid or prepaid may not be reborrowed. c. Revolving Loans. Each Revolving Lender severally agrees, subject to the limitations set forth below with respect to the maximum amount of Revolving Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Effective Date to but excluding the Revolving Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Revolving Loan Commitments to be used for the purposes identified in subsection 2.5B. The original amount of each Revolving Lender's Revolving Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the Revolving Loan Commitments is $325,000,000; provided that the Revolving Loan Commitments of Revolving Lenders shall be adjusted to give effect to any assignments of the Revolving Loan Commitments pursuant to subsection 11.1B; and provided further that the amount of the Revolving Loan Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Revolving Lender's Revolving Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than that date; provided that each Revolving Lender's Revolving Loan Commitment shall expire immediately and without further action on May 31, 1997 if the Term Loans are not purchased pursuant to the Master Assignment Agreement on or before that date. Amounts borrowed under this subsection 2.1A(iii) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, the Revolving Loans and the Revolving Loan Commitments shall be subject to the following limitations in the amounts and during the periods indicated: (1) in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect; and (2) (i) for 30 consecutive days during each period of twelve consecutive months through the last day of Fiscal Year 1997, the sum of (1) the aggregate outstanding principal amount of all Revolving Loans plus (2) the aggregate outstanding principal amount of all Swing Line Loans shall not exceed $110,000,000; and (ii) thereafter for 30 consecutive days during each period of twelve consecutive months, the sum of (1) the aggregate outstanding principal amount of all Revolving Loans plus (2) the aggregate outstanding principal amount of all Swing Line Loans shall not exceed $100,000,000 or, upon and after any Asset Sale of Cala the Net Cash Proceeds of which are not less than $25,000,000, $75,000,000. 48 d. Swing Line Loans. Swing Line Lender hereby agrees, subject to the limitations set forth below with respect to the maximum amount of Swing Line Loans permitted to be outstanding from time to time, to make a portion of the Revolving Loan Commitments available to Company from time to time during the period from the Effective Date to but excluding the Revolving Loan Commitment Termination Date by making Swing Line Loans to Company in an aggregate amount not exceeding the amount of the Swing Line Loan Commitment to be used for the purposes identified in subsection 2.5B, notwithstanding the fact that such Swing Line Loans, when aggregated with Swing Line Lender's outstanding Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter of Credit Usage then in effect, may exceed Swing Line Lender's Revolving Loan Commitment. The original amount of the Swing Line Loan Commitment is $30,000,000; provided that any reduction of the Revolving Loan Commitments made pursuant to subsection 2.4B(ii) or 2.4B(iii) which reduces the aggregate Revolving Loan Commitments to an amount less than the then current amount of the Swing Line Loan Commitment shall result in an automatic corresponding reduction of the Swing Line Loan Commitment to the amount of the Revolving Loan Commitments, as so reduced, without any further action on the part of Company, Agent or Swing Line Lender. The Swing Line Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans shall be paid in full no later than that date; provided that the Swing Line Loan Commitment shall expire immediately and without further action on May 31, 1997 if the Term Loans are not purchased pursuant to the Master Assignment Agreement on or before that date. Amounts borrowed under this subsection 2.1A(iv) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the following limitations in the amounts and during the periods indicated: (1) in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect; and (2) (i) for 30 consecutive days during each period of twelve consecutive months through the last day of Fiscal Year 1997, the sum of (1) the aggregate outstanding principal amount of all Revolving Loans plus (2) the aggregate outstanding principal amount of all Swing Line Loans shall not exceed $110,000,000; and (ii) thereafter for 30 consecutive days during each period of twelve consecutive months, the sum of (1) the aggregate outstanding principal amount of all Revolving Loans plus (2) the aggregate outstanding principal amount of all Swing Line Loans shall not exceed $100,000,000 or, upon and after any Asset Sale of Cala the Net Cash Proceeds of which are not less than $25,000,000, $75,000,000. With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing Line Lender (i) may, at any time in its sole and absolute discretion, and (ii) shall, at least once every seven days, 49 deliver to Agent (with a copy to Company), no later than 1:00 P.M. (New York City time) on the first Business Day in advance of the proposed Funding Date, a notice requesting Revolving Lenders to make Revolving Loans that are Base Rate Loans on such Funding Date in an amount equal to the amount of such Swing Line Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is given which Swing Line Lender requests Revolving Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (i) the proceeds of such Revolving Loans made by Revolving Lenders other than Swing Line Lender shall be immediately delivered by Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (ii) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Revolving Loans and shall be due under the Revolving Note of Swing Line Lender. Company hereby authorizes Agent and Swing Line Lender to charge Company's accounts with Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by Revolving Lenders, including the Revolving Loan deemed to be made by Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Revolving Lenders in the manner contemplated by subsection 11.5. Immediately upon the funding of each Swing Line Loan by Swing Line Lender, each Revolving Lender shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans in an amount equal to its Pro Rata Share (calculated without giving effect to clauses (d) and (e) of the definition of Revolving Loan Exposure) of the unpaid amount together with accrued interest thereon. Upon one Business Day's notice from Swing Line Lender, each Revolving Lender shall deliver to Swing Line Lender an amount equal to its respective participation in same day funds at the Funding and Payment Office. In order to evidence such participation each Revolving Lender agrees to enter into a participation agreement at the request of Swing Line Lender in form and substance reasonably satisfactory to all parties. In the event any Revolving Lender fails to make available to Swing Line Lender the amount of such Revolving Lender's participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Revolving Lender together with interest thereon at the rate customarily used by Swing Line Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate. In the event Swing Line Lender receives a payment of any amount in which other Revolving Lenders have purchased participations as provided in this paragraph, Swing Line Lender shall promptly distribute to each such other Revolving Lender its Pro Rata Share of such payment. 50 Anything contained herein to the contrary notwithstanding, (i) each Revolving Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Revolving Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (a) any set-off, counterclaim, recoupment, defense or other right which such Revolving Lender may have against Swing Line Lender, Company or any other Person for any reason whatsoever; (b) the occurrence or continuation of an Event of Default or a Potential Event of Default; (c) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan Document by any party thereto; or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each Revolving Lender are subject to the satisfaction of one of the following: (X) Swing Line Lender believed in good faith that all conditions under Section 4 to the making of the applicable Swing Line Loans to be refunded, were satisfied at the time such Swing Line Loans were made, (Y) such Revolving Lender had actual knowledge, by receipt of any notices required to be delivered to Revolving Lenders pursuant to subsection 6.1(ix) or otherwise, that any such condition had not been satisfied and such Revolving Lender failed to notify Swing Line Lender and Agent in writing that it had no obligation to make Revolving Loans until such condition was satisfied (any such notice to be effective as of the date of receipt thereof by Swing Line Lender and Agent), or (Z) the satisfaction of any such condition not satisfied had been waived in accordance with subsection 11.6; and (ii) Swing Line Lender shall not be obligated to make any Swing Line Loans if it has elected not to do so after the occurrence and during the continuation of a Potential Event of Default or Event of Default. 2. BORROWING MECHANICS. Revolving Loans made on any Funding Date (other than Revolving Loans made pursuant to a request by Swing Line Lender pursuant to subsection 2.1A(iv) for the purpose of repaying any Refunded Swing Line Loans or Revolving Loans made pursuant to subsection 3.3B for the purpose of reimbursing any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it) that are made as (i) Eurodollar Rate Loans shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount or (ii) Base Rate Loans shall be in an aggregate minimum amount of $2,000,000 and integral multiples of $500,000 in excess of that amount. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $500,000 and integral multiples of $250,000 in excess of that amount. Whenever Company desires that Revolving Lenders make Revolving Loans Company shall deliver to Agent a Notice of Borrowing no later than 1:00 P.M. (New York City time) at least three Business Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate Loan) or at least one Business Day in advance of the proposed Funding Date (in the case of a Base Rate Loan). Whenever Company desires that Swing Line Lender make a Swing Line Loan, it shall deliver to Agent a Notice of Borrowing no later than 1:00 P.M. (New York City time) on the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and Type of Loans requested, (iii) in the case of Swing Line Loans, that such Loans shall be 51 Base Rate Loans, (iv) whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans requested to be made as Eurodollar Rate Loans, the initial Interest Period requested therefor. Term Loans and Revolving Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing to Agent on or before the applicable Funding Date. Neither Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected Loans hereunder. Company shall notify Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a re-certification by Company, as of the applicable Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing as modified pursuant to the notice provided for in the first clause of this sentence (it being understood that the making of such Loans by Lenders shall not in any way be construed as a waiver by Lenders of any matter set forth in such notice). Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. 3. DISBURSEMENT OF FUNDS. All Revolving Loans under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares of the Revolving Loan Commitments, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Revolving Loan Commitment of any Lender be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), Agent shall notify each Lender or Swing Line Lender, as the case may be, of the proposed borrowing. Each Lender shall make the amount of its Loan available to Agent not later than 12:00 Noon (New York City time) on the applicable Funding Date, and Swing Line Lender shall make the amount of its Swing Line Loan available to Agent not later than 2:00 P.M. (New York City time) on the applicable Funding Date, in each case in same day funds in Dollars, at the Funding and Payment Office. Except as provided in subsection 2.1A(iv) or subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing Line Loans or to reimburse any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it, upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of 52 Loans made on the Effective Date) and 4.2 (in the case of all Loans), Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Agent from Lenders or Swing Line Lender, as the case may be, to be credited to the account of Company at the Funding and Payment Office. Unless Agent shall have been notified by any Lender prior to the Funding Date for any Loans that such Lender does not intend to make available to Agent the amount of such Lender's Loan requested on such Funding Date, Agent may assume that such Lender has made such amount available to Agent on such Funding Date and Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to Agent by such Lender, Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to Agent, at the customary rate set by Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Agent's demand therefor, Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Agent together with interest thereon, for each day from such Funding Date until the date such amount is paid to Agent, at the rate payable under this Agreement for Base Rate Loans of the applicable type of Loans. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. 4. THE REGISTER. a. Agent shall maintain, at its address referred to in subsection 11.8, a register for the recordation of the names and addresses of Lenders and the Commitments and Loans of each Lender from time to time (the "REGISTER"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. b. Agent shall record in the Register the Revolving Loan Commitment and the Term Loans and Revolving Loans from time to time of each Lender, the Swing Line Loan Commitment and the Swing Line Loans from time to time of Swing Line Lender, and each repayment or prepayment in respect of the principal amount of the Term Loans or Revolving Loans of each Lender or the Swing Line Loans of Swing Line Lender. Any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect Company's Obligations in respect of the applicable Loans. c. Each Lender shall record on its internal records (including, without limitation, the Notes held by such Lender) the amount of the Term Loans and each Revolving Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, 53 shall not affect Company's Obligations in respect of the applicable Loans; and provided further that in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern, absent manifest error. d. Company, Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by Agent and recorded in the Register as provided in subsection 11.1B(ii). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. e. Company hereby designates Bankers to serve as Company's agent solely for purposes of maintaining the Register as provided in this subsection 2.1D, and Company hereby agrees that, to the extent Bankers serves in such capacity, Bankers and its officers, directors, employees, agents and affiliates shall constitute Indemnitees for all purposes under subsection 11.3. E. NOTES. Company shall execute and deliver on the Effective Date (i) to each Tranche A Term Lender (or to Agent for that Lender) a Tranche A Term Note substantially in the form of Exhibit IV annexed hereto to evidence that Lender's Tranche A Term Loan, in the principal amount of that Lender's Tranche A Term Loan and with other appropriate insertions, (ii) to each Tranche B Term Lender (or Agent for that Lender) a Tranche B Term Note substantially in the form of Exhibit V annexed hereto to evidence that Lender's Tranche B Term Loan, in the principal amount of that Lender's Tranche B Term Loan and with other appropriate insertions, (iii) to each Revolving Lender (or to Agent for that Lender) a Revolving Note substantially in the form of Exhibit VI annexed hereto to evidence that Lender's Revolving Loans, in the principal amount of that Lender's Revolving Loan Commitment and with other appropriate insertions, and (iv) to Swing Line Lender a Swing Line Note substantially in the form of Exhibit VII annexed hereto to evidence Swing Line Lender's Swing Line Loans, in the principal amount of the Swing Line Loan Commitment and with other appropriate insertions. B. INTEREST ON THE LOANS. 1. RATE OF INTEREST. Subject to the provisions of subsections 2.6 and 2.7, each Term Loan and each Revolving Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate or the Adjusted Eurodollar Rate, as the case may be. Subject to the provisions of subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate. The applicable basis for determining the rate of interest with respect to any Loan shall be selected by 54 Company initially at the time a Notice of Borrowing is given with respect to such Loan pursuant to subsection 2.1B. The basis for determining the interest rate with respect to any Term Loan or any Revolving Loan may be changed from time to time pursuant to subsection 2.2D. If on any day a Term Loan or Revolving Loan is outstanding with respect to which notice has not been delivered to Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Rate. a. Subject to the provisions of subsections 2.2E and 2.7, the Tranche A Term Loans and the Revolving Loans shall bear interest through maturity as follows: (a) if a Base Rate Loan, then at the sum of the Base Rate plus the Applicable Tranche A Base Rate Margin; or (b) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate plus the Applicable Tranche A Eurodollar Margin. b. Subject to the provisions of subsections 2.2E and 2.7, the Tranche B Term Loans shall bear interest through maturity as follows: (a) if a Base Rate Loan, then at the sum of the Base Rate plus the Applicable Tranche B Base Rate Margin; or (b) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate plus the Applicable Tranche B Eurodollar Margin. c. Subject to the provisions of subsections 2.2E and 2.7, the Swing Line Loans shall bear interest through maturity at the sum of the Base Rate plus the Applicable Tranche A Base Rate Margin minus the Commitment Fee Percentage. Upon delivery of the Margin Determination Certificate by Company to Agent pursuant to subsection 6.1(xviii), the Applicable Tranche A Base Rate Margin, the Applicable Tranche A Eurodollar Margin, the Applicable Tranche B Base Rate Margin and the Applicable Tranche A Eurodollar Margin shall automatically be adjusted in accordance with such Margin Determination Certificate, such adjustment to become effective on the next succeeding Business Day following the receipt by Agent of such Margin Determination Certificate; provided that if a Margin Determination Certificate erroneously indicates an applicable margin more favorable to Company than should be afforded by the actual calculation of the Leverage Ratio, Company shall promptly pay additional interest and letter of credit fees to correct for such error. 2. INTEREST PERIODS. In connection with each Eurodollar Rate Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, select an interest period (each an "INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall be, at Company's option, either a one, two, three or six month period; provided that: 55 a. the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/ Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; b. in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; c. if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; d. any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; e. no Interest Period with respect to any portion of the Tranche A Term Loans shall extend beyond February 15, 2003, no Interest Period with respect to any portion of the Tranche B Term Loans shall extend beyond February 15, 2004 and no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Loan Commitment Termination Date; f. no Interest Period with respect to any portion of any Type of Term Loan shall extend beyond a date on which Company is required to make a scheduled payment of principal of Term Loans of such Type unless the sum of (a) the aggregate principal amount of Term Loans of such Type that are Base Rate Loans plus (b) the aggregate principal amount of Term Loans of such Type that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on Term Loans of such Type on such date; g. there shall be no more than 12 Interest Periods outstanding at any time (it being understood that Interest Periods for different Types of Loans, whether or not such Interest Periods are for the same period and end on the same day, constitute separate Interest Periods); and h. in the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month. 3. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) 56 and at maturity (including final maturity); provided that in the event any Swing Line Loans or any Revolving Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such Swing Line Loans or Revolving Loans through the date of such prepayment shall be payable on the next succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier, at final maturity). 4. CONVERSION OR CONTINUATION. Subject to the provisions of subsection 2.6, Company shall have the option (i) to convert at any time all or any part of its outstanding Term Loans or Revolving Loans equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount as a Eurodollar Rate Loan; provided however, that a Eurodollar Rate Loan may only be converted into a Base Rate Loan on the expiration date of an Interest Period applicable thereto; and provided further that no Loan may be made as or converted into a Base Rate Loan during the period from December 24 of any year to and including January 7 of the immediately succeeding year for the purpose of investing in securities bearing interest at a rate determined by reference to any other basis for the purpose of arbitrage or speculation. Company shall deliver a Notice of Conversion/Continuation to Agent no later than 1:00 P.M. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and Type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no Potential Event of Default or Event of Default has occurred and is continuing. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to Agent on or before the proposed conversion/continuation date. Neither Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate 57 Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith. 5. DEFAULT RATE. Upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Agent or any Lender. 6. COMPUTATION OF INTEREST. Interest on the Loans shall be computed on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the Interest Payment Date with respect to which such interest payment is being made or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. C. FEES. 1. COMMITMENT FEES. Company agrees to pay to Agent, for distribution to each Revolving Lender in proportion to that Revolving Lender's Pro Rata Share, commitment fees for the period from and including the Effective Date to and excluding the Revolving Loan Commitment Termination Date equal to the average of the daily excess of the Revolving Loan Commitments over the aggregate principal amount of Revolving Loans outstanding (but not any Swing Line Loans outstanding) multiplied by the then applicable Commitment Fee Percentage, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on June 15, 1997, and on the Revolving Loan Commitment Termination Date. Upon delivery of the Margin Determination Certificate by Company to Agent pursuant to subsection 6.1(xviii), the Commitment Fee Percentage shall automatically be 58 adjusted in accordance with such Margin Determination Certificate, such adjustment to become effective on the next succeeding Business Day following the receipt by Agent of such Margin Determination Certificate; provided that if a Margin Determination Certificate erroneously indicates an applicable margin more favorable to Company than should be afforded by the actual calculation of the Leverage Ratio, Company shall promptly pay additional commitment fees to correct for such error. 2. OTHER FEES. Company agrees to pay to Agent and Bankers, as Arranger, such other fees in the amounts and at the times as have been separately agreed upon by letter agreement between Company, Agent and such Arranger. After receipt of such other fees from Company, Agent agrees to pay, or to cause to be paid by such Arranger, to each Lender such portion of such other fees in the amounts and at the times as have been separately agreed upon in writing between Agent and/or Arranger and such Lender. D. REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS; GENERAL PROVISIONS REGARDING PAYMENTS. 1. SCHEDULED PAYMENTS OF TERM LOANS. a. Scheduled Payments of Tranche A Term Loans. Company shall make principal payments on the Tranche A Term Loans in installments on the dates and in the amounts set forth below:
Scheduled Repayment Date of Tranche A Term Loans ---- ----------------------- September 15, 1999 $ 11,000,000 December 15, 1999 11,000,000 March 15, 2000 11,000,000 June 15, 2000 11,000,000 September 15, 2000 13,500,000 December 15, 2000 13,500,000 March 15, 2001 13,500,000 June 15, 2001 13,500,000 September 15, 2001 13,500,000 December 15, 2001 13,500,000 March 15, 2002 13,500,000 June 15, 2002 13,500,000 September 15, 2002 16,000,000 December 15, 2002 16,000,000 February 15, 2003 16,000,000 ----------- $200,000,000
; provided that the scheduled installments of principal of the Tranche A Term Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term Loans in accordance with subsection 2.4B(iv); and provided further that the Tranche A Term Loans and all other amounts owed hereunder with respect to the Tranche A Term Loans shall be paid in full no later than February 15, 59 2003, and the final installment payable by Company in respect of the Tranche A Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche A Term Loans. b. Scheduled Payments of Tranche B Term Loans. Company shall make principal payments on the Tranche B Term Loans in equal quarterly installments of $875,000 on each March 15, June 15, September 15 and December 15, commencing on June 15, 1997, through and including March 15, 2000, and thereafter on the dates and in the amounts set forth below:
Scheduled Repayment Date of Tranche B Term Loans ---- ----------------------- June 15, 2000 $ 5,000,000 September 15, 2000 3,875,000 December 15, 2000 3,875,000 March 15, 2001 5,875,000 June 15, 2001 5,875,000 September 15, 2001 10,875,000 December 15, 2001 10,875,000 March 15, 2002 11,875,000 June 15, 2002 11,875,000 September 15, 2002 15,000,000 December 15, 2002 15,000,000 March 15, 2003 15,000,000 June 15, 2003 15,000,000 September 15, 2003 35,000,000 December 15, 2003 37,250,000 February 15, 2004 137,250,000 ------------ $350,000,000
; provided that the scheduled installments of principal of the Tranche B Term Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term Loans in accordance with subsection 2.4B(iv); and provided further that the Tranche B Term Loans and all other amounts owed hereunder with respect to the Tranche B Term Loans shall be paid in full no later than February 15, 2004, and the final installment payable by Company in respect of the Tranche B Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche B Term Loans. 60 2. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS. a. Voluntary Prepayments. (1) Company may, upon written or telephonic notice to Agent on or prior to 12:00 Noon (New York City time) on the date of prepayment, which notice, if telephonic, shall be promptly confirmed in writing, at any time and from time to time prepay any Swing Line Loan on any Business Day in whole or in part in an aggregate minimum amount of $500,000 and integral multiples of $250,000 in excess of that amount. Company may, upon not less than one Business Day's prior written or telephonic notice, in the case of Base Rate Loans, and three Business Days' prior written or telephonic notice, in the case of Eurodollar Rate Loans, in each case given to Agent by 12:00 Noon (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Agent (which original written or telephonic notice Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time prepay any Term Loans or Revolving Loans on any Business Day in whole or in part in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount for Eurodollar Rate Loans or an aggregate minimum amount of $2,000,000 and integral multiples of $500,000 in excess of that amount for Base Rate Loans; provided, however, that unless Company compensates each Lender for any breakage costs associated with such prepayment in accordance with subsection 2.6D, a Eurodollar Rate Loan may only be prepaid on the expiration of the Interest Period applicable thereto. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4B(iv). (2) In the event Company is entitled to replace a non-consenting Lender pursuant to subsection 11.6B, Company shall have the right, upon five Business Days' written notice to Agent (which notice Agent shall promptly transmit to each of the Lenders), to prepay all Loans, together with accrued and unpaid interest, fees and other amounts owing to such Lender (including without limitation amounts owing to such Lender pursuant to subsection 2.6D) in accordance with subsection 11.6B so long as (1) in the case of the prepayment of the Revolving Loans of any Lender pursuant to this subsection 2.4B(i)(b), the Revolving Loan Commitment of such Lender is terminated concurrently with such prepayment pursuant to subsection 2.4B(ii)(b) (at which time Schedule 2.1 shall be deemed modified to reflect the changed Revolving Loan Commitments), and (2) in the case of the prepayment of the Loans of any Lender, the consents required by subsection 11.6B in connection with the prepayment pursuant to this subsection 2.4B(i)(b) shall have been obtained, and at such time, such Lender shall no longer constitute a "Lender" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, subsections 2.6D, 2.7, 3.6, 11.2 and 11.3), which shall survive as to such Lender. 61 b. Voluntary Reductions of Revolving Loan Commitments. (1) Company may, upon not less than three Business Days' prior written or telephonic notice confirmed in writing to Agent (which original written or telephonic notice Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the Total Utilization of Revolving Loan Commitments at the time of such proposed termination or reduction; provided that any such partial reduction of the Revolving Loan Commitments shall be in an aggregate minimum amount of $2,000,000 and integral multiples of $500,000 in excess of that amount. Company's notice to Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Loan Commitments shall be effective on the date specified in Company's notice and shall reduce the Revolving Loan Commitment of each Lender proportionately by its Pro Rata Share of such reduction. (2) In the event Company is entitled to replace a non-consenting Lender pursuant to subsection 11.6B, Company shall have the right, upon five Business Days' written notice to Agent (which notice Agent shall promptly transmit to each of the Lenders), to terminate the entire Revolving Loan Commitment of such Lender so long as (1) all Loans, together with accrued and unpaid interest, fees and other amounts owing to such Lender are repaid, including without limitation amounts owing to such Lender pursuant to subsection 2.6D, pursuant to subsection 2.4B(i)(b) concurrently with the effectiveness of such termination (at which time Schedule 2.1 shall be deemed modified to reflect such changed amounts), and (2) the consents required by subsection 11.6B in connection with the prepayment pursuant to subsection 2.4B(i)(b) shall have been obtained, and at such time, such Lender shall no longer constitute a "Lender" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, subsections 2.6D, 2.7, 3.6, 11.2 and 11.3), which shall survive as to such Lender. c. Mandatory Prepayments and Mandatory Reductions of Revolving Loan Commitments. The Loans shall be prepaid and/or the Revolving Loan Commitments shall be permanently reduced in the amounts and under the circumstances set forth below, all such prepayments and/or reductions to be applied as set forth below or as more specifically provided in subsection 2.4B(iv): (1) Prepayments and Reductions from Asset Sales. No later than the earlier to occur of (y) the third Business Day following the date of receipt (or if Company would incur breakage costs as a result of a prepayment on such date, on the earlier to occur of the first such date thereafter on which no such breakage costs are incurred and 30 days after such date of receipt) by Company or any of its Subsidiaries of Cash Proceeds of any Asset Sale in an 62 aggregate cumulative amount equal to or exceeding $5,000,000 and (z) the date of the occurrence of any Event of Default or Potential Event of Default, (A) in the case of the first $75,000,000 in Net Cash Proceeds from an Asset Sale of Cala and its Subsidiaries, Falley's and its Subsidiaries or the business of Cala and its Subsidiaries or Falley's and its Subsidiaries (collectively, the "Selected Asset Sales"), Company may apply such Net Cash Proceeds to prepay first Swing Line Loans to the full extent thereof and thereafter Revolving Loans to the remaining extent thereof and the Revolving Loan Commitments shall not be reduced by such prepayment of Swing Line Loans or Revolving Loans, (B) in the case of the first $50,000,000 in Net Cash Proceeds from Selected Asset Sales thereafter, Company shall (i) prepay the Term Loans in an amount equal to 50% of such Net Cash Proceeds and (ii) prepay the Swing Line Loans to the full extent thereof and thereafter the Revolving Loans in an amount equal to the remaining 50% of such Net Cash Proceeds, but the Revolving Loan Commitments shall not be reduced by any such prepayment of the Swing Line Loans or Revolving Loans, and (C) in the case of Net Cash Proceeds from Asset Sales which are not covered by the foregoing clauses (A) or (B), Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to such Net Cash Proceeds as specified in subsection 2.4B(iv); provided, however, that, so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, the following Net Cash Proceeds of Asset Sales received by Company and its Subsidiaries from and after the date hereof need not be applied to the mandatory prepayment of the Loans pursuant to this subsection 2.4B(iii)(a): (i) other than Net Cash Proceeds from Planned Dispositions, from Asset Sales covered by the foregoing clause (B) or constituting Planned Improvement Financed Amounts, Net Cash Proceeds from the sale of any store to the extent that such Net Cash Proceeds are reinvested in new stores or the construction or remodeling of stores within 270 days of such sale; (ii) other than Net Cash Proceeds from Planned Dispositions, from Asset Sales covered by the foregoing clause (B) or constituting Planned Improvement Financed Amounts, Net Cash Proceeds from the sale of a store to the extent that such Net Cash Proceeds do not exceed the Consolidated Capital Expenditures made to acquire or build a replacement store in the general vicinity of the store sold within 270 days preceding the date of such sale, and, so long as, in the case of clause (i) above and this clause (ii), the aggregate amount of such Net Cash Proceeds so excluded from the mandatory prepayment provisions does not exceed in any Fiscal Year the greater of (x) $15,000,000 and (y) the Net Cash Proceeds, up to a maximum aggregate amount of $25,000,000, received by Company or any Subsidiary of Company with respect to the sale of the first five stores in such Fiscal Year with respect to which Company has not prepaid the Loans, pursuant to such 63 clauses (i) and (ii), within three Business Days of receipt of proceeds thereof; (iii) other than Net Cash Proceeds constituting Planned Improvement Financed Amounts, Net Cash Proceeds from the sale and concurrent lease-back of any store opened or acquired after the Closing Date or any equipment acquired after the Closing Date, in each case within 270 days of the completion of such store or the acquisition of such equipment, in each case to the extent and only to the extent of Consolidated Capital Expenditures made with respect to such store or such equipment; (iv) Net Cash Proceeds from the sale of worn-out or obsolete equipment, to the extent that such Net Cash Proceeds are reinvested in the same or similar equipment within 90 days of such sale; (v) Net Cash Proceeds from the occurrence of any loss, damage or destruction of any stores or any other facilities of Company or any of its Subsidiaries (including any assets located therein) giving rise to insurance proceeds, to the extent that (a) such Net Cash Proceeds are reinvested to repair or rebuild the assets so lost, damaged or destroyed or reinvested in new stores or the construction or remodeling of stores within the earlier of (1) 270 days of receipt of such Net Cash Proceeds and (2) 18 months of the occurrence of such loss, damage or destruction or (b) such Net Cash Proceeds do not exceed the expenditures made by Company or any of its Subsidiaries within the earlier of (1) 270 days of receipt of such Net Cash Proceeds and (2) 18 months of the occurrence of such loss, damage or destruction, to repair or rebuild the applicable assets so lost, damaged or destroyed or to acquire new stores or to construct or remodel stores; and (vi) an amount equal to 75% of Net Cash Proceeds constituting Planned Improvement Financed Amounts to the extent that such Net Cash Proceeds are used to remodel, expand, renovate or otherwise improve the store located on the related Planned Improvement Property within two years of the sale of such Planned Improvement Property. In addition to the prepayments and reductions required pursuant to the preceding paragraph, in the event that Company or any of its Subsidiaries accepts non-cash consideration or defers a portion of the sales price for Cala and/or Falley's in excess of 15% of the aggregate sales prices for Cala and Falley's, the Revolving Loan Commitments shall be automatically and permanently reduced upon consummation of such sale in an amount equal to such non-cash consideration and such deferred portion of such sales prices in excess of 15% of such aggregate sales prices. Immediately upon consummation of any sale of Cala or Falley's which requires a reduction in the 64 Revolving Loan Commitments under this paragraph, the Company shall deliver an Officers' Certificate to Agent notifying Agent of such sale and of the amount of such reduction in the Revolving Loan Commitments. If, following the receipt by Company or any of its Subsidiaries of Cash Proceeds of any Asset Sale, Company is required to apply or cause to be applied any portion of such Cash Proceeds to prepay any Indebtedness evidenced by any of the Related Financing Documents pursuant to the applicable Related Financing Document, then, notwithstanding anything contained in this subsection 2.4B(iii)(a), Company shall prepay the Loans and/or reduce the Revolving Loan Commitments in the order set forth in this subsection 2.4B(iii)(a) so as to eliminate any obligation to prepay such Indebtedness. (2) Prepayments and Reductions Due to Issuance of Debt. No later than the first Business Day following the date of receipt by Holdings or any of its Subsidiaries of the cash proceeds (net of underwriting discounts, similar placement fees and commissions and other reasonable costs and expenses associated therewith) from the issuance of any debt Securities (other than the issuance of Indebtedness pursuant to subsections 7.1(i)-(xii) and (xv) as in effect on the Effective Date) of Holdings or any such Subsidiary (the "NET DEBT PROCEEDS"), (i) in the case of Net Debt Proceeds which do not constitute Planned Improvement Financed Amounts, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to such Net Debt Proceeds; provided that to the extent that after giving effect to any such issuances of debt Securities and any permanent prepayment of the Loans from the proceeds thereof, Company's Leverage Ratio is less than 2.50:1.00, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to 50% of such Net Debt Proceeds; and (ii) in the case of Net Debt Proceeds constituting Planned Improvement Financed Amounts, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to 25% of such Net Debt Proceeds; provided that to the extent that any such Planned Improvement Financed Amounts have not been used to remodel, expand, renovate or otherwise improve the store located on the related Planned Improvement Property within two years of the issuance of such debt Securities, such Net Debt Proceeds shall be applied by the Company no later than the first Business Day following the expiration of such two-year period to prepay the Loans and/or to permanently reduce the Revolving Loan Commitments in accordance with this clause (ii). (3) Prepayments and Reductions Due to Issuance of Equity Securities. No later than the first Business Day following the date of receipt by Holdings of the cash proceeds (net of underwriting discounts, similar placement fees and commissions and other reasonable costs associated therewith) from the issuance of any equity Securities of Holdings or the receipt of any equity contribution by Holdings or Company (other than issuances of equity to management employees pursuant to agreements or stock option plans 65 permitted under subsection 7.12) (without duplication) (the "Net Equity Proceeds"), Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to 50% of such Net Equity Proceeds (such amount being the "EQUITY REPAYMENT AMOUNT"); provided, however, that, commencing with Fiscal Year 1998 and for any Fiscal Year thereafter, so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, for purposes of this subsection 2.4B(iii)(c), up to 50% of the Equity Repayment Amount (but in an aggregate amount since the Closing Date not to exceed $25,000,000) may be applied within 60 days of such date of receipt to redeem, retire or repurchase all or any portion of any Indebtedness (other than the Loans) of any of Holdings or Company, as set forth in an Officers' Certificate of Company delivered to Agent on the date of receipt by Holdings of such Net Equity Proceeds. (4) Prepayments and Reductions Due to Reversion of Surplus Assets of Pension Plans. On the date of return to Holdings or any of its Subsidiaries of any surplus assets of any pension plan of Holdings or any of its Subsidiaries, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount (the "NET REVERSION AMOUNT") equal to 100% of such returned surplus assets, net of transaction costs and expenses incurred in obtaining such return, including incremental taxes payable as a result thereof. (5) Prepayments and Reductions Due to Excess Cash Flow. In the event that there shall be Consolidated Excess Cash Flow for any Fiscal Year, within 100 days after the last day of such Fiscal Year Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to (i) for Fiscal Year 1997, 100%, and (ii) commencing with Fiscal Year 1998 and thereafter, 75%, of such Consolidated Excess Cash Flow (such amount being the "CASH FLOW REPAYMENT AMOUNT"); provided, however, that, commencing with Fiscal Year 1998 and for any Fiscal Year thereafter, so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, for purposes of this subsection 2.4B(iii)(e), up to 50% of the Cash Flow Repayment Amount (but in an aggregate amount since the Closing Date not to exceed $25,000,000) may be applied within 60 days of the date of such required prepayment to redeem, retire or repurchase all or any portion of any Indebtedness (other than the Loans) of Company, as set forth in an Officers' Certificate of Company delivered to Agent on the date of such required prepayment. (6) Prepayments Due to Reductions or Restrictions of Revolving Loan Commitments. Company shall immediately prepay first the Swing Line Loans and second the Revolving Loans to the extent necessary (1) so that the Total Utilization of Revolving Loan Commitments shall not at any time exceed the Revolving Loan Commitments then in effect and (2) to give effect to the limitations set forth in clause (b) of the second paragraph of subsection 2.1A(iii) and clause (b) of the second paragraph of subsection 2.1A(iv). Any 66 such mandatory prepayments shall be applied as specified in subsection 2.4B(iv) and shall not reduce the amount of the Revolving Loan Commitments then in effect. (7) Calculations of Net Proceeds Amounts; Additional Prepayments and Reductions Based on Subsequent Calculations. Concurrently with any prepayment of the Loans and/or reduction of the Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(e) or within three Business Days of the receipt of any Net Cash Proceeds of Asset Sales under subsection 2.4B(iii)(a), Company shall deliver to Agent an Officers' Certificate demonstrating (1) the calculation of the amount (the "NET PROCEEDS AMOUNT") of the applicable Net Cash Proceeds of Asset Sales, Net Debt Proceeds, Net Equity Proceeds, Net Reversion Amount (as such latter three terms are defined in subsections 2.4B(iii)(b), (c) and (d), respectively) or the applicable Consolidated Excess Cash Flow, as the case may be, that gave rise to such prepayment and/or reduction; (2) with respect to the receipt of Net Cash Proceeds referred to in clauses (i), (iv), (v) and (vi) of subsection 2.4B(iii)(a), in reasonable detail, the intended application of such Net Cash Proceeds and the estimated costs of the reinvestment or improvement referred to in such clauses and in the case of Net Debt Proceeds referred to in clause (ii) of subsection 2.4B(iii)(b), the intended application of such Net Debt Proceeds; and (3) with respect to the receipt of Net Cash Proceeds referred to in clauses (ii), (iii) and (v) of subsection 2.4B(iii)(a), in reasonable detail the Consolidated Capital Expenditures made by Company which account for the exclusion of any such Net Cash Proceeds from the mandatory prepayment requirements of subsection 2.4B(iii)(a). Such Officers' Certificate, in the case of clauses (i), (iv) and (vi) of subsection 2.4B(iii)(a) and clause (ii) of subsection 2.4B(iii)(b), may be amended at any time and from time to time by Company during the 270-day, 90-day or two-year period following receipt of such Net Cash Proceeds or Net Debt Proceeds, as the case may be. In the event that Company shall subsequently determine that the actual Net Proceeds Amount was greater than the amount set forth in such Officers' Certificate or that, with respect to clauses (i), (iv), (v) and (vi) of subsection 2.4B(iii)(a), clause (ii) of subsection 2.4B(iii)(b) or the provisos in subsections 2.4B(iii)(c) and (e), such Net Proceeds Amount was not expended for the purposes specified in such Officers' Certificate, as amended, within the time periods specified in such clauses, Company shall promptly make an additional prepayment of the Loans (and/or, if applicable, the Revolving Loan Commitments shall be permanently reduced) in an amount equal to the amount of such excess or unexpended portion, but only to the extent such amount has not been previously applied as a mandatory prepayment under subsection 2.4B(iii)(e), and Company shall concurrently therewith deliver to Agent an Officers' Certificate demonstrating the derivation of the additional Net Proceeds Amount resulting in such excess or unexpended portion. 67 d. Application of Prepayments. (1) Application of Voluntary Prepayments by Type of Loans and Order of Maturity. Subject to the last sentence of this subsection 2.4B(iv)(a), any voluntary prepayments pursuant to subsection 2.4B(i)(a) shall be applied to Term Loans, Revolving Loans or Swing Line Loans as specified by Company in the applicable notice of prepayment; provided that in the event Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied first to repay outstanding Swing Line Loans to the full extent thereof, second to repay outstanding Revolving Loans to the full extent thereof, and third to repay outstanding Term Loans to the full extent thereof. Any voluntary prepayments of the Term Loans pursuant to subsection 2.4B(i)(a) shall be applied (x) to each Type of Term Loan on a pro rata basis and (y) to reduce the unpaid scheduled installments of the principal of the Term Loans set forth in subsections 2.4A(i)-(ii) on a pro rata basis. (2) Application of Mandatory Prepayments by Type of Loans. Any amount (the "APPLIED AMOUNT") required to be applied as a mandatory prepayment of the Loans and/or a reduction of the Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(e) shall be applied first to prepay the Term Loans to the full extent thereof, second, to the extent of any remaining portion of the Applied Amount, to prepay the Swing Line Loans to the full extent thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment, third, to the extent of any remaining portion of the Applied Amount, to prepay the Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Loan Commitments by the amount of such prepayment, and fourth, in an amount equal to any remaining portion of the Applied Amount, to further permanently reduce the Revolving Loan Commitments to the full extent thereof. (3) Application of Mandatory Prepayments of Term Loans by Order of Maturity. Any mandatory prepayments of the Term Loans pursuant to subsection 2.4B(iii) shall be applied (x) to each Type of Term Loan on a pro rata basis, (y) in the case of any mandatory prepayments to be applied to the Tranche A Term Loans, to reduce unpaid scheduled installments of principal of the Tranche A Term Loans set forth in subsection 2.4A(i) in forward order of maturity for up to the immediately succeeding twelve-month period, and (z) to reduce the unpaid scheduled installments of principal of the Tranche B Term Loans and the unpaid scheduled installments of principal of the Tranche A Term Loans (after giving effect to clause (y) above) set forth in subsections 2.4A(i) and 2.4A(ii) on a pro rata basis; provided that in the case of Tranche B Term Loans, upon receipt of any mandatory prepayments pursuant to subsection 2.4B(iii) with respect to which Company has given Agent written notification prior to such receipt that Company has elected to give such Tranche B Term Lenders the right to waive such Lenders' right to receive such prepayment (the "WAIVABLE MANDATORY PREPAYMENT"), Agent shall notify such Tranche B Term Lenders of such receipt and the amount of the prepayment to be applied to each such Lender's Term Loans; provided still 68 further that Company shall use its reasonable efforts to notify such Tranche B Term Lenders of such Waivable Mandatory Prepayment three (3) Business Days prior to the payment to Agent of such Waivable Mandatory Prepayments (it being understood that Company shall have no liabilities for failing to so notify such Lenders). In the event any such Tranche B Term Lender desires to waive such Lender's right to receive any such Waivable Mandatory Prepayment, such Lender shall so advise Agent no later than the close of business on the date of such notice from Agent. In the event that any such Lender waives such Lender's right to any such Waivable Mandatory Prepayment, Agent shall apply 50% of the amount so waived by such Lender to prepay the Tranche A Term Loans and to reduce unpaid scheduled installments of principal of the Tranche A Term Loans set forth in subsection 2.4A(i) on a pro rata basis. Agent shall return the remainder of the amount so waived by such Lender to Company. (4) Application of Prepayments to Base Rate Loans and Eurodollar Rate Loans. Considering each Type of Loan being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. C. GENERAL PROVISIONS REGARDING PAYMENTS. (i) Manner and Time of Payment. All payments by Company of principal, interest, fees and other Obligations hereunder, under the Notes and under the other Loan Documents shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Agent not later than 1:00 P.M. (New York City time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes Agent to charge its accounts with Agent in order to cause timely payment to be made to Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payments to Principal and Interest. Except as otherwise provided in subsection 2.2C, all payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest payments in respect of Term Loans and Revolving Loans shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all 69 such payments received by Agent and the commitment fees of such Lender when received by Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees or Letter of Credit fees hereunder, as the case may be; provided, however, that if the day on which payment relating to a Eurodollar Rate Loan is due is not a Business Day but is a day of the month after which no further Business Day occurs in that month, then the due date thereof shall be the next preceding Business Day. (v) Notation of Payment. Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the obligations of Company hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note. E. USE OF PROCEEDS. 1. EFFECTIVE DATE. The proceeds of the Revolving Loans made on the Effective Date shall be applied by Company to pay accrued interest, fees and expenses under the Existing Credit Agreement and expenses incurred in connection with the transactions contemplated by this Agreement and to working capital and general corporate purposes. 2. REVOLVING LOANS; SWING LINE LOANS. The proceeds of any other Revolving Loans and any Swing Line Loans shall be applied by Company for working capital and general corporate purposes. 3. MARGIN REGULATIONS. No portion of the proceeds of any borrowing under this Agreement shall be used by Company or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 70 F. SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: 1. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable after 10:00 A.M. (New York City time) on each Interest Rate Determination Date, Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (by telefacsimile or by telephone confirmed in writing) to Company and each Lender. 2. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that, by reason of circumstances affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. 3. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), in each case that becomes effective (other than any change in such law, treaty or governmental rule, regulation or order which was promulgated prior to the date hereof and which becomes effective in accordance with its terms after the date hereof) after the date of this Agreement, or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the interbank Eurodollar market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Agent of such determination (which notice Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing 71 or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. 4. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS. Company shall compensate each Lender, upon written request by that Lender (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including, without limitation, any interest paid by that Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender will sustain or has sustained: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company, or (iv) as a consequence of any other default by Company in the repayment of its Eurodollar Rate Loans when required by the terms of this Agreement. 5. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender. 6. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, 72 however, that each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. 7. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of and during the continuation of a Potential Event of Default or an Event of Default, unless waived in accordance with the provisions of subsection 11.6, (i) Company may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to a requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be rescinded by Company. G. INCREASED COSTS; TAXES; CAPITAL ADEQUACY. 1. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions of subsection 2.7B, in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective (other than any change in such law, treaty or governmental rule, regulation or order which was promulgated prior to the date hereof and which becomes effective in accordance with its terms after the date hereof) after the date hereof, or the compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank, the National Association of Insurance Commissioners ("NAIC") or other governmental or quasi-governmental authority (whether or not having the force of law): a. subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall income of such Lender) with respect to this Agreement or any of its obligations hereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; b. imposes, modifies or holds applicable any reserve (including without limitation any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or c. imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the interbank Eurodollar market; 73 and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder; provided that a Lender shall not be entitled to avail itself of the benefit of this subsection 2.7A to the extent that any such increased cost or reduction in amounts was incurred more than six months prior to the time it gives notice to Company (as provided in the next sentence) of the relevant circumstance, unless such circumstance arose or became applicable retrospectively, in which case such Lender shall not be limited to such six month period so long as such Lender has given such notice to Company no later than six months from the time such circumstance became applicable to such Lender. Such Lender shall deliver to Company (with a copy to Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 2. WITHHOLDING OF TAXES. a. Payments to Be Free and Clear. Except as provided specifically to the contrary in paragraphs (ii) and (iii) below, all sums payable by Company or any other Loan Party to Agent or any Lender under this Agreement or the other Loan Documents shall be paid free and clear of and (except to the extent required by law) without any deduction or withholding on account of any Tax (other than a Tax on the overall income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Company or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. b. Grossing-up of Payments. If Company or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Company to Agent or any Lender under any of the Loan Documents: (1) Company shall notify Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (2) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own account or (if that liability is imposed on Agent or such Lender, as the case may be) on behalf of and in the name of Agent or such Lender; (3) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent 74 necessary to ensure that, after the making of that deduction, withholding or payment, Agent or such Lender, as the case may be, receives on the due date and retains (free from any liability in respect of any such deduction, withholding or payment) a net sum equal to what it would have received and so retained had no such deduction, withholding or payment been required or made; and (4) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Company shall deliver to Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided that no such additional amount shall be required to be paid to any Lender under clause (c) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender. c. Evidence of Exemption from U.S. Withholding Tax. (1) Each Lender that is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof (for purposes of this subsection 2.7B(iii), a "NON-US LENDER") shall deliver to Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Agent (each in the reasonable exercise of its discretion), (1) two original copies of Internal Revenue Service Form 1001 or 4224 (or any successor forms), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents or (2) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (1) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations 75 issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Loan Documents. (2) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, such Lender shall (1) deliver to Agent for transmission to Company two new original copies of Internal Revenue Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required in order to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Loan Documents or (2) immediately notify Agent and Company of its inability to deliver any such forms, certificates or other evidence. (3) Company shall not be required to pay any additional amount to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such Lender shall have failed to satisfy the requirements of subsection 2.7B(iii)(a); provided that if such Lender shall have satisfied such requirements on the Closing Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment Agreement pursuant to which it became a Lender (in the case of each other Lender), nothing in this subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay any additional amounts pursuant to clause (c) of subsection 2.7B(ii) in the event that, as a result of any change after the date of such satisfaction in any applicable law, treaty or governmental rule, regulation or order, or any change after the date of such satisfaction in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in subsection 2.7B(iii)(a). 3. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the date hereof of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or, after the date hereof, any change therein or in the interpretation or administration thereof by any governmental authority, central bank, the NAIC or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, the NAIC or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or Letters of Credit or participations therein or other 76 obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction; provided that a Lender shall not be entitled to avail itself of the benefit of this subsection 2.7C to the extent that any such reduction in return was incurred more than six months prior to the time it gives notice to Company (as provided in the next sentence) of the relevant circumstance, unless such circumstance arose or became applicable retrospectively, in which case such Lender shall not be limited to such six month period so long as such Lender has given such notice to Company no later than six months from the time such circumstance became applicable to such Lender. Such Lender shall deliver to Company (with a copy to Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. H. OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE; REPLACEMENT OF LENDER. A. Each Lender and Issuing Lender agrees that, as promptly as practicable after the officer of such Lender or Issuing Lender responsible for administering the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender or Issuing Lender to receive payments under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal policies of such Lender or Issuing Lender and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender or Issuing Lender through another lending or letter of credit office of such Lender or Issuing Lender, or (ii) take such other measures as such Lender or Issuing Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be materially reduced and if, as determined by such Lender or Issuing Lender in its sole discretion, the making, issuing, funding or maintaining of such Commitments or Loans or Letters of Credit through such other lending or letter of credit office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or Letters of Credit or the interests of such Lender or Issuing Lender; provided that such Lender or Issuing Lender will not be obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8 unless Company agrees to pay all incremental expenses incurred by such Lender or Issuing Lender as a result of utilizing such other lending or letter of credit office as described in clause (i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender or Issuing Lender to Company (with a copy to Agent) shall be conclusive absent manifest error. 77 B. If Company receives a notice pursuant to subsection 2.7A, 2.7C or 3.6 or in the event a Lender has not consented to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Requisite Lenders as provided in subsection 11.6, Company shall have the right, if no Potential Event of Default or Event of Default then exists, to replace such Lender (a "REPLACED LENDER") with one or more Eligible Assignees (collectively, the "REPLACEMENT LENDER") acceptable to Agent, provided that (i) at the time of any replacement pursuant to this subsection 2.8, the Replacement Lender shall enter into one or more Assignment Agreements pursuant to subsection 11.1B (and with all fees payable pursuant to such subsection 11.1B to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the outstanding Loans and Commitments of, and in each case participations in Letters of Credit and Swing Line Loans by, the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender, (B) an amount equal to all unpaid drawings with respect to Letters of Credit that have been funded by (and not reimbursed to) such Replaced Lender, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid, fees owing to the Replaced Lender with respect thereto, (y) the appropriate Issuing Lender an amount equal to such Replaced Lender's Pro Rata Share of any unpaid drawings with respect to Letters of Credit (which at such time remains an unpaid drawing) issued by it to the extent such amount was not theretofore funded by such Replaced Lender, and (z) Swing Line Lender an amount equal to such Replaced Lender's Pro Rata Share of any Refunded Swing Line Loans to the extent such amount was not theretofore funded by such Replaced Lender, and (ii) all obligations (including without limitation all such amounts, if any, owing under subsection 2.6D) of Company owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid), shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements, recordation of such assignment in the Register by Agent pursuant to subsection 2.1D, the payment of amounts referred to in clauses (i) and (ii) above and delivery to the Replacement Lender of the appropriate Note or Notes executed by Company, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder except with respect to indemnification provisions under this Agreement which by the terms of this Agreement survive the termination of this Agreement, which indemnification provisions shall survive as to such Replaced Lender. Notwithstanding anything to the contrary contained above, no Issuing Lender may be replaced hereunder at any time while it has Letters of Credit outstanding hereunder unless arrangements satisfactory to such Issuing Lender (including the furnishing of a Standby Letter of Credit in form and substance, and issued by an issuer, satisfactory to such Issuing Lender or the furnishing of cash collateral in amounts and pursuant to arrangements satisfactory to such Issuing Lender) have been made with respect to such outstanding Letters of Credit. 78 SECTION II. LETTERS OF CREDIT A. ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS THEREIN. 1. LETTERS OF CREDIT. In addition to Company requesting that Revolving Lenders make Revolving Loans pursuant to subsection 2.1A(iii) and that Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iv), Company may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date, that one or more Revolving Lenders issue Letters of Credit payable on a sight basis for the account of Company or any wholly-owned Subsidiary of Company for the purposes specified in the definitions of Commercial Letters of Credit and Standby Letters of Credit; provided, that if any such Letter of Credit is issued for the account of any such Subsidiary, Company shall execute jointly with such Subsidiary all letter of credit documentation as may be required by the applicable Issuing Lender. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Holdings and Company herein set forth, any one or more Revolving Lenders may, but (except as provided in subsection 3.1B(ii)) shall not be obligated to, issue such Letters of Credit in accordance with the provisions of this subsection 3.1; provided that Company shall not request that any Revolving Lender issue (and no Revolving Lender shall issue): a. any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed the Revolving Loan Commitments then in effect; b. any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed $150,000,000; c. any Standby Letter of Credit having an expiration date later than the earlier of (a) the date which is 30 days prior to the Revolving Loan Commitment Termination Date and (b) the date which is one year from the date of issuance of such Standby Letter of Credit; provided that the immediately preceding clause (b) shall not prevent any Issuing Lender from agreeing that a Standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each unless such Issuing Lender elects not to extend for any such additional period; provided further that such Issuing Lender shall give notice that it will not extend such Standby Letter of Credit if it has knowledge that an Event of Default has occurred and is continuing at the time at which such Issuing Lender may give notice that it will not extend such Standby Letter of Credit, unless such Event of Default has been waived in accordance with the provisions of subsection 11.6; d. any Commercial Letter of Credit having an expiration date (a) later than the earlier of (X) the date which is 30 days prior to the Revolving Loan Commitment Termination Date and (Y) the date which is 180 days from the date of issuance of such Commercial Letter of Credit or (b) that is otherwise unacceptable to the applicable Issuing Lender in its reasonable discretion; or 79 e. any Letter of Credit denominated in a currency other than Dollars and payable on a sight basis. 2. MECHANICS OF ISSUANCE. a. Request for Letter of Credit. Whenever Company desires the issuance of a Letter of Credit, it shall deliver to the proposed Issuing Lender (with a copy to Agent if Agent is not the proposed Issuing Lender) a Request for Letter of Credit substantially in the form of Exhibit III annexed hereto no later than 1:00 P.M. (New York City time) at least five Business Days (or such shorter period as may be agreed to by the Issuing Lender in any particular instance) in advance of the proposed date of issuance. The Request for Letter of Credit shall specify (a) the Revolving Lender requested to issue the Letter of Credit, (b) the proposed date of issuance (which shall be a Business Day), (c) the face amount of the Letter of Credit, (d) the expiration date of the Letter of Credit, (e) the name and address of the beneficiary, (f) if such Letter of Credit is proposed to be issued for the account of a wholly-owned Subsidiary of Company, the name of such Subsidiary, and (g) the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, including a precise description of any documents and the verbatim text of any certificates to be presented by the beneficiary which, if presented by the beneficiary in substantial compliance with the terms and conditions and on or before the expiration date of the Letter of Credit, would require the Issuing Lender to make payment under the Letter of Credit; provided that the Issuing Lender, in its reasonable discretion, may require changes in the text of the proposed Letter of Credit or any such documents or certificates. Company shall notify the applicable Issuing Lender (and Agent, if Agent is not such Issuing Lender) prior to the issuance of any Letter of Credit in the event that any of the matters to which Company is required to certify in the applicable Request for Letter of Credit is no longer true and correct as of the proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit Company shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Company is required to certify in the applicable Request for Letter of Credit. b. Determination of Issuing Lender. Upon receipt by a proposed Issuing Lender of a Request for Letter of Credit pursuant to subsection 3.1B(i) requesting the issuance of a Letter of Credit, (a) in the event Agent is the proposed Issuing Lender, (1) if Agent elects to issue such Letter of Credit, Agent shall promptly so notify Company and Agent shall be the Issuing Lender with respect thereto and (2) if Agent, in its sole discretion, elects not to issue such Letter of Credit, Agent shall promptly so notify Company, whereupon Company may request any Co-Agent to issue such Letter of Credit by delivering to such Co-Agent a copy of the applicable Request for Letter of Credit and any Co-Agent so requested to issue such Letter of Credit shall promptly notify Company and Agent whether or not, in its sole discretion, it has elected to issue such Letter of Credit, and any such Co-Agent which so elects to issue such Letter of Credit shall be the Issuing Lender with respect thereto; provided that in the event that five Co-Agents which in the ordinary course of their business customarily issue letters of credit shall have declined to issue such Letter of Credit, 80 notwithstanding the prior election of Agent not to issue such Letter of Credit, Agent shall be obligated to issue such Letter of Credit and shall be the Issuing Lender with respect to such Letter of Credit, notwithstanding the fact that the Letter of Credit Usage with respect to such Letter of Credit and with respect to all other Letters of Credit issued by Agent, when aggregated with Agent's outstanding Revolving Loans and Swing Line Loans, may exceed Agent's Revolving Loan Commitment then in effect; and (b) in the event any other Revolving Lender is the proposed Issuing Lender, such Revolving Lender shall promptly notify Company and Agent whether or not, in its sole discretion, it has elected to issue such Letter of Credit, and (1) if such Revolving Lender so elects to issue such Letter of Credit, it shall be the Issuing Lender with respect thereto and (2) if such Revolving Lender fails to so promptly notify Company and Agent or declines to issue such Letter of Credit, Company may request Agent or another Revolving Lender to be the Issuing Lender with respect to such Letter of Credit in accordance with the provisions of this subsection 3.1B. c. Issuance of Letter of Credit. Upon satisfaction or waiver (in accordance with subsection 11.6) of the conditions set forth in subsection 4.3, the Issuing Lender shall issue the requested Letter of Credit in accordance with the Issuing Lender's standard operating procedures. d. Notification to Revolving Lenders. Upon the issuance of any Standby Letter of Credit the applicable Issuing Lender shall promptly notify Agent and each other Revolving Lender of such issuance, which notice shall be accompanied by a copy of such Standby Letter of Credit. Promptly after receipt of such notice, Agent shall notify each Revolving Lender of the amount of such Revolving Lender's respective participation in such Standby Letter of Credit, determined in accordance with subsection 3.1C. e. Reports to Revolving Lenders. Within 15 days after the end of each calendar quarter ending after the Closing Date, so long as any Standby Letter of Credit shall have been outstanding during such calendar quarter, each Issuing Lender shall deliver to each other Revolving Lender and Agent a report setting forth the daily maximum amount available to be drawn under the Standby Letters of Credit issued by such Issuing Lender that were outstanding during such calendar quarter. In the case of Commercial Letters of Credit, in the event that the Issuing Lender is other than the Agent, such Issuing Lender will send by facsimile transmission to the Agent, promptly on the first Business Day of each week, its daily aggregate maximum amount available for drawing under Commercial Letters of Credit for the previous week. The Agent shall deliver to each Revolving Lender, upon each calendar month end, a report setting forth for such period the daily aggregate maximum amount available for drawing under the Commercial Letters of Credit issued by all the Issuing Lenders during such period. 3. REVOLVING LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT. Immediately upon the issuance of each Letter of Credit, each Revolving Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Letter of Credit and drawings thereunder in an amount equal to such Revolving Lender's Pro Rata Share (calculated without giving effect to clauses (b) and (c) of 81 the definition of Revolving Loan Exposure) of the maximum amount which is or at any time may become available to be drawn thereunder. Upon satisfaction of the conditions set forth in subsection 4.1, the Existing Letters of Credit shall, effective as of the Effective Date, become Letters of Credit under this Agreement to the same extent as if initially issued hereunder and each Revolving Lender shall be deemed to have irrevocably purchased from the Issuing Lender(s) of such Existing Letters of Credit a participation in such Letters of Credit and drawings thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. All such Existing Letters of Credit which become Letters of Credit under this Agreement shall be fully secured by the Collateral commencing on the Effective Date to the same extent as if initially issued hereunder on such date. B. LETTER OF CREDIT FEES. Company agrees to pay the following amounts with respect to Letters of Credit: a. with respect to each Standby Letter of Credit, (a) to the applicable Issuing Lender, a fronting fee equal to 0.25% per annum of the daily amount available to be drawn under such Standby Letter of Credit, but in any event not less than $500 per year per Standby Letter of Credit and (b) to Agent a letter of credit fee equal to (x) the Applicable Tranche A Eurodollar Margin minus the Commitment Fee Percentage multiplied by (y) the daily amount available to be drawn under such Standby Letter of Credit, in each case payable in arrears on and to (but excluding) each March 15, June 15, September 15 and December 15 of each year and computed on the basis of a 360-day year for the actual number of days elapsed; b. with respect to each Commercial Letter of Credit, (a) to the applicable Issuing Lender, a fronting fee equal to 0.25% per annum of the daily amount available to be drawn under such Commercial Letter of Credit, but in any event not less than $500 per year per Commercial Letter of Credit and (b) to Agent a letter of credit fee equal to (x) the Applicable Tranche A Eurodollar Margin minus the sum of (A) 1.0% per annum and (B) the Commitment Fee Percentage multiplied by (y) the daily amount available to be drawn under such Commercial Letter of Credit, in each case payable in arrears on and to (but excluding) each March 15, June 15, September 15 and December 15 of each year and computed on the basis of a 360-day year for the actual number of days elapsed; and c. to the applicable Issuing Lender, with respect to the issuance, amendment, assignment or transfer of each Letter of Credit and each drawing made thereunder (without duplication of the fees payable under clauses (i) and (ii) above), documentary and processing charges in accordance with such Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, assignment, transfer or drawing, as the case may be. Promptly upon receipt by Agent of any amount described in clause (i)(b) or (ii)(b) of this subsection 3.2, Agent shall distribute to each Revolving Lender such Revolving Lender's Pro Rata Share of such amount. With respect to Existing Letters of Credit, the fees described in clauses (i) and (ii) above shall accrue from and including the Effective Date. 82 C. DRAWINGS AND REIMBURSEMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. 1. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit. 2. REIMBURSEMENT BY COMPANY OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. In the event an Issuing Lender has determined to honor a drawing under a Letter of Credit issued by it, such Issuing Lender shall immediately notify Company and Agent, and Company shall reimburse such Issuing Lender on or before the Business Day immediately following the date on which such drawing is honored (the "REIMBURSEMENT DATE") in an amount in Dollars and in same day funds equal to the amount of such drawing (whether or not Company is the account party under such Letter of Credit); provided that, anything contained in this Agreement to the contrary notwithstanding, (i) unless Company shall have notified Agent and such Issuing Lender prior to 12:00 Noon (New York City time) on the date of such drawing that Company intends to reimburse such Issuing Lender for the amount of such drawing with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Notice of Borrowing (it being understood, however, that such deemed Notice of Borrowing shall not be deemed to be a representation of Company that the representations and warranties contained in the Loan Documents are true, correct and complete in all material respects on and as of the date of such deemed Notice of Borrowing) to Agent requesting Revolving Lenders to make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such drawing and (ii) subject to satisfaction or waiver of the conditions specified in subsection 4.2B, Revolving Lenders shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount of such drawing, the proceeds of which shall be applied directly by Agent to reimburse such Issuing Lender for the amount of such drawing; and provided further that if for any reason proceeds of Revolving Loans are not received by such Issuing Lender on the Reimbursement Date in an amount equal to the amount of such drawing, Company shall reimburse such Issuing Lender, on demand, in an amount in same day funds equal to the excess of the amount of such drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Revolving Lender from its obligation to make Revolving Loans on the terms and conditions set forth in this Agreement, and Company shall retain any and all rights it may have against any Revolving Lender resulting from the failure of such Revolving Lender to make such Revolving Loans under this subsection 3.3B. 3. PAYMENT BY REVOLVING LENDERS OF UNREIMBURSED DRAWINGS UNDER LETTERS OF CREDIT. a. Payment by Revolving Lenders. In the event that Company shall fail for any reason to reimburse any Issuing Lender as provided in subsection 3.3B in an amount equal to the amount of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall promptly notify each other Revolving Lender of the unreimbursed amount of such drawing and of such other Revolving Lender's respective participation therein based on such Revolving Lender's 83 Pro Rata Share. Each Revolving Lender shall make available to such Issuing Lender an amount equal to its respective participation, in Dollars and in same day funds, at the office of such Issuing Lender specified in such notice, not later than 1:00 P.M. (New York City time) on the first business day (under the laws of the jurisdiction in which such office of such Issuing Lender is located) after the date notified by such Issuing Lender. In the event that any Revolving Lender fails to make available to such Issuing Lender on such business day the amount of such Revolving Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Lender shall be entitled to recover such amount on demand from such Revolving Lender together with interest thereon at the rate customarily used by such Issuing Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Revolving Lender to recover from any Issuing Lender any amounts made available by such Revolving Lender to such Issuing Lender pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Lender in respect of which payment was made by such Revolving Lender constituted gross negligence or willful misconduct on the part of such Issuing Lender. b. Distribution to Revolving Lenders of Reimbursements Received From Company. In the event any Issuing Lender shall have been reimbursed by other Revolving Lenders pursuant to subsection 3.3C(i) for all or any portion of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall distribute to each other Revolving Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such drawing such other Revolving Lender's Pro Rata Share of all payments subsequently received by such Issuing Lender from Company in reimbursement of such drawing when such payments are received. Any such distribution shall be made to a Revolving Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Revolving Lender may request. 4. INTEREST ON AMOUNTS DRAWN UNDER LETTERS OF CREDIT. a. Payment of Interest by Company. Company agrees to pay to each Issuing Lender, with respect to drawings made under any Letters of Credit issued by it (whether or not Company is the account party thereunder), interest on the amount paid by such Issuing Lender in respect of each such drawing from the date of such drawing to but excluding the date such amount is reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B) at a rate equal to (a) for the period from the date of such drawing to but excluding the Reimbursement Date, the rate then in effect under this Agreement with respect to Revolving Loans that are Base Rate Loans and (b) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement with respect to Revolving Loans that are Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 360-day year for the actual number of days elapsed in the period during which it accrues and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. 84 b. Distribution of Interest Payments by Issuing Lender. Promptly upon receipt by any Issuing Lender of any payment of interest pursuant to subsection 3.3D(i) with respect to a drawing under a Letter of Credit issued by it, (a) such Issuing Lender shall distribute to each other Revolving Lender, out of the interest received by such Issuing Lender in respect of the period from the date of such drawing to but excluding the date on which such Issuing Lender is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that such other Revolving Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been made under such Letter of Credit, and (b) in the event such Issuing Lender shall have been reimbursed by other Revolving Lenders pursuant to subsection 3.3C(i) for all or any portion of such drawing, such Issuing Lender shall distribute to each other Revolving Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such drawing such other Revolving Lender's Pro Rata Share of any interest received by such Issuing Lender in respect of that portion of such drawing so reimbursed by other Revolving Lenders for the period from the date on which such Issuing Lender was so reimbursed by other Revolving Lenders to and including the date on which such portion of such drawing is reimbursed by Company. Any such distribution shall be made to a Revolving Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Revolving Lender may request. D. OBLIGATIONS ABSOLUTE. The obligation of Company to reimburse each Issuing Lender for drawings made under the Letters of Credit issued by it (whether or not Company is the account party thereunder) and to repay any Revolving Loans made by Revolving Lenders pursuant to subsection 3.3B and the obligations of Revolving Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, any of the following circumstances: a. any lack of validity or enforceability of any Letter of Credit; b. the existence of any claim, set-off, defense or other right which Company, any Subsidiary that is an account party thereunder or any Revolving Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Lender or other Revolving Lender or any other Person or, in the case of a Revolving Lender, against Company or any Subsidiary that is an account party under a Letter of Credit, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured) other than the defense of payment in accordance with the terms of this Agreement; 85 c. any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; d. payment to the beneficiary of such Letter of Credit by the applicable Issuing Lender under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; e. any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries; f. any breach of this Agreement or any other Loan Document by any party thereto (other than a breach by the applicable Issuing Lender relating to the Letter of Credit in question); g. any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or h. the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; provided, in each case, that payment by the applicable Issuing Lender under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of such Issuing Lender under the circumstances in question (as determined by a final judgment of a court of competent jurisdiction). E. INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES. 1. INDEMNIFICATION. In addition to amounts payable as provided in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save harmless each Issuing Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and of internal counsel) which such Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Lender, other than as a result of (a) the gross negligence or willful misconduct of such Issuing Lender as determined by a final judgment of a court of competent jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing Lender of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "GOVERNMENTAL ACTS"). 2. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any Issuing Lender, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Issuing Lender shall not 86 be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to substantially comply with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they are in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing or amendment under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Lender, including without limitation any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Lender under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to Company. Notwithstanding anything to the contrary contained in this subsection 3.5, Company shall retain any and all rights it may have against any Issuing Lender for any liability directly attributable to the gross negligence or willful misconduct of such Issuing Lender or to the wrongful dishonor by any Issuing Lender of a proper demand for payment made under any Letter of Credit issued by it, in each case, as determined by a final judgment of a court of competent jurisdiction. F. INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT. In the event that any Issuing Lender or any Revolving Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof (other than any change in such law, treaty or governmental rule, regulation or order which was promulgated prior to the date hereof and which becomes effective in accordance with its terms after the date hereof), or the compliance by any Issuing Lender or any Revolving Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): a. subjects such Issuing Lender or such Revolving Lender (or its applicable lending or letter of credit office) to any additional Tax (other than any Tax 87 on the overall income of such Issuing Lender or Revolving Lender) with respect to the issuing or maintaining of any Letters of Credit or the purchasing or maintaining of any participations therein or any other obligations under this Section 3, whether directly or by such being imposed on or suffered by any particular Issuing Lender; b. imposes, modifies or holds applicable any reserve (including without limitation any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by any Issuing Lender or participations therein purchased by any Revolving Lender; or c. imposes any other condition (other than with respect to a Tax matter) on or affecting such Issuing Lender or such Revolving Lender (or its applicable lending or letter of credit office) regarding this Section 3 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to such Issuing Lender or such Revolving Lender of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Issuing Lender or such Revolving Lender (or its applicable lending or letter of credit office) with respect thereto; then, in any case, Company shall promptly pay to such Issuing Lender or such Revolving Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate such Issuing Lender or such Revolving Lender for any such increased cost or reduction in amounts received or receivable hereunder; provided that a Lender shall not be entitled to avail itself of the benefit of this subsection 3.6 to the extent that any such increased cost or reduction in amounts was incurred more than six months prior to the time it gives notice to Company (as provided in the next sentence) of the relevant circumstance, unless such circumstance arose or became applicable retrospectively, in which case such Lender shall not be limited to such six month period so long as such Lender has given such notice to Company no later than six months from the time such circumstance became applicable to such Lender. Such Issuing Lender or such Revolving Lender shall deliver to Company a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Issuing Lender or such Revolving Lender under this subsection 3.6, which statement shall be conclusive and binding upon all parties hereto absent manifest error. SECTION III. CONDITIONS TO LOANS AND LETTERS OF CREDIT The obligations of Lenders to purchase or make Loans and the issuance of Letters of Credit hereunder are subject to the satisfaction of the following conditions. A. CONDITIONS TO INITIAL EFFECTIVENESS. The obligations of Lenders to purchase the Term Loans and to purchase and/or make any Revolving Loans and Swing Line Loans on the Effective Date are, in addition to the 88 conditions precedent specified in subsection 4.2, subject to prior or concurrent satisfaction of the following conditions: 1. LOAN PARTY DOCUMENTS. On or before the Effective Date, Company shall deliver or cause to be delivered to Lenders (or to Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender) the following with respect to each Loan Party, each, unless otherwise noted, dated the Effective Date: a. Certified copies of its Certificate or Articles of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation and each other state in which it is qualified as a foreign corporation to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such states, each dated a recent date prior to the Effective Date; b. Copies of its Bylaws, certified as of the Effective Date by its corporate secretary or an assistant secretary; c. Resolutions of its Board of Directors approving and authorizing the execution, delivery and performance of each of the Loan Documents to which it is a party to be executed on the Effective Date, and all transactions related thereto, certified as of the Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; d. Signature and incumbency certificates of its officers executing each of the Loan Documents to which it is a party; e. Executed originals of this Agreement, the Notes (duly executed in accordance with subsection 2.1E, drawn to the order of each Lender and Swing Line Lender and with appropriate insertions) and the other Loan Documents to be executed on the Effective Date, including without limitation the Master Assignment Agreement executed by the Company and the Acknowledgement and Consent, substantially in the form of Exhibit XXI annexed hereto, executed by the Company and each of the other Loan Parties; and f. Such other documents as Agent may reasonably request. 2. YUCAIPA INVESTMENT. Holdings shall have delivered to Agent an Officers' Certificate in form and substance reasonably satisfactory to Agent setting forth in reasonable detail (i) the percentage of issued and outstanding shares of Holdings Voting Stock beneficially owned, directly or indirectly (including through his ownership interest in the Yucaipa Investors) by Ronald W. Burkle on the Closing Date and the Effective Date and (ii) the percentage of the issued and outstanding Holdings Voting Stock beneficially owned and controlled, directly or indirectly, by Yucaipa and the Yucaipa Investors collectively on the Closing Date and the Effective Date. 89 3. OTHER EXISTING INDEBTEDNESS. Agent shall have received an Officers' Certificate of Company certifying that as of the Effective Date, after giving effect to the transactions contemplated by this Agreement, the Indebtedness of the Loan Parties (other than the Indebtedness under the Loan Documents) consists of (i) the outstanding principal amount of existing Funded Debt described in Schedule 7.1 annexed hereto, (ii) obligations under existing Capital Leases of all Loan Parties as of the Effective Date (which shall be described in Schedule 7.1 annexed hereto) and reflected as capital lease obligations on the consolidated balance sheets of Company prepared in accordance with GAAP, and (iii) the Indebtedness under the Related Financing Documents which shall not exceed the amounts permitted pursuant to subsections 7.1(v) and 7.1(vi). 4. EXISTING CREDIT AGREEMENT PAYMENTS AND ASSIGNMENTS. (1) With respect to the Existing Credit Agreement, Company shall have paid to Bankers, as agent under the Existing Credit Agreement, for distribution to lenders and issuing lenders, as applicable, under the Existing Credit Agreement all unpaid accrued interest on all loans, all unpaid accrued commitment fees and all unpaid accrued fees on all Letters of Credit, in each case through but excluding the Effective Date. (2) On or before the Effective Date, Company, each lender under the Existing Credit Agreement, Bankers, as agent under the Existing Credit Agreement, each Lender and Agent under this Agreement shall have executed and delivered the Master Assignment Agreement, substantially in the form of Exhibit XX annexed hereto, and on the Effective Date, each such lender, Bankers, Lender and Agent shall have sold, purchased and/or assigned such loans and/or revolving loan commitments pursuant to the Master Assignment Agreement such that each Lender's Pro Rata Share of the Loans and/or Revolving Loan Commitments upon consummation of the closing shall be as set forth on Schedule 2.1 annexed hereto. 5. SECURITY INTERESTS. To the extent not otherwise satisfied pursuant to subsection 4.1F, each Loan Party shall have taken or caused to be taken (and Agent shall have received satisfactory evidence thereof) all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments and made or caused to be made all such filings and recordings (other than the filing or recording of items described in clauses (ii), (iii) and (iv) below) that may be necessary or, in the opinion of Agent, desirable in order to make or to continue in favor of Agent for the benefit of Lenders a valid and perfected first priority security interest in the entire Collateral (subject to Permitted Encumbrances and Liens set forth in Schedule 7.2 annexed hereto on specific property described in such Schedule and except to the extent any such security interest cannot be granted under applicable laws). Such actions shall include, without limitation, (i) delivery to Agent of certificates (which certificates shall be properly endorsed in blank for transfer or accompanied by irrevocable undated stock powers duly endorsed in blank, all in form and substance satisfactory to Agent) representing the capital stock pledged pursuant to the Holdings Pledge Agreement and the Pledge Agreements, and delivery to Agent of all other instruments (duly endorsed where appropriate) evidencing the Collateral, (ii) delivery to Agent of Uniform Commercial Code financing statements as to the Collateral for all jurisdictions as may be necessary or desirable to perfect or continue the perfection of the security interests granted to Agent in the Collateral, (iii) delivery to Agent of all cover 90 sheets, documents or other instruments required to perfect or continue the perfection of the Liens with the United States Patent and Trademark Office and (iv) delivery to Agent of such other documents and instruments that Agent deems necessary or advisable to establish, preserve and perfect or continue the perfection of the first priority Liens granted to Agent on behalf of Lenders under the Collateral Documents. 6. REAL PROPERTY ASSETS. Schedule 4.1F annexed hereto sets forth all Real Property Assets of Company or any of its Subsidiaries as of the Effective Date and identifies each such Real Property Asset which is subject to a Deed of Trust as of the Effective Date. Subject to subsection 6.11, Agent shall have received from Company and each of its Subsidiaries having Real Property Assets required to be subject to a Deed of Trust pursuant to this Agreement and which were not made subject to a Deed of Trust on the Closing Date, fully executed counterparts of such amendments to Deeds of Trust, or Deeds of Trust, in either case in form and substance satisfactory to Agent and in recordable form, together with evidence that such counterparts of such amendments to Deeds of Trust or Deeds of Trust have been recorded, or as soon as practicable following the Effective Date will be recorded, in all places to the extent necessary or desirable, in the judgment of Agent, so as to effectively amend the Deeds of Trust to the extent necessary or appropriate to encumber any Real Property Assets required to be subject to a Deed of Trust pursuant to this Agreement which were not made subject to a Deed of Trust on the Closing Date, subject only to Permitted Encumbrances. In addition, Agent shall have received such endorsements to the Title Insurance Policies as are reasonably required by Agent to insure that execution of this Agreement does not impair the validity of the Deeds of Trust with respect to the Real Property Assets insured thereunder recorded on the Closing Date. 7. OPINIONS OF LOAN PARTIES' COUNSEL. Lenders and their respective counsel shall have received (i) originally executed copies of one or more favorable written opinions of Latham & Watkins, counsel for the Loan Parties, in form and substance reasonably satisfactory to Agent and its counsel, dated the Effective Date and setting forth substantially the matters in the opinions designated in Exhibit XV-A annexed hereto and as to such other matters as Agent acting on behalf of Lenders may reasonably request, (ii) originally executed copies of one or more favorable written opinions of Wayne Bell, Esq., Senior Counsel of Company, in form and substance satisfactory to Agent and its counsel, dated the Effective Date and setting forth substantially the matters in the opinions designated in Exhibit XV-B annexed hereto and as to such other matters as Agent acting on behalf of Lenders may reasonably request, (iii) originally executed copies of one or more favorable written opinions of Irwin, Clutter & Severson, counsel for Falley's, in form and substance reasonably satisfactory to Agent and its counsel, dated the Effective Date and setting forth substantially the matters in the opinions designated in Exhibit XV-C annexed hereto and as to such other matters as Agent acting on behalf of Lenders may reasonably request. 8. OPINIONS OF AGENT'S COUNSEL. Lenders shall have received originally executed copies of one or more favorable written opinions of O'Melveny & Myers LLP, counsel to Agent, dated as of the Effective Date, substantially in the form of Exhibit XVI annexed hereto and as to such other matters as Agent acting on behalf of Lenders may reasonably request. 91 9. NO MATERIAL ADVERSE CHANGE. Since October 6, 1996 there shall have occurred no material adverse change in the condition (financial or otherwise), business, assets, liabilities, properties, results of operations or prospects of Company and its Subsidiaries, taken as a whole. 10. NO DISRUPTION OF FINANCIAL AND CAPITAL MARKETS. There shall have been no material adverse change after March 19, 1997, to the syndication markets for credit facilities similar in nature to the credit facilities provided herein and there shall not have occurred and be continuing a material disruption of or material adverse change in financial, banking or capital markets that would have an adverse effect on such syndication market, in each case as determined by Agent in its sole discretion. 11. FINANCIAL STATEMENTS. Agent shall have received on behalf of Lenders (a) the unaudited financial statements for Company and its Subsidiaries referred to in clauses (ii) and (iii) of subsection 5.3, all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments, (b) a pro forma balance sheet as of the Effective Date for Company and its Subsidiaries, prepared in accordance with GAAP (except as otherwise noted therein) and giving effect to the transactions contemplated by this Agreement, and (c) projected financial statements (including balance sheets and statements of operations and cash flows) of Company and its Subsidiaries for the eight-year period after the Effective Date, all of the foregoing to be (x) substantially consistent with any financial statements for the same periods delivered to the Agent prior to March 19, 1997, and in the case of any such financial statements for subsequent periods, substantially consistent with any projected financial results for such periods delivered to the Agent prior to such date and (y) otherwise in form and substance satisfactory to the Agent and the Lenders. 12. SOLVENCY ASSURANCES. Agent and Lenders shall have received a certificate from the chief financial officer of Company substantially in the form of Exhibit XIX annexed hereto, supporting the conclusions that, after giving effect to the transactions contemplated by this Agreement, Company will not be insolvent or will not be rendered insolvent by the indebtedness incurred in connection with the transactions contemplated by this Agreement, or be left with unreasonably small capital with which to engage in its businesses or have incurred debts beyond its ability to pay such debts as they mature. 13. AUDITOR'S LETTER. Agent shall have received executed copies of the Auditor's Letter. 14. FEES. Company shall have paid to Agent, for distribution (as appropriate) to Agent and Lenders, the fees payable on the Effective Date referred to in subsection 2.3. 15. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Each of Holdings and Company shall have delivered to Agent an Officers' Certificate, in form and substance satisfactory to Agent, to the effect that the representations and warranties in Section 5 hereof are true, correct and complete in all material respects on and as of the Effective Date to the same extent as though made on and as of that date and that each Loan 92 Party shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before the Effective Date except as otherwise disclosed to and agreed to in writing by Agent and Requisite Lenders. 16. CONSENTS. Company shall have delivered to Agent such consents, waivers, amendments or approvals as may be required to be obtained in connection with any material agreement in order to enter into and carry out its obligations under this Agreement, including, without limitation, a consent from each lender to any of the Loan Parties as may be required, in each case in form and substance satisfactory to Agent. 17. COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Agent and such counsel, and Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Agent may reasonably request. Each Lender hereby agrees that by its execution and delivery of its signature page hereto and by the funding of its Loans to be made on the Effective Date, such Lender approves of and consents to each of the matters set forth in this subsection 4.1 which must be approved by, or which must be satisfactory to, Requisite Lenders; provided that, in the case of any agreement or document which must be approved by, or which must be satisfactory to, Requisite Lenders, Agent or Company shall have delivered a copy of such agreement or document to such Lender on or prior to the Effective Date. B. CONDITIONS TO ALL LOANS. The obligations of each Lender to make Loans on each Funding Date (other than any Funding Date relating to any Refunded Swing Line Loans) are subject to the following further conditions precedent: 1. Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by the chief executive officer, the chief financial officer or the treasurer of Company or by any executive officer of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Agent. 2. As of that Funding Date: a. The representations and warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; 93 b. No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default; c. Each Loan Party shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before that Funding Date; d. No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making the Loans to be made by it on that Funding Date; e. The making of the Loans requested on such Funding Date shall not violate any law including, without limitation, Regulation G, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System; and f. There shall not be pending or, to the knowledge of any of the Loan Parties, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Loan Parties or any property of any of the Loan Parties that has not been disclosed by Company in writing pursuant to subsection 5.6 or 6.1(x) prior to the making of the last preceding Loans (or, in the case of the initial Loans, prior to the execution of this Agreement), and there shall have occurred no development not so disclosed in any such action, suit, proceeding, governmental investigation or arbitration so disclosed, that, in either event, in the opinion of Agent or of Requisite Lenders, could reasonably be expected to have a Material Adverse Effect; and no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated by this Agreement or the making of Loans hereunder. C. CONDITIONS TO LETTERS OF CREDIT. The issuance of any Letter of Credit hereunder (whether or not the applicable Issuing Lender is obligated to issue such Letter of Credit) is subject to the following conditions precedent: 1. On or before the date of issuance of the initial Letter of Credit pursuant to this Agreement, the initial Loans shall have been made. 2. On or before the date of issuance of such Letter of Credit, Agent shall have received, in accordance with the provisions of subsection 3.1B(i), an originally executed Request for Letter of Credit, in each case signed by the chief executive officer, the chief financial officer or the treasurer of Company or by any executive officer of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Agent, together with all other information specified in subsection 3.1B(i) and 94 such other documents or information as the applicable Issuing Lender may reasonably require in connection with the issuance of such Letter of Credit. 3. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.2B shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date. SECTION IV. REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce other Lenders to purchase participations therein, each of Holdings and Company represents and warrants to each Lender, on the date of this Agreement, on each Funding Date and on the date of issuance of each Letter of Credit, that the following statements are true, correct and complete: A. ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND SUBSIDIARIES. 1. ORGANIZATION AND POWERS. Each Loan Party is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each Loan Party has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby. 2. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its present business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and will not have, either individually or in the aggregate for all such jurisdictions, a Material Adverse Effect. 3. CONDUCT OF BUSINESS. Each Loan Party is engaged only in the businesses permitted to be engaged in pursuant to subsection 7.14. 4. SUBSIDIARIES. All of the Subsidiaries of Holdings are identified in Schedule 5.1 annexed hereto, as said Schedule 5.1 may be supplemented from time to time pursuant to the provisions of subsection 6.1(xvii). Notwithstanding anything to the contrary set forth in Schedule 5.1 annexed hereto, Golden Alliance is not and will not become a Subsidiary of Company and the financial results of the operations of Golden Alliance are not and will not be included in the consolidated financial reports of Company and its Subsidiaries. The capital stock of each of the Subsidiaries of Holdings identified in Schedule 5.1 annexed hereto is duly authorized, validly issued, fully paid and nonassessable and none of such capital stock constitutes Margin Stock. Each of the Subsidiaries of Holdings identified in Schedule 5.1 annexed hereto is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation set forth therein, has all requisite corporate power and authority to own and operate its properties and to carry on its 95 business as now conducted and as proposed to be conducted, and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or to have such corporate power and authority has not had and will not have, either individually or in the aggregate for all such failures, a Material Adverse Effect. Other than listing Subsidiaries of Company which may have been sold, merged, dissolved, transferred or otherwise disposed of after the Effective Date in accordance with the terms of this Agreement, Schedule 5.1 annexed hereto correctly sets forth for Holdings and each of its Subsidiaries (i) the ownership interest of Holdings and each of its Subsidiaries in each of the Subsidiaries of Holdings identified therein, (ii) the jurisdiction of incorporation of Holdings and each such Subsidiary, (iii) the number of issued and outstanding shares of capital stock of Holdings and each such Subsidiary, and (iv) whether any such Subsidiary is inactive. The aggregate assets and the annual revenues of all Subsidiaries identified as inactive on Schedule 5.1 does not and will not exceed $5,000,000 and $5,000,000, respectively. B. AUTHORIZATION OF BORROWING, ETC. 1. AUTHORIZATION OF BORROWING. The execution, delivery and performance of each Loan Document have been duly authorized by all necessary corporate action on the part of each Loan Party which is a party to such Loan Document. 2. NO CONFLICT. The execution, delivery and performance by each Loan Party of the Loan Documents to which such Loan Party is a party and the consummation of the transactions contemplated by the Loan Documents do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any of the Loan Parties, the Certificate or Articles of Incorporation or Bylaws of any of the Loan Parties, or any material order, judgment or decree of any court or other agency of government binding on any of the Loan Parties, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any material Contractual Obligation of any of the Loan Parties which could reasonably be expected to result in a Material Adverse Effect, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any of the Loan Parties (other than any Liens created under any of the Loan Documents in favor of Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any of the Loan Parties, except for such approvals or consents which will be obtained on or before the Effective Date (or, in the case of any Loan Document executed and delivered after the Effective Date, on or before such date of execution and delivery) and disclosed in writing to Lenders or such approvals or consents the failure to obtain could not reasonably be expected individually or in the aggregate to result in a Material Adverse Effect. 3. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and delivery of the Collateral Documents by Loan Parties, together with (i) the actions taken on or prior to the date hereof pursuant to subsection 4.1, 6.10 and 6.11 and (ii) the delivery to Agent of any pledged Collateral not delivered to Agent at the time of execution and delivery of the applicable Collateral Document (all of which pledged Collateral has been so delivered) are effective to create in favor of Agent for the benefit of Lenders, as security for the respective Secured Obligations (as defined in the applicable Collateral Document in respect of any 96 Collateral), a valid and perfected first priority Lien on all of the Collateral (subject to Permitted Encumbrances and Liens set forth on Schedule 7.2 annexed hereto on specific property described in such Schedule and except to the extent any such security interest cannot be granted under applicable laws), and all filings and other actions necessary or desirable to perfect and maintain the perfection and such first priority status of such Liens have been duly made or taken and remain in full force and effect, other than the filing of any UCC financing statements delivered to Agent for filing (but not yet filed) and the periodic filing of UCC continuation statements in respect of UCC financing statements filed by or on behalf of Agent. 4. GOVERNMENTAL CONSENTS. The execution, delivery and performance by each Loan Party of the Loan Documents to which such Loan Party is a party and the consummation of the transactions contemplated by the Loan Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body, except for (i) filings and recordings required in connection with the perfection of the security interests granted pursuant to the Loan Documents, (ii) such registrations, consents, approvals, notices or other actions which have been obtained on or before the Effective Date, and (iii) notices or other actions required to be taken after the Effective Date relating to operating licenses, which notices or other actions will be given or taken as required in due course (or, in the case of any Loan Document executed and delivered after the Effective Date, on or before such date of execution and delivery). 5. BINDING OBLIGATION. Each of the Loan Documents to which any Loan Party is a party has been duly executed and delivered by each Loan Party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 6. VALID ISSUANCE OF HOLDINGS COMMON STOCK, HOLDINGS PREFERRED STOCK AND NEW INDEBTEDNESS OF HOLDINGS AND COMPANY. a. (a) Holdings Common Stock. As of the Effective Date, the number of shares of issued and outstanding Common Stock of Holdings and the number of shares of issued and outstanding Non-Voting Common Stock of Holdings are as set forth in Schedule 5.1 annexed hereto. Such shares of Holdings Common Stock have been duly and validly issued, fully paid and nonassessable. Any issuance and sale of Holdings Common Stock, upon such issuance and sale, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. (b) Holdings Preferred Stock. As of the Effective Date the number of shares of issued and outstanding Series A Holdings Preferred Stock and the number of shares of issued and outstanding Series B Holdings Preferred Stock are as set forth in Schedule 5.1 annexed hereto. Such shares of Holdings Preferred Stock have been duly and validly issued, fully paid and nonassessable. Any issuance and sale of Holdings Preferred Stock, upon such 97 issuance and sale, will either (a) have been registered and qualified under applicable federal and state securities laws or (b) be exempt therefrom. (c) Pre-emptive Rights. Except as set forth in Schedule 5.1, no stockholder of Holdings has or will have any preemptive rights to subscribe for any additional equity Securities of Holdings. b. Certain Other Indebtedness of Holdings and Company. The Senior Debt Indentures, the Senior Indebtedness, the Subordinated Debt Indentures and the Subordinated Indebtedness, are the legally valid and binding obligations of Holdings or Company, as the case may be, enforceable against Holdings or Company, as the case may be, in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights or by equitable principles relating to enforceability. Each of Holdings and Company represents and warrants that the Loans and all other monetary Obligations hereunder are (i) a refunding or refinancing of the Indebtedness under the "Credit Agreement", as defined in the 1992 13.75% Senior Subordinated Note Indenture and (ii) a refinancing or replacement of the "1992 Credit Agreement", as defined in the 1993 9% Senior Subordinated Note Indenture and the 1992 10-1/4% Senior Subordinated Note Indenture. The subordination provisions of each of the Subordinated Notes and each of the Subordinated Debt Indentures are enforceable against the holders thereof and the Loans and all other monetary Obligations hereunder are within the definition of "SENIOR INDEBTEDNESS" included in such provisions. C. FINANCIAL CONDITION. Company has heretofore delivered to Lenders, at Lenders' request, the following financial statements and information: (i) the audited consolidated balance sheets of Company and its Subsidiaries as at January 28, 1996 and the related consolidated statements of operations, stockholders' equity and cash flows of Company and its Subsidiaries for the fiscal year then ended, (ii) the unaudited consolidated balance sheets of Company and its Subsidiaries as at April 21, 1996, July 14, 1996 and October 6, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows of Company and its Subsidiaries for the fiscal quarters then ended, and (iii) the unaudited consolidated balance sheets of Company and its Subsidiaries as at November 3, 1996, December 1, 1996, December 29, 1996, and March 2, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows of Company and its Subsidiaries for the fiscal month then ended and for the fiscal year-to-date fiscal periods then ended. All such statements were prepared in conformity with GAAP and fairly present the financial position (on a consolidated basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. None of the Loan Parties has any Contingent Obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or 98 otherwise) or prospects of the Loan Parties, taken as a whole, other than (i) the incurrence of the Obligations and (ii) contingent obligations or liabilities for taxes, long-term leases or forward or long-term commitments disclosed on Schedule 5.3 annexed hereto. D. NO MATERIAL ADVERSE CHANGE. Since January 28, 1996, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. E. TITLE TO PROPERTIES; LIENS. Each Loan Party has (i) good, sufficient and legal title, subject only to Permitted Encumbrances and, with respect to Real Property Assets acquired after the Effective Date by such Loan Party from a Person other than a Loan Party, such defects in title as existed prior to such acquisition, to (in the case of fee interests in real property), (ii) valid leasehold interests, subject only to Permitted Encumbrances and, with respect to Real Property Assets acquired after the Effective Date by such Loan Party from a Person other than a Loan Party, such defects in title as existed prior to such acquisition, in (in the case of leasehold interests in real or personal property), or (iii) good title to (in the case of all other personal property), all of its properties and assets reflected in the financial statements referred to in subsection 5.3 or in the most recent financial statements delivered pursuant to subsection 6.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under subsection 7.7. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. F. LITIGATION; ADVERSE FACTS. There are no actions, suits, proceedings, arbitrations or governmental investigations (whether or not purportedly on behalf of any of the Loan Parties) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of any Loan Party, threatened against or affecting any of the Loan Parties or any property of any of the Loan Parties that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No Loan Party is (i) in violation of any applicable laws that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or (ii) subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. G. PAYMENT OF TAXES. Except to the extent permitted by subsection 6.3, all material tax returns and reports of the Loan Parties required to be filed by any of them have been timely filed, and all material taxes, assessments, fees and other governmental charges upon the Loan Parties and upon their respective properties, assets, income, businesses and franchises which are due and 99 payable have been paid when due and payable. No Loan Party knows of any material proposed tax assessment against any of the Loan Parties which is not being actively contested by the relevant Loan Party in good faith and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. H. PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS. 1. No Loan Party is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any of its material Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 2. No Loan Party is a party to or is otherwise subject to any agreements or instruments the performance of which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or any charter or other internal restrictions which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. I. GOVERNMENTAL REGULATION. No Loan Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness for borrowed money or which may otherwise render all or any portion of the Obligations unenforceable. J. SECURITIES ACTIVITIES. 1. No Loan Party is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. 2. Following application of the proceeds of each Loan, not more than 25% of the value of the assets (either of Holdings only or of the Loan Parties on a consolidated basis) subject to the provisions of subsection 7.2 or 7.7 or subject to any restriction contained in any agreement or instrument, between Holdings or any other Loan Party and any Lender or any Affiliate of any Lender, relating to Indebtedness and within the scope of subsection 8.2, will be Margin Stock. K. EMPLOYEE BENEFIT PLANS. 1. Each of the Loan Parties and each of their respective ERISA Affiliates are in material compliance with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their material obligations under each Employee Benefit Plan. 100 2. No ERISA Events have occurred or are reasonably expected to occur which individually or in the aggregate resulted in or might reasonably be expected to result in a liability of any of the Loan Parties or any of their respective ERISA Affiliates (unless no Loan Parties shall be jointly and severally liable therefor) in excess of $3,000,000 during the term of this Agreement. 3. Except as disclosed on Schedule 5.11 annexed hereto and except to the extent required under Section 4980B of the Internal Revenue Code, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employees of any of the Loan Parties or any of their respective ERISA Affiliates (unless no Loan Parties shall be jointly and severally liable therefor). There are no material liabilities of any Loan Party under any of the plans listed on Schedule 5.11 annexed hereto that are not reflected in the consolidated financial statements of Company. 4. As of the most recent valuation date for any Pension Plan, the Amount of Unfunded Benefit Liabilities, individually or in the aggregate for all Pension Plans (excluding for purposes of such computation (1) any Pension Plans which have a negative Amount of Unfunded Benefit Liabilities and (2) any Pension Plan for which neither Company nor any other Loan Party would have any liability if the Pension Plan then terminated), does not exceed $6,000,000. L. CERTAIN FEES. Except as disclosed on Schedule 5.12 annexed hereto, no material broker's or finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and each of Holdings and Company hereby indemnifies Lenders against, and agrees that it will hold Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. M. ENVIRONMENTAL PROTECTION. 1. Except as set forth in Schedule 5.13 annexed hereto: a. the operations of the Loan Parties (including, without limitation, all operations and conditions at or in the Facilities) comply in all material respects with all Environmental Laws; b. each of the Loan Parties has obtained all Governmental Authorizations under Environmental Laws necessary to their respective operations, and all such Governmental Authorizations are in good standing, and each of the Loan Parties is in compliance with all material terms and conditions of such Governmental Authorizations; c. no Loan Party has received (a) any notice or claim to the effect that it is or may be liable to any Person as a result of or in connection with any Hazardous Materials except as would not reasonably be expected to have a Material Adverse 101 Effect or (b) any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9604) or comparable state laws regarding any matter which could reasonably be expected to result in a Material Adverse Effect, and, to the best of Holdings' and Company's knowledge, none of the operations of any of the Loan Parties is the subject of any federal or state investigation relating to or in connection with any Hazardous Materials at any Facility or at any other location; d. none of the operations of any of the Loan Parties is subject to any judicial or administrative proceeding alleging the violation of or liability under any Environmental Laws which if adversely determined could reasonably be expected to have a Material Adverse Effect; e. none of the Loan Parties or, to the best knowledge of Holdings or Company, any predecessor of the Loan Parties has filed any notice under any Environmental Law indicating past or present treatment or Release of Hazardous Materials at any Facility except as would not reasonably be expected to have a Material Adverse Effect, and none of Loan Parties' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent other than in compliance in all material respects with all applicable Environmental Laws; f. no Hazardous Materials exist on, under or about any Facility in a manner that has a reasonable possibility of giving rise to an Environmental Claim having a Material Adverse Effect, and no Loan Party has filed any notice or report of a Release of any Hazardous Materials that has a reasonable possibility of giving rise to an Environmental Claim having a Material Adverse Effect; g. none of the Loan Parties or, to the best knowledge of Holdings or Company, any of their respective predecessors has disposed of any Hazardous Materials in a manner that has a reasonable possibility of giving rise to an Environmental Claim having a Material Adverse Effect; h. no unpermitted underground storage tanks or surface impoundments are on or at any Facility; and i. no material Lien in favor of any Person relating to or in connection with any Environmental Claim has been filed or has been attached to any Facility. 2. None of the Loan Parties or any of their respective Facilities or operations are subject to any outstanding written order or agreement with any governmental authority or private party relating to (a) any Environmental Laws or (b) any Environmental Claims which could reasonably be expected to result in a liability to Company or any of its Subsidiaries, after giving effect to indemnification payable to Company or any Subsidiary with respect to the LaHabra Complex (Alpha Beta Store No. 1900), in excess of $12,000,000 individually or in the aggregate. 102 3. None of the Loan Parties has any contingent liability in connection with any Release of any Hazardous Materials by the Loan Parties which could reasonably be expected to result in a liability to Company or any of its Subsidiaries, after giving effect to indemnification payable to Company or any Subsidiary with respect to the LaHabra Complex (Alpha Beta Store No. 1900), in excess of $12,000,000 individually or in the aggregate. 4. Notwithstanding anything in this subsection 5.13 to the contrary, no event or condition has occurred with respect to the Loan Parties relating to any Environmental Laws or any Release of Hazardous Materials at any Facility or any other location, including, without limitation, any matter disclosed on Schedule 5.13 annexed hereto, which, individually, or in the aggregate, has had a Material Adverse Effect. N. EMPLOYEE MATTERS. There is no strike or work stoppage in existence or threatened involving any of the Loan Parties that could reasonably be expected to have a Material Adverse Effect. O. SOLVENCY. Each of the Loan Parties is and, upon the incurrence of any Obligations by Company on any date on which this representation is made, will be, Solvent. P. DISCLOSURE. No representation or warranty of the Loan Parties contained in any Loan Document, or in any other document, certificate or written statement furnished to Lenders by or at the direction of any Loan Party for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to Holdings or Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings or Company, as the case may be, to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Holdings or Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. Q. INTELLECTUAL PROPERTY. 1. All Intellectual Property as of the Effective Date is identified on Schedule 5.17 annexed hereto. Company and its Subsidiaries own, or are licensed (to the extent required to be so licensed) to use, the Intellectual Property and all such Intellectual Property is fully protected and duly and properly registered, filed or issued in the appropriate office and 103 jurisdictions for such registrations, filings or issuances, and the Loan Parties own all of the right, title and interest in and to such Intellectual Property under the applicable laws of the United States free and clear of any Lien (other than Liens permitted under this Agreement), in each case except where the failure to do or have the foregoing could not reasonably be expected to result in a Material Adverse Effect. 2. No material claim has been asserted by any Person with respect to the use of any such Intellectual Property, or challenging or questioning the validity or effectiveness of any such Intellectual Property. The use of such Intellectual Property by Company or any of its Subsidiaries does not infringe on the rights of any Person, subject to such claims and infringements as do not, individually or in the aggregate, give rise to any liabilities on the part of Company or any of its Subsidiaries that are material to Company and its Subsidiaries, taken as a whole. The consummation of the transactions contemplated by this Agreement will not in any material manner or to any material extent impair the ownership of (or the license to use, as the case may be) any of such Intellectual Property by Company or any of its Subsidiaries. R. PERMITS. Except as disclosed in Schedule 5.18 annexed hereto, each of the Loan Parties has such certificates, permits, licenses, franchises, consents, approvals, authorizations and clearances that are material to the condition (financial or otherwise), business or operations of any Loan Party ("PERMITS") and is in compliance in all material respects with all applicable laws as are necessary to own, lease or operate its properties and to conduct its businesses in the manner as presently conducted, and all such Permits are valid and in full force and effect. Each of the Loan Parties is in compliance in all material respects with its obligations under such Permits and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination of such Permits, except for any such revocation or termination which could not reasonably be expected to individually or in the aggregate have a Material Adverse Effect. SECTION V. AFFIRMATIVE COVENANTS Each of Holdings and Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, each of Holdings and Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. A. FINANCIAL STATEMENTS AND OTHER REPORTS. Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Company will deliver to Agent and Lenders: 104 a. Fiscal Period Financials: as soon as practicable and in any event within 30 days (or, in the case of the last Fiscal Period in any Fiscal Quarter (other than the last Fiscal Quarter in any Fiscal Year), 45 days or, in the case of the last Fiscal Period in any Fiscal Year, 90 days) after the end of each Fiscal Period ending after the Effective Date, (a) the balance sheets of each Reporting Division as at the end of such Fiscal Period, (b) the related statements of operations and cash flows of such Reporting Division and (c) a schedule containing a summary of comparable store sales growth for such Reporting Division and for the conventional store businesses of Company and the Subsidiaries included in clause (d) of the definition of "Reporting Division" on a consolidated basis and for the warehouse store businesses of Company and the Subsidiaries included in clause (d) of the definition of "Reporting Division" on a consolidated basis, in each case for such Fiscal Period and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Period, setting forth in each case in comparative form the corresponding figures for (1) the corresponding periods of the previous Fiscal Year and (2) the corresponding figures from the plan and financial forecast for the current Fiscal Year delivered pursuant to subsection 6.1(xiii), all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of such Reporting Division as at the dates indicated and the results of its operations and its cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; b. Quarterly Financials: as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year and within 90 days after the end of the fourth Fiscal Quarter of each Fiscal Year, the consolidated balance sheets of each of Holdings and its Subsidiaries and Company and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of operations, stockholders' equity and cash flows of each of Holdings and its Subsidiaries and Company and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year, all as set forth in Holdings' or Company's report on Form 10-Q, as the case may be, and the corresponding figures from the consolidated plan and financial forecast for the current Fiscal Year delivered pursuant to subsection 6.1(xiii), all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Holdings and its Subsidiaries and Company and its Subsidiaries, as the case may be, as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; c. Year-End Financials: as soon as available and in any event (a) within 90 days after the end of each Fiscal Year, the consolidated balance sheets of each of Holdings and its Subsidiaries and Company and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of operations, stockholders' equity and cash flows of each of Holdings and its Subsidiaries and Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year, all as set forth in Holdings' or 105 Company's report on Form 10-K, as the case may be, and the corresponding figures from the consolidated plan and financial forecast delivered pursuant to subsection 6.1(xiii) for the Fiscal Year covered by such financial statements, all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of each of Holdings and its Subsidiaries and Company and its Subsidiaries, as the case may be, as at the dates indicated and the results of their operations and their cash flows for the periods indicated, and (b) within 90 days after the end of each Fiscal Year (or, if an extension has been obtained from the Securities and Exchange Commission for filing such report after such 90th day, then on the date of delivery of such report to the Securities and Exchange Commission and in any event within 105 days after the end of such Fiscal Year) in the case of such consolidated financial statements, (1) a report thereon of Arthur Andersen LLP or other independent certified public accountants of recognized national standing selected by Company and satisfactory to Agent, which report shall be unqualified as to scope of audit, shall express no doubts about the ability of each of Holdings and its Subsidiaries and Company and its Subsidiaries to continue as a going concern, and shall state that such consolidated financial statements fairly present the consolidated financial position of each of Holdings and its Subsidiaries and Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards and (2) a letter from Arthur Andersen LLP or other independent certified public accountants, substantially in the form of Exhibit XVIII annexed hereto with such changes as are approved by Agent, acknowledging that Lenders will receive such consolidated financial statements and such report and will use such financial statements and report in their credit analyses of Holdings and its Subsidiaries and Company and its Subsidiaries; d. Officers' and Compliance Certificates: (a) together with each delivery of financial statements of Holdings and its Subsidiaries and Company and its Subsidiaries pursuant to subdivisions (ii) and (iii) above, (1) an Officers' Certificate of Company stating that the signers have reviewed the terms of this Agreement and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of each of Holdings and its Subsidiaries and Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officers' Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Company has taken, is taking and proposes to take with respect thereto; and (2) a Compliance Certificate duly executed and duly completed in all respects provided that with respect to the delivery of financial statements for Company's Fiscal Year ended February 2, 1997, such Compliance Certificate shall be completed with reference to the Company's compliance with the covenants contained in the Existing Credit Agreement; and (b) within 100 days after the beginning of each Fiscal Year and in 106 any event on or prior to the date of any mandatory prepayments made pursuant to subsection 2.4B(iii)(e) during such Fiscal Year, an Officers' Certificate of Company setting forth the Consolidated Excess Cash Flow for the Fiscal Year covered by such financial statements and demonstrating in reasonable detail the derivation of such Consolidated Excess Cash Flow; e. Reconciliation Statements: if, as a result of any change in accounting principles and policies from those used in the preparation of the audited financial statements referred to in subsection 5.3, the financial statements of Holdings and its Subsidiaries or any Reporting Division delivered pursuant to subdivisions (i), (ii), (iii) or (xiii) of this subsection 6.1 will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then, subject to subsection 1.2, (a) together with the first delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following such change, financial statements of Holdings and its Subsidiaries or any Reporting Division for the current Fiscal Year to the effective date of such change, in each case prepared on a pro forma basis as if such change had been in effect during such periods, and (b) together with each delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following such change, such financial statements prepared on a basis consistent with the accounting principles and policies used in the preparation of the financial statements delivered immediately prior to such change; f. Accountants' Certification: together with each delivery of consolidated financial statements of each of Holdings and its Subsidiaries and Company and its Subsidiaries pursuant to subdivision (iii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default that relates to accounting matters has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination, and (b) stating that based on their audit examination nothing has come to their attention that causes them to believe that the information contained in the certificates delivered therewith pursuant to subdivision (iv) above is not correct; g. Accountants' Reports: promptly upon receipt thereof (unless restricted by applicable professional standards), copies of any comment letter submitted to the management of Holdings or Company by independent certified public accountants in connection with each annual audit of the financial statements of Holdings and its Subsidiaries or Company and its Subsidiaries, as the case may be, made by such accountants; h. SEC Filings and Press Releases: promptly upon the sending or filing thereof, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by any Loan Party to its public security holders, (b) all regular and periodic reports and all registration statements (other than on Form S-8 107 or a similar form) and prospectuses, if any, filed by Holdings or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority (other than reports of a routine or ministerial nature which are not material), and (c) all press releases and other statements made available generally by Holdings or any of its Subsidiaries to the public concerning material developments in the business of Holdings or any of its Subsidiaries; i. Events of Default, etc.: promptly upon any Specified Officer of any Loan Party obtaining knowledge (a) that a condition or event that constitutes an Event of Default or Potential Event of Default has occurred and is continuing, or becoming aware that any Lender or Agent has given any notice (other than to Agent) or taken any other action with respect to a claimed Event of Default or Potential Event of Default, (b) that any Person has given any notice to Holdings or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 8.2 or (c) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action the relevant Loan Party has taken, is taking and proposes to take with respect thereto; j. Litigation or Other Proceedings: promptly upon any Specified Officer of any Loan Party obtaining knowledge of (X) the institution of, or nonfrivolous threat of, any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries (collectively, "PROCEEDINGS") not previously disclosed in writing by Company to Lenders or (Y) any material development in any Proceeding that, in any case: (1) if adversely determined, has a reasonable possibility of giving rise to a Material Adverse Effect; or (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions to occur or which have occurred pursuant to the Loan Documents; written notice thereof together with such other information as may be reasonably available to Company to enable Lenders and their counsel to evaluate such matters; k. ERISA Events: promptly upon any Specified Officer of any Loan Party becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what action Holdings or any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or 108 threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; l. ERISA Notices: with reasonable promptness, copies of (a) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Holdings or any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (b) all notices received by Holdings or any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (c) such other documents or governmental reports or filings relating to any Employee Benefit Plan as Agent shall reasonably request; m. Financial Plans: as soon as practicable and in any event no later than 30 days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year as customarily prepared by Holdings and Company, including without limitation (a) forecasted balance sheets and forecasted statements of operations and cash flows of Holdings and its Subsidiaries on a consolidated basis and each Reporting Division for such Fiscal Year, together with an explanation of the assumptions on which such forecasts are based, (b) forecasted statements of operations and cash flows of each Reporting Division for each Fiscal Period of such Fiscal Year, together with an explanation of the assumptions on which such forecasts are based, and (c) such other information and projections as any Lender may reasonably request; n. Insurance: as soon as practicable and in any event by the last day of each Fiscal Year, an Officers' Certificate or other report, in each case in form and substance satisfactory to Agent outlining all material insurance coverage maintained as of the date of such Officers' Certificate or report by Holdings and its Subsidiaries and all material insurance coverage planned to be maintained by Holdings and its Subsidiaries in the immediately succeeding Fiscal Year; o. Environmental Audits and Reports: as soon as practicable following receipt thereof, copies of all environmental audits and reports (other than routine follow-up reports to matters previously disclosed to Lenders), whether prepared by personnel of Holdings or any of its Subsidiaries or by independent consultants, with respect to significant environmental matters at any Facility or which relate to an Environmental Claim which could reasonably be expected to result in a Material Adverse Effect; p. Board of Directors: with reasonable promptness, written notice of any change in the Board of Directors of Holdings or Company; q. Changes Regarding Subsidiaries: (a) promptly upon any Person becoming a Subsidiary of Holdings, a written notice setting forth with respect to such Person (1) the date on which such Person became a Subsidiary of Holdings and (2) all of the data required to be set forth in Schedule 5.1 annexed hereto with respect to all Subsidiaries of Holdings (it being understood that such written notice shall be deemed to supplement Schedule 5.1 annexed hereto for all purposes of this Agreement) and (b) together with each delivery of financial statements of Holdings and its Subsidiaries 109 and Company and its Subsidiaries pursuant to subdivision (ii) above, a written notice setting forth with respect to each Subsidiary of Holdings which was sold, merged, dissolved, transferred or otherwise disposed of during the Fiscal Quarter covered by such financial statements the circumstances of such transaction in reasonable detail; r. Margin Determination Certificate: concurrently with the delivery of the financial statements required under subsections 6.1(ii) and 6.1(iii), Company shall deliver a Margin Determination Certificate; s. Amendments to Certain Documents: within five Business Days of entering into any amendment to or modification of any of the tax sharing agreements referred to in subsection 7.12(viii) or the warrant referred to in subsection 7.12(ix), a copy of such amendment or modification; and t. Other Information: with reasonable promptness, such other information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by any Lender. B. CORPORATE EXISTENCE, ETC. Except as permitted under subsection 7.7, each of Holdings and Company will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to its business; provided that the corporate existence and rights and franchises of those Subsidiaries of Holdings identified on Schedule 5.1 annexed hereto as inactive (so long as such Subsidiary owns assets in an aggregate fair market value (without netting any such fair market value against any liabilities of such Subsidiary) not exceeding $1,000,000) may be terminated. C. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. 1. Each of Holdings and Company will, and will cause each of its Subsidiaries to, pay all material taxes, assessments and other governmental charges imposed upon it or any of its material properties or assets or in respect of any of its income, businesses or franchises before any material penalty accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any material penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. 2. Each of Holdings and Company will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Holdings or any of its Subsidiaries). 110 D. MAINTENANCE OF PROPERTIES; INSURANCE. 1. Each of Holdings and Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all of the Collateral (without limiting any obligations under the Collateral Documents) and all other material properties used or useful in the business of Holdings and its Subsidiaries (including, without limitation, Intellectual Property) and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. Each of Holdings and Company will maintain or cause to be maintained, with financially sound and reputable insurance companies or associations or with self-insurance programs, in each case to the extent consistent with prudent business practices and customary in their respective industries, insurance with respect to its properties and business and the properties and businesses of its Subsidiaries against loss or damage of the kinds (including, in any event, business interruption insurance and, to the extent commercially reasonable, earthquake insurance) and in the amounts customarily carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses and owning similar properties in the same general geographic areas in which Holdings, Company or any of their respective Subsidiaries, as the case may be, operates. In addition, each of Holdings and Company will maintain or cause to be maintained flood insurance with respect to each Flood Hazard Property included in the Collateral and located in a community that participates in the National Flood Insurance Program. All insurance relating to the Collateral shall comply with the insurance provisions of the Collateral Documents. 2. In the event that Company or any of its Subsidiaries, in connection with any casualty or casualties involving assets of Company or any of its Subsidiaries, receives (a) proceeds of insurance in excess of $5,000,000 in connection with any one casualty, or (b) aggregate proceeds of insurance in excess of $15,000,000 from all such casualties (on a cumulative basis, net of any proceeds already used to restore the assets affected by such casualty or casualties or to make prepayments in accordance with subsection 2.4B(iii)(a)), Company shall immediately pay all such insurance proceeds (and not just such excess) over to Agent, and Agent shall hold such proceeds in an interest bearing account. Agent shall (i) so long as no Event of Default has occurred and is continuing, disburse all such insurance proceeds (and any earnings on amounts held in such interest bearing account) held by it to Company, in accordance with and subject to such customary terms, conditions and procedures as Agent shall require, for the sole purpose of restoring (or reimbursing Company or any of its Subsidiaries for restoration costs previously expended and for costs expended in obtaining such proceeds with respect to) the affected assets, or, (ii) at Company's option (or if otherwise required by subsection 2.4B(iii)(a)), apply such proceeds and such earnings for the purpose of making a prepayment in accordance with subsection 2.4. Company hereby authorizes Agent to make such prepayments with such proceeds and such earnings. If an Event of Default has occurred and is continuing, Agent may elect, in its sole and absolute discretion, (i) to apply all or any portion of such insurance proceeds and such earnings to the restoration of any of the Collateral, subject to conditions determined by Agent, (ii) to disburse any such insurance proceeds and such earnings to Company for the purposes set forth in the immediately preceding sentence, (iii) to hold such insurance proceeds and such earnings as additional Collateral under the Collateral Documents or (iv) to apply such insurance proceeds and such earnings as provided for in the Loan Documents. 111 E. INSPECTION; LENDER MEETING. Each of Holdings and Company shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of Holdings or any of its Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that representatives of Holdings or any of its Subsidiaries may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested. Without in any way limiting the foregoing, each of Holdings and Company will, upon the request of Agent or Requisite Lenders, participate in a meeting of Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or such other location as may be agreed to by Company and Agent) at such time as may be agreed to by Company and Agent. F. COMPLIANCE WITH LAWS, ETC. Each of Holdings and Company shall, and shall cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which could reasonably be expected to cause a Material Adverse Effect. G. ENVIRONMENTAL DISCLOSURE AND INSPECTION. 1. Each of Holdings and Company shall, and shall cause each of its Subsidiaries to, exercise all due diligence in order to comply and cause (i) all tenants under any leases or occupancy agreements affecting any portion of the Facilities and (ii) all other Persons on or occupying such property, to comply with all Environmental Laws. 2. Each of Holdings and Company agrees that Agent may, from time to time and in its sole and absolute discretion, retain, at Company's expense, an independent professional consultant to review any report relating to Hazardous Materials prepared by or for Holdings or any of its Subsidiaries and to conduct its own investigation of any Facility currently owned, leased, operated or used by Holdings or any of its Subsidiaries, and each of Holdings and Company agrees to use its best efforts to obtain permission for Agent's professional consultant to conduct its own investigation of any Facility previously owned, leased, operated or used by Holdings or any of its Subsidiaries. Each of Holdings and Company hereby grants (to the extent it is authorized to do so) to Agent and its agents, employees, consultants and contractors the right to enter into or on to the Facilities currently owned, leased, operated or used by Holdings or any of its Subsidiaries to perform such tests on such property as are reasonably necessary to conduct such a review and/or investigation. Any such investigation of any Facility shall be conducted, unless otherwise agreed to by such Person and Agent, during normal business hours and, to the extent reasonably practicable, shall be conducted so as not to interfere with the ongoing operations at any such Facility or to cause any damage or loss to any property at such Facility. Each of Holdings and Company and Agent hereby acknowledge and agree that any report of any investigation conducted at the request of Agent pursuant to this subsection 6.7B will be obtained and shall 112 only be used by Agent and Lenders for the purposes of Lenders' internal credit decisions, to monitor and police the Loans and to protect Lenders' security interests, if any, created by the Loan Documents. Agent agrees to deliver a copy of any such report to Company with the understanding that Company acknowledges and agrees that (i) it will indemnify and hold harmless Agent and each Lender from any costs, losses or liabilities relating to Holdings' or any of its Subsidiaries' use of or reliance on such report, (ii) neither Agent nor any Lender makes any representation or warranty with respect to such report, and (iii) by delivering such report to Company, neither Agent nor any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report. 3. Company shall promptly advise Lenders in writing and in reasonable detail of (i) any Release of any Hazardous Materials at any Facility required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws, (ii) any and all written communications with any governmental authority or any adverse party with respect to any Environmental Claims that have a reasonable possibility of giving rise to a Material Adverse Effect or with respect to any Release of Hazardous Materials at any Facility required to be reported to any federal, state or local governmental or regulatory agency, (iii) any remedial action taken by Holdings or any of its Subsidiaries or any other Person in response to (x) any Hazardous Materials on, under or about any Facility, the existence of which has a reasonable possibility of resulting in an Environmental Claim having a Material Adverse Effect, or (y) any Environmental Claim that could reasonably be expected to result in a Material Adverse Effect, (iv) Holdings' or any of its Subsidiaries' discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that could cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws, and (v) any request for information from any governmental agency that suggests such agency is investigating whether Holdings or any of its Subsidiaries may be potentially responsible for a Release of Hazardous Materials. 4. Company shall promptly notify Lenders of (i) any proposed acquisition of stock, assets, or property by Holdings or any of its Subsidiaries that could reasonably be expected to expose Holdings or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have a Material Adverse Effect or that could reasonably be expected to have a material adverse effect on any Governmental Authorization then held by Holdings or any of its Subsidiaries and (ii) any proposed action to be taken by Holdings or any of its Subsidiaries to commence manufacturing, industrial or other operations that could reasonably be expected to subject Holdings or any of its Subsidiaries to additional laws, rules or regulations which could reasonably be expected to have a Material Adverse Effect, including, without limitation, laws, rules and regulations requiring additional environmental permits or licenses. 5. Each of Holdings and Company shall, at its own expense, provide copies of such documents or information as Agent may reasonably request in relation to any matters disclosed pursuant to this subsection 6.7. 113 H. LOAN PARTIES' REMEDIAL ACTION REGARDING HAZARDOUS MATERIALS. Each of Holdings and Company shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all necessary remedial action in connection with the presence, storage, use, disposal, transportation or Release of any Hazardous Materials on, under or about any Facility in order to comply with all applicable Environmental Laws and Governmental Authorizations. In the event Holdings or any of its Subsidiaries undertakes any remedial action with respect to any Hazardous Materials on, under or about any Facility, Holdings or such Subsidiary shall conduct and complete such remedial action in compliance with all applicable Environmental Laws, and in accordance with the policies, orders and directives of all federal, state and local governmental authorities except when, and only to the extent that, Holdings' or such Subsidiary's liability for such presence, storage, use, disposal, transportation or discharge of any Hazardous Materials is being contested in good faith by Holdings or such Subsidiary. I. INTEREST RATE PROTECTION. Within 120 days of the Closing Date, Company shall obtain, and shall thereafter cause to be maintained for a period of not less than two years, one or more Interest Rate Agreements with respect to the Loans, in an aggregate notional principal amount of not less than $300,000,000, each such Interest Rate Agreement to be in form and substance satisfactory to Agent. J. EXECUTION OF GUARANTY AND COLLATERAL DOCUMENTS BY FUTURE SUBSIDIARIES. In the event that any Person becomes a Subsidiary of Company after the date hereof, Company will promptly notify Agent of that fact and cause (i) such Subsidiary to execute and deliver to Agent a counterpart of the Guaranty, the Security Agreement, the Trademark Security Agreement, Deeds of Trust, the Deposit Accounts Security Agreement and the Pledge Agreement and to take all such further action and execute all such further documents and instruments as may be required to grant and perfect in favor of Agent, for the benefit of Lenders, a first-priority security interest (subject only to Liens permitted under this Agreement) in all of the real, personal and mixed property assets of such Subsidiary (other than with respect to Excluded Sites and other than any such assets which are subject to Liens permitted under subsection 7.2A(v) and other Real Property Assets that such Subsidiary would not be obligated to pledge to Agent pursuant to subsection 6.11 (it being understood and agreed that all of the requirements of subsection 6.11 are applicable to the Real Property Assets of such Subsidiary, with the date such Subsidiary became a Subsidiary of the Company being treated for purposes of subsection 6.11 as the date on which such Subsidiary acquired all of its Real Property Assets)) and (ii) the parent of such Subsidiary to execute and deliver to Agent a counterpart of the Pledge Agreement or a Pledge Amendment to the Pledge Agreement previously executed by such parent effecting the pledge by such parent to Agent of all of the capital stock of, or any other equity interest in, such Subsidiary. Company shall deliver to Agent, together with such Guaranty and such Collateral Documents, (i) certified copies of such Subsidiary's Articles or Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation, each to be dated a recent date prior to their delivery to Agent, (ii) a copy of such Subsidiary's Bylaws, certified by its corporate secretary or an assistant corporate 114 secretary as of a recent date prior to their delivery to Agent, (iii) a certificate executed by the Secretary or an assistant secretary of such Subsidiary as to (a) the incumbency and signatures of the officers of such Subsidiary executing the Guaranty and the Collateral Documents to which such Subsidiary is a party and (b) the fact that the attached resolutions of the Board of Directors of such Subsidiary authorizing the execution, delivery and performance of the Guaranty and such Collateral Documents are in full force and effect and have not been modified or rescinded, (iv) the certificate or certificates evidencing all of the capital stock of (or, if certificated, any other equity interest in) such Subsidiary, and (v) if requested by Agent, a favorable opinion of counsel to such Subsidiary, in form and substance satisfactory to Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary, (b) the due authorization, execution and delivery by such Subsidiary of the Guaranty and such Collateral Documents, (c) the enforceability of the Guaranty, and such Collateral Documents against such Subsidiary, and (d) such other matters as Agent may reasonably request, all of the foregoing to be satisfactory in form and substance to Agent and its counsel. Upon the repayment of the indebtedness which is secured by the capital stock of Bell Markets, Inc. as described in Schedule 7.2 annexed hereto, Company shall cause Cala to pledge all of the capital stock of Bell Markets, Inc. to Secured Party (as defined in the Pledge Agreement) pursuant to the Pledge Agreement. K. ADDITIONAL REAL PROPERTY. After the Effective Date, each of Holdings and Company shall, and shall cause its Subsidiaries to, with respect to each Real Property Asset listed in Schedule 4.1F annexed hereto (to the extent the items listed below have not been obtained or delivered to Agent on the Closing Date or the Effective Date and can, using reasonable commercial efforts, be obtained) and each Real Property Asset in which Company or such Subsidiary acquires fee title or a leasehold interest after the Effective Date (in each case excluding any Real Property Asset which is and so long as it remains (A) an Excluded Site, or (B) a leasehold interest as to which encumbrancing requires the consent of the lessor, where Company and its Subsidiaries have been unable to obtain the applicable lessor's consent thereto, or (C) an asset subject to a Lien permitted under subsection 7.2A(iv) or (v)) (such non-excluded Real Property Assets collectively, "COVERED REAL PROPERTY"), as soon as practicable and in any event within three months after the applicable Real Property Asset becomes Covered Real Property (or within one month after the Effective Date, with respect to the Real Property Assets identified with a "PC" in the "Mortgage" column listed on Schedule 4.1F), deliver: (1) fully executed counterparts of a Deed of Trust, or an amendment to a Deed of Trust, in form satisfactory to Agent, which Deed of Trust or amendment shall encumber such Covered Real Property, together with evidence that counterparts of such Deed of Trust or amendment have been recorded in all places to the extent necessary or desirable, in the reasonable judgment of Agent, so as to effectively create a valid and enforceable first priority lien (subject only to Permitted Encumbrances) on such Covered Real Property in favor of Agent (or such other trustee as may be required or desired under local law) for the benefit of Lenders, 115 (2) if requested by Agent, a title report, title commitment or other title search satisfactory to Agent obtained by such Person in respect of such Covered Real Property, (3) if requested by Agent, an opinion of counsel (which counsel shall be reasonably satisfactory to Agent) in the state in which such Covered Real Property is located with respect to the enforceability of the Deeds of Trust recorded in such state and such other matters as Agent may request, in form and substance satisfactory to Agent, (4) in the case of each such Covered Real Property consisting of a leasehold interest, a copy of the lease (including all amendments thereto), together with such estoppel letters, consents, waivers, recorded memoranda and agreements from the lessor on such real property as are reasonably required by Agent, (5) environmental audits prepared by professional consultants mutually acceptable to Company and Agent, in form, scope and substance satisfactory to Agent in its reasonable discretion, (6) if Company or any of its Subsidiaries obtains an owner's or lessee's policy of title insurance with respect to such Covered Real Property, or if requested by Agent with respect to any other Covered Real Property having an acquisition cost or value (as estimated by Agent) in excess of $2,000,000, a Title Insurance Policy, in an amount reasonably satisfactory to Agent, with respect to Agent's lien thereon, (7) information sufficient for Agent to determine whether (1) any such Real Property Asset is Flood Hazard Property and (2) the community in which each Flood Hazard Property is located is participating in the National Flood Insurance Program, (8) upon Company's or such Subsidiary's receipt of written notification from Agent (1) as to the existence of each such Flood Hazard Property and (2) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program, written acknowledgment of the receipt of such notification; and (9) the evidence of insurance with respect to such Real Property Asset required to be provided to Agent pursuant to the terms of the Deeds of Trust, including flood insurance with respect to each Flood Hazard Property located in a community that is participating in the National Flood Insurance Program. Company shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by Agent to visit and inspect any Real Property Asset for the purpose of obtaining an appraisal of value, conducted by consultants retained by Agent in compliance with all applicable banking regulations. 116 L. REDEMPTION OF CERTAIN INDEBTEDNESS. On or prior to April 28, 1997, the Company shall have called for redemption, and shall have redeemed, all of its outstanding 1992 13.75% Senior Subordinated Notes and 1995 13.75% Senior Subordinated Notes at a redemption price which does not exceed 106.111% of the principal amount thereof plus accrued interest to the date of redemption. SECTION VI. NEGATIVE COVENANTS Each of Holdings and Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, each of Holdings and Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 7. A. INDEBTEDNESS. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: a. the Loan Parties may become and remain liable with respect to Indebtedness which is included among the Obligations; b. Holdings and its Subsidiaries may become and remain liable with respect to Contingent Obligations permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, the Indebtedness corresponding to the Contingent Obligations so extinguished; c. Company and its Subsidiaries may become and remain liable with respect to Indebtedness in respect of Capital Leases; provided that such Capital Leases are permitted under the terms of subsection 7.9; d. Company may become and remain liable with respect to Indebtedness to any of its wholly-owned Subsidiaries, and any wholly-owned Subsidiary of Company may become and remain liable with respect to Indebtedness to Company or any other wholly-owned Subsidiary of Company; provided that (a) all such intercompany Indebtedness shall be evidenced by promissory notes that are pledged to Agent pursuant to the terms of the applicable Collateral Document, (b) all such intercompany Indebtedness owed by Company to any of its Subsidiaries shall be subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement, in each case approved by Agent, and (c) any payment by any Subsidiary of Company under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any intercompany Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries for whose benefit such payment is made; 117 e. Holdings may become and remain liable with respect to Indebtedness evidenced by the Seller Debentures in an aggregate principal amount not to exceed $131,500,000 and the Holdings Discount Debentures in an aggregate principal amount not to exceed (at maturity) $193,363,750, minus the aggregate principal amount thereof from time to time repurchased, redeemed or prepaid; f. Company may become and remain liable with respect to Indebtedness evidenced by its 1995 11% Senior Subordinated Notes in an aggregate principal amount not to exceed $524,005,000, its 1997 11% Senior Subordinated Notes in an aggregate principal amount not to exceed $155,000,000, its 1993 9% Senior Subordinated Notes in an aggregate principal amount not to exceed $145,000, its 1992 10-1/4% Senior Subordinated Notes in an aggregate principal amount not to exceed $2,100,000, its 1992 13.75% Senior Subordinated Notes in an aggregate principal amount not to exceed $4,816,000, its 1995 13.75% Senior Subordinated Notes in an aggregate principal amount not to exceed $140,200,000, its 1992 10.45% Senior Notes in an aggregate principal amount not to exceed $4,700,000, its 1995 10.45% Senior Notes in an aggregate principal amount not to exceed $520,326,000 and its 1996 10.45% Senior Notes in an aggregate principal amount not to exceed $100,000,000, minus in each case the aggregate principal amount thereof from time to time repurchased, redeemed or prepaid; g. Company and its Subsidiaries, as applicable, may remain liable with respect to each of the items of existing Indebtedness described in Schedule 7.1 annexed hereto and any Indebtedness incurred to refinance such existing Indebtedness; provided that after giving effect to such refinancing Indebtedness and the repayment of the corresponding existing Indebtedness with the proceeds thereof, (a) the aggregate principal amount of the refinancing Indebtedness and the corresponding existing Indebtedness so refinanced shall not be greater than the outstanding principal amount of such existing Indebtedness immediately prior to such refinancing, (b) the weighted average life to maturity of such refinancing Indebtedness shall be no shorter than the existing Indebtedness being refinanced and (c) such refinancing Indebtedness shall not be secured by any additional property than that which secures the existing Indebtedness being refinanced; h. Company and its Subsidiaries may become and remain liable with respect to Indebtedness incurred to finance (or may assume Indebtedness originally incurred to finance) (a) the purchase price of equipment, fixtures and any other similar property or the remodeling or other improvement costs of any facility of Company or any of its Subsidiaries or (b) the purchase price of any Real Property Assets consisting of fee interests in stores; provided that the aggregate principal amount of such Indebtedness when incurred (and, in the case of assumed Indebtedness, when originally incurred) shall not be less than 80% or more than 100% of the fair market value of (a) the equipment, fixtures and any other similar property acquired plus the reasonable installation and delivery charges associated therewith or the remodeling or other improvement costs relating to such facility or (b) such Real Property Assets, as applicable; provided further that (1) the aggregate principal amount of all such Indebtedness incurred or assumed during any Fiscal Year for purposes described in the first clause (a) of this subsection 7.1(viii) shall not 118 exceed $20,000,000 and (2) the aggregate principal amount of all Indebtedness incurred to finance the purchase price of any such Real Property Assets (together with assumed Indebtedness originally incurred to finance the purchase price of any such Real Property Assets) shall not exceed $10,000,000 at any time; i. Subsidiaries of Company acquired after the Closing Date, the acquisition of which is permitted under subsection 7.3(v) and subsection 7.7(ii), may remain liable with respect to Indebtedness existing immediately prior to the time any such entity became a Subsidiary of Company in an aggregate amount for all such Subsidiaries not to exceed $4,000,000 at any time outstanding; provided that such Indebtedness is not incurred in contemplation of such acquisition; j. Company and its Subsidiaries may become and remain liable with respect to Indebtedness represented by Deferred Trade Payables in an aggregate amount for all such Indebtedness not to exceed $5,000,000 at any time outstanding; k. Food 4 Less GM, Inc. may become and remain liable with respect to Indebtedness incurred by Golden Alliance in an aggregate amount not to exceed $2,000,000 at any time outstanding; provided that such Indebtedness of Food 4 Less GM, Inc. arises solely as a result of its status as a general partner of Golden Alliance; l. Company may become and remain liable with respect to Indebtedness evidenced by promissory notes and issued to employees or former employees of Company and its Subsidiaries in lieu of cash payments for stock of Holdings required to be repurchased pursuant to Company's employee stock ownership plan; provided that the aggregate amount of such Indebtedness does not exceed $4,000,000 at any time outstanding; m. Holdings and Company may become during Fiscal Year 1997 and remain liable with respect to unsecured senior Indebtedness and/or unsecured senior subordinated Indebtedness in an aggregate principal amount which shall not exceed $150,000,000, the terms of which Indebtedness shall be in form and substance satisfactory to Agent and Requisite Lenders; provided, that Holdings shall contribute the proceeds from the issuance of such Indebtedness to Company in the form of an equity contribution; provided further, that in either case, the Company shall apply such proceeds in accordance with subsection 2.4B(iii)(b); n. Company and its Subsidiaries may become and remain liable with respect to Non-Recourse Indebtedness incurred principally to finance the remodeling, expansion, renovation or other improvement of a store located on any Planned Improvement Property; provided that (a) the initial principal amount of such Non-Recourse Indebtedness shall not be less than 70% of the fair market value of such Planned Improvement Property, (b) the proceeds of such Non-Recourse Indebtedness are applied to prepay Loans and/or permanently reduce Revolving Loan Commitments to the extent required by subsection 2.4B(iii)(b) or to remodel, expand, renovate or improve such store within two years of the incurrence of such Non-Recourse Indebtedness and (c) after giving effect to the incurrence of such Non-Recourse Indebtedness, the aggregate amount of all Planned Improvement 119 Financed Amounts received by Company and its Subsidiaries pursuant to this subsection 7.1(xiv) or clause (b) of subsection 7.10 shall not exceed $80,000,000; and o. Company and its Subsidiaries may become and remain liable with respect to other unsecured Indebtedness in an aggregate principal amount not to exceed $15,000,000 at any time outstanding. B. LIENS AND RELATED MATTERS. 1. PROHIBITION ON LIENS. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any State or under any similar recording or notice statute, except: a. Permitted Encumbrances; b. Liens granted pursuant to the Collateral Documents, including Liens securing its obligations to a Lender or an Affiliate of such Lender which is a counterparty to an Interest Rate Agreement permitted under subsection 7.4(ii); c. existing Liens described in Schedule 7.2 annexed hereto; d. Liens on (a) Real Property Assets consisting of fee interests in stores or (b) equipment, fixtures and other similar property of Company or any of its Subsidiaries, in each case securing Indebtedness described in subsections 7.1(iii) and 7.1(viii) and Liens on inventory of Company and its Subsidiaries, securing Indebtedness described in subsection 7.1(x); provided that such Liens shall extend only to the equipment, fixtures and other similar property and inventory so financed and the proceeds thereof; provided further, that with respect to any such Lien described in clause (a) above, (1) no Event of Default or Potential Event of Default shall have occurred and be continuing at the time of incurrence or assumption of such Lien, (2) such Lien is limited to such Real Property Assets (and equipment located in or on such Real Property Assets), (3) the Indebtedness secured by such Lien is Non-Recourse Indebtedness, and (4) the aggregate principal amount of all Indebtedness secured by all such Liens shall not at any time exceed $10,000,000; e. Liens securing Indebtedness permitted under subsection 7.1(ix), which Liens are existing prior to the time the entity which incurred such Indebtedness became a Subsidiary of Company; provided that such Liens were not incurred in connection with, or in contemplation of, the acquisition of such Subsidiary and such Liens extend to or cover only the property and assets of such entity which were covered by such Liens and which were owned by such entity, in each case at the time such entity became a Subsidiary of Company; 120 f. Liens in favor of third parties as consignors (or as creditors of such consignors) in goods which are delivered to Company or any of its Subsidiaries by such third parties on consignment in the ordinary course of business, the value of which goods so held on consignment shall at no time exceed $10,000,000 in the aggregate for Company and its Subsidiaries; g. Liens on Planned Improvement Properties securing Planned Improvement Financed Amounts permitted pursuant to subsection 7.1(xiv) and clause (b) of subsection 7.10; provided that such Liens shall extend only to the Planned Improvement Properties which are encumbered under subsection 7.1(xiv) or clause (b) of subsection 7.10, as the case may be, including the stores located thereon and the equipment and fixtures located in such stores, and the proceeds thereof; h. Liens not otherwise permitted by clauses (i) through (vii) above securing Indebtedness of Company or any of its Subsidiaries; provided that (a) the aggregate principal amount of Indebtedness secured by Liens permitted by this clause (viii) shall not exceed $6,000,000 at any time outstanding, (b) any such Indebtedness shall be permitted under subsection 7.1 and (c) such Liens shall not attach to any Collateral; and i. the replacement, extension or renewal of any Lien permitted by this subsection 7.2A upon or in the same property subject to such Lien and as security for the same obligations or any refinancings thereof; provided that such Lien does not extend to or cover any property other than the property covered by such Lien immediately prior to such replacement, extension or renewal of such Lien and the principal of the obligations secured thereby is not increased. 2. EQUITABLE LIEN IN FAVOR OF LENDERS. If any of Holdings or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 7.2A, it shall make or cause to be made effective provision whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided that, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 7.2A. 3. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to an Asset Sale and except as provided in the Senior Debt Indentures and the Subordinated Debt Indentures, neither Holdings nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. The foregoing shall not prohibit the execution or renewal of a store lease which by its term prohibits the hypothecation of the leasehold interest thereunder (but does not prohibit the incurrence of liens on any property of Holdings and its Subsidiaries other than such leasehold interest and equipment related thereto) if, despite the best efforts of Holdings 121 and its Subsidiaries in accordance with subsection 6.11, the lessor will not agree to permit such hypothecation. C. INVESTMENTS; JOINT VENTURES. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint Venture, except: a. Company and its Subsidiaries may make and own Investments in Cash Equivalents; b. Holdings and its Subsidiaries may continue to own the Investments owned by them as of the Effective Date in any Subsidiaries of Holdings and described on Schedule 5.1 annexed hereto as in effect on the Effective Date and Holdings may make additional capital contributions to Company; c. Company and its Subsidiaries may make intercompany loans to the extent permitted under subsection 7.1(iv); d. Company and its Subsidiaries may continue to own the existing Investments owned by them and described in Schedule 7.3 annexed hereto; e. Company and its Subsidiaries may create or acquire new Subsidiaries to the extent otherwise permitted under this Agreement; provided that (a) any such new Subsidiary is wholly-owned by Company or one of its wholly-owned Subsidiaries and the provisions of subsections 6.10 and 6.11 have been complied with and (b) to the extent such creation or acquisition constitutes a Consolidated Capital Expenditure, such Consolidated Capital Expenditure is permitted under subsection 7.8; f. Food 4 Less GM, Inc. may continue to own the Investments owned by it as of the Closing Date in Golden Alliance and may make and own additional Investments in Golden Alliance in an aggregate amount not to exceed $4,000,000 at any time; provided that all such Investments are made pursuant to the provisions of the Golden Alliance Agreement; g. Company or any of its Subsidiaries may, so long as no Potential Event of Default or Event of Default has occurred and is continuing or occurs as a result thereof, make Development Investments in or to any Developer or make loans or incur other liabilities with respect to the Adams/Vermont Partnership; provided that (a) no such Development Investment shall be permitted unless, at the time of the making of such Development Investment, the Development Site and the store located or to be located at the Development Site have been leased or irrevocably committed by the Developer to be leased to Company or one of its Subsidiaries, (b) neither Company nor any of its Subsidiaries may be or become a general partner of any Developer or otherwise be liable in any manner for any Indebtedness or any other obligations of any Developer (other than pursuant to customary provisions contained in any lease pertaining to a Development Site or a store leased to Company or one of 122 its Subsidiaries) and (c) the aggregate Development Investments, together with the aggregate outstanding loans and other liabilities to the Adams/Vermont Partnership and the maximum aggregate liability, contingent or otherwise, of Company and its Subsidiaries in respect of all Contingent Obligations under subsection 7.4(ix), shall not exceed $35,000,000 at any time outstanding; h. Company and its Subsidiaries may accept promissory notes or capital stock received in consideration of, or the deferral of a portion of the sales price accepted with respect to, Asset Sales; provided that (a) not more than 25% of the aggregate sales price for all Planned Dispositions in any Fiscal Year (other than the Fiscal Year in which the aggregate cash proceeds from all Planned Dispositions on a cumulative basis after the Effective Date first exceeds $10,000,000 (the "SPECIFIED FISCAL YEAR") and any Fiscal Year thereafter), and not more than 50% of the aggregate sales price for all Planned Dispositions in the Specified Fiscal Year or any Fiscal Year thereafter, may be in the form of promissory notes or a deferred portion of such sales price, (b) Company and its Subsidiaries may accept promissory notes, capital stock or defer a portion of the sales price for sales of Cala and Falley's up to 100% of such sales prices provided that the amount of such non-cash consideration or such deferred portion of such sales prices in excess of 15% of the aggregate sales prices for Cala and Falley's shall immediately effect a permanent reduction in the Revolving Loan Commitments pursuant to subsection 2.4B(iii)(a) in an amount equal to such non-cash consideration and such deferred portion of such sales prices in excess of 15% of such aggregate sales prices, (c) the aggregate principal amount of such promissory notes and the deferred portion of such sales prices related to all other Asset Sales shall not at any time exceed $10,000,000 and (d) any such promissory notes or capital stock so accepted shall be pledged as security for the Obligations pursuant to the applicable Collateral Document; i. Company and its Subsidiaries may make and own Investments received in connection with the bankruptcy of suppliers and customers or received pursuant to a plan of reorganization of any supplier or customer, in each case in settlement of delinquent obligations or disputes with such suppliers or customers; j. So long as no Event of Default or Potential Event of Default shall have occurred and be continuing, Company or any of its Subsidiaries may make loans to its employees for the purpose of purchasing common stock of Holdings; provided that the aggregate amount of such loans shall not exceed $4,000,000 at any time outstanding; k. Company and its Subsidiaries may make loans to redevelopment agencies for business purposes consistent with past practices in an aggregate amount not to exceed $10,000,000 at any time outstanding; l. Company and its Subsidiaries may make and own Investments (a) in suppliers in anticipation of becoming a customer of such suppliers and in lieu of deposits, cash discounts or concessions and (b) in connection with joint ventures with suppliers entered into in the ordinary course of business; provided that the aggregate amount of all such Investments under clauses (a) and (b), together with the amount of 123 guarantees permitted under subsection 7.4(v), shall not exceed $5,000,000 at any time outstanding; m. Company may make and maintain loans to Holdings for the purposes described in subsection 7.5A(iv) in an aggregate amount at any time outstanding which, together with the amount of Restricted Junior Payments made for such purposes, shall not exceed the amount of Restricted Junior Payments Company may make to Holdings under subsection 7.5A(iv) at the time any such loan is made; n. Company and its Subsidiaries may purchase common stock of Holdings from an employee stock ownership plan of any Loan Party or from participants or former participants in any such plan or from any employee or former employee of any Loan Party as required pursuant to the applicable plan or agreement; provided that the cash portion of such purchases and the cash payments with respect to promissory notes issued to such participants or holders shall not exceed the sum of (a) $5,000,000 in any Fiscal Year plus (b) the aggregate amount of cash proceeds received by Holdings in such Fiscal Year from its sale of shares of its common stock to an employee stock ownership plan of any Loan Party or to participants in any such plan or to any employee of any Loan Party during such Fiscal Year; provided further, that no such purchase or cash payment will be permitted if it is prohibited under any Senior Debt Indenture or any Subordinated Debt Indenture; and o. Company and its Subsidiaries may make and own other Investments in an aggregate amount not to exceed at any time $5,000,000. D. CONTINGENT OBLIGATIONS. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: a. Company may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit; provided that no Loan Party shall have granted any Lien securing any obligations (including any reimbursement obligations) relating to any Existing Letters of Credit (other than pursuant to the Loan Documents); b. Company may become and remain liable with respect to Contingent Obligations under Interest Rate Agreements required under subsection 6.9 and under other Interest Rate Agreements with respect to Indebtedness, which Interest Rate Agreements are in form and substance satisfactory to Agent; c. Holdings may become and remain liable with respect to Contingent Obligations in respect of the Holdings Guaranty and Company's Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of the Guaranty, including Contingent Obligations thereunder for the benefit of a Lender or an Affiliate of such Lender which is a counterparty to an Interest Rate Agreement permitted under subsection 7.4(ii); 124 d. Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of customary indemnification and purchase price adjustment obligations incurred in connection with Asset Sales or other sales of assets other than guaranties of Indebtedness incurred by any Person acquiring all or any portion of such assets for the purpose of financing such acquisition; provided that the maximum assumable liability in respect of all such obligations shall at no time exceed the gross proceeds actually received by Company and its Subsidiaries in connection with such Asset Sales and other sales; e. Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations under guarantees in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Company and its Subsidiaries in an aggregate amount which, together with the amount of Investments permitted under subsection 7.3(xii), shall not exceed at any time $5,000,000; f. Subsidiaries of Company may become and remain liable with respect to Contingent Obligations in respect of any Indebtedness of Company permitted by subsection 7.1(vi) or subsection 7.1(xiii) pursuant to guarantees entered into by any Subsidiary of Company; provided that any such guarantee entered into by any Subsidiary of Company after the Closing Date either shall be in the form of such guarantee as in effect and delivered to Agent on the Closing Date, as such form may be amended from time to time to the extent permitted under subsection 7.15B, or shall be in form and substance satisfactory to Agent and Requisite Lenders; g. Company and its Subsidiaries, as applicable, may remain liable with respect to existing Contingent Obligations described in Schedule 7.4 annexed hereto; h. Holdings and Company may become and remain liable with respect to Contingent Obligations under guarantees in respect of Capital Leases and Operating Leases entered into by Company or any of Company's Subsidiaries which are permitted under subsection 7.9; i. Company and its Subsidiaries may, so long as no Potential Event of Default or Event of Default has occurred and is continuing at the time of becoming liable therefor or occurs as a result thereof, become and remain liable with respect to Contingent Obligations that are (x) guaranties of Development Investments described in clause (a) of the term "Development Investments" or (y) commitments by Company or any of its Subsidiaries to make a Development Investment; provided that, with respect to both clause (x) and clause (y) above, (1) no such Contingent Obligations shall be permitted unless, at the time of becoming liable with respect to such Contingent Obligations, the Development Site and the store located or to be located at the Development Site have been leased or irrevocably committed by the Developer to be leased to Company or one of its Subsidiaries, (2) neither Company nor any of its Subsidiaries may be or become a general partner of any Developer or otherwise be liable in any manner for any Indebtedness or any other obligations of any Developer (other than pursuant to customary provisions contained in any lease pertaining to a Development Site or a store leased to Company or one of its Subsidiaries) and (3) the 125 maximum aggregate liability, contingent or otherwise, of Company and its Subsidiaries in respect of all Contingent Obligations under this subsection 7.4(ix), together with the aggregate Development Investments and the aggregate outstanding loans and other liabilities to the Adams/Vermont Partnership under subsection 7.3(vii), shall not exceed $35,000,000 at any time outstanding; and j. Company and its Subsidiaries may become and remain liable with respect to other Contingent Obligations; provided that the maximum aggregate liability, contingent or otherwise, of Company and its Subsidiaries in respect of all such Contingent Obligations shall at no time exceed $8,000,000. E. RESTRICTED JUNIOR PAYMENTS; OTHER RESTRICTED PAYMENTS. 1. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment; provided that, so long as no Event of Default or Potential Event of Default shall have occurred and be continuing or occurs as a result thereof, (i) Holdings may make cash interest payments to the holders of the Seller Debentures to the extent required by the terms of the Seller Debenture Indenture and to the holders of the Holdings Discount Debentures to the extent required by the terms of the Holdings Discount Debenture Indenture and to the holders of Indebtedness permitted under subsection 7.1(xiii) to the extent required by the terms of, and subject to any subordination provisions contained in, the indenture pursuant to which such Indebtedness is issued; (ii) Company may make cash dividends on the capital stock of Company to the extent necessary to provide Holdings with funds to make required cash interest payments with respect to the Holdings Discount Debentures, the Seller Debentures and any Indebtedness permitted under subsection 7.1(xiii); (iii) Company may make payments of regularly scheduled interest and regularly scheduled payments of principal in respect of the 1993 9% Senior Subordinated Notes, the 1992 10-1/4% Senior Subordinated Notes and the 1992 13.75% Senior Subordinated Notes, and Company may make payments of regularly scheduled interest in respect of the 1995 11% Senior Subordinated Notes, the 1997 11% Senior Subordinated Notes and the 1995 13.75% Senior Subordinated Notes, in each case in accordance with the terms of, and to the extent required by, and subject to the subordination provisions contained in the applicable Subordinated Debt Indenture; (iv) Company may make cash dividends to Holdings for the purpose of paying Holdings' general operating expenses, franchise tax obligations, accounting, legal, corporate reporting and administrative expenses incurred in the ordinary course of their respective businesses in an amount not to exceed $500,000 in the aggregate in any Fiscal Year, and to pay Holdings' and its Subsidiaries' income taxes and the costs and expenses of registration of securities and securities related filings under applicable laws by Holdings; (v) Company may redeem, repurchase or retire Subordinated Indebtedness in the amounts and with the proceeds and to the extent permitted by the provisions of subsections 2.4B(iii)(c) and 2.4B(iii)(e); (vi) Company and its Subsidiaries may purchase shares of common stock of Holdings from an employee stock ownership plan of any Loan Party or from participants or former participants in such plan and from employees or former employees of any Loan Party as required pursuant to the provisions of agreements and plans permitted under subsection 7.12 in an aggregate amount not to exceed the amount permitted under subsection 7.3(xiv) in any Fiscal Year; (vii) Company may make cash dividends to Holdings to enable Holdings to make payments permitted pursuant to subsection 7.12(iv); 126 (viii) Company and its Subsidiaries may dividend to Holdings any Holdings Common Stock purchased by Company or any such Subsidiary from any employee stock ownership plan of Company or such Subsidiary or from participants or former participants in such plan or employees or former employees of Company or such Subsidiary as required pursuant to the provisions of agreements and plans permitted under subsection 7.12 in amounts permitted under subsection 7.3(xiv); (ix) Company may make payments of regularly scheduled interest in respect of subordinated Indebtedness permitted pursuant to subsection 7.1(xiii), in each case in accordance with the terms of, and to the extent required by, and subject to the subordination provisions contained in, the applicable Subordinated Debt Indenture; (x) so long as no default exists under the Subordinated Debt Indentures, or would occur as a result therefrom, Holdings and Company may at any time repurchase or redeem Subordinated Indebtedness and shares of Holdings' capital stock in an aggregate amount since the Effective Date, together with the aggregate amount of all repurchases or redemptions of Senior Indebtedness made pursuant to subsection 7.5B(iv) on or after the Effective Date, not to exceed the Redemption Amount; and (xi) Company may make the payments required to redeem the 1992 13.75% Senior Subordinated Notes and the 1995 13.75% Senior Subordinated Notes as required pursuant to subsection 6.12. Neither Holdings nor Company nor any of their Subsidiaries will directly or indirectly declare, order, pay or make, or set apart any sum or property for, any Restricted Junior Payment or agree to do so except as permitted by this subsection 7.5. 2. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Senior Indebtedness; provided that, so long as no Event of Default or Potential Event of Default shall have occurred and be continuing or occurs as a result thereof, (i) Company may make payments of regularly scheduled interest and regularly scheduled payments of principal in respect of any Senior Indebtedness in accordance with the terms of and to the extent required by the applicable Senior Debt Indenture, (ii) Company may redeem, repurchase or retire Senior Indebtedness (other than the Loans) in the amounts and with the proceeds and to the extent permitted by the provisions of subsections 2.4B(iii)(c) and 2.4B(iii)(e), (iii) Holdings may make cash interest payments to the holders of senior Indebtedness permitted under subsection 7.1(xiii) in accordance with the terms of and to the extent required by the terms of the indenture pursuant to which such Indebtedness is issued, and (iv) so long as no default exists under the Senior Debt Indentures, or would result therefrom, Holdings and Company may at any time repurchase or redeem its Senior Indebtedness in an aggregate amount since the Effective Date, together with the aggregate amount of all repurchases or redemption of Subordinated Indebtedness and shares of Holdings' capital stock made pursuant to subsection 7.5A(x) on or after the Effective Date, not to exceed the Redemption Amount. F. FINANCIAL COVENANTS. Immediately upon the sale by Company or any of its Subsidiaries of all or a majority of its existing Northern California operations (the "NORTHERN CALIFORNIA SALE") or all or a majority of its existing Midwestern operations (the "MIDWESTERN SALE"), Company and Agent, on behalf of Lenders, shall enter into negotiations on adjustments to be made to 127 the Consolidated Adjusted EBITDA numbers set forth in this subsection 7.6 to take into account the effect of such disposition. Agent shall provide Lenders notice of the adjustments agreed upon between Company and Agent with respect to the Northern California Sale or the Midwestern Sale, as the case may be, such notice to be given immediately upon such agreement. From and after the date of such notice, this subsection 7.6 will be amended as set forth in such notice. 1. MINIMUM FIXED CHARGE COVERAGE RATIO. Company shall not permit the ratio of (i) Consolidated Adjusted EBITDA plus Consolidated Rental Payments to (ii) Consolidated Fixed Charges for any consecutive four-Fiscal Quarter period ending as of the last day of any Fiscal Quarter occurring during any of the periods set forth below to be less than the correlative ratio indicated:
MINIMUM FIXED PERIOD CHARGE COVERAGE RATIO ------ --------------------- 1st Fiscal Quarter, 1997 1.15:1.00 2nd Fiscal Quarter, 1997 1.15:1.00 3rd Fiscal Quarter, 1997 1.15:1.00 4th Fiscal Quarter, 1997 1.20:1.00 1st Fiscal Quarter, 1998 1.20:1.00 2nd Fiscal Quarter, 1998 1.25:1.00 3rd Fiscal Quarter, 1998 1.25:1.00 4th Fiscal Quarter, 1998 1.30:1.00 1st Fiscal Quarter, 1999 1.30:1.00 2nd Fiscal Quarter, 1999 1.35:1.00 3rd Fiscal Quarter, 1999 1.35:1.00 4th Fiscal Quarter, 1999 through 4th Fiscal Quarter, 2002 1.40:1.00 1st Fiscal Quarter, 2003 and each Fiscal Quarter thereafter 1.50:1.00
128 2. MAXIMUM LEVERAGE RATIO. Company shall not at any time permit the ratio of (A) Consolidated Total Debt as of the last day of any Fiscal Quarter occurring during any of the periods set forth below to (B) Consolidated Adjusted EBITDA for the consecutive four-Fiscal Quarter period ending on such last day, to exceed the correlative ratio indicated:
PERIOD MAXIMUM LEVERAGE RATIO ------ ---------------------- 1st Fiscal Quarter, 1997 6.50:1.00 2nd Fiscal Quarter, 1997 6.50:1.00 3rd Fiscal Quarter, 1997 6.50:1.00 4th Fiscal Quarter, 1997 6.25:1.00 1st Fiscal Quarter, 1998 6.25:1.00 2nd Fiscal Quarter, 1998 6.00:1.00 3rd Fiscal Quarter, 1998 5.75:1.00 4th Fiscal Quarter, 1998 5.75:1.00 1st Fiscal Quarter, 1999 5.50:1.00 2nd Fiscal Quarter, 1999 5.25:1.00 3rd Fiscal Quarter, 1999 5.00:1.00 4th Fiscal Quarter, 1999 4.75:1.00 1st Fiscal Quarter, 2000 4.50:1.00 2nd Fiscal Quarter, 2000 4.50:1.00 3rd Fiscal Quarter, 2000 4.25:1.00 4th Fiscal Quarter, 2000 4.25:1.00 1st Fiscal Quarter, 2001 4.25:1.00 2nd Fiscal Quarter, 2001 4.00:1.00 3rd Fiscal Quarter, 2001 3.75:1.00 4th Fiscal Quarter, 2001 3.75:1.00 1st Fiscal Quarter, 2002 3.50:1.00 2nd Fiscal Quarter, 2002 3.50:1.00 3rd Fiscal Quarter, 2002 3.50:1.00 4th Fiscal Quarter, 2002 3.50:1.00 1st Fiscal Quarter, 2003 3.25:1.00 2nd Fiscal Quarter, 2003 3.25:1.00 3rd Fiscal Quarter, 2003 3.25:1.00 4th Fiscal Quarter, 2003 3.25:1.00 1st Fiscal Quarter, 2004 3.00:1.00
129 3. MINIMUM CONSOLIDATED ADJUSTED EBITDA. Company shall not permit Consolidated Adjusted EBITDA for any consecutive four-Fiscal Quarter period ending as of the last day of any Fiscal Quarter occurring during any of the periods set forth below to be less than the correlative amount indicated:
MINIMUM CONSOLIDATED PERIOD ADJUSTED EBITDA ------ --------------- 1st Fiscal Quarter, 1997 $315,000,000 2nd Fiscal Quarter, 1997 $320,000,000 3rd Fiscal Quarter, 1997 $330,000,000 4th Fiscal Quarter, 1997 $340,000,000 1st Fiscal Quarter, 1998 $345,000,000 2nd Fiscal Quarter, 1998 $350,000,000 3rd Fiscal Quarter, 1998 $365,000,000 4th Fiscal Quarter, 1998 $380,000,000 1st Fiscal Quarter, 1999 $400,000,000 2nd Fiscal Quarter, 1999 $412,000,000 3rd Fiscal Quarter, 1999 $425,000,000 4th Fiscal Quarter, 1999 $445,000,000 1st Fiscal Quarter, 2000 $455,000,000 2nd Fiscal Quarter, 2000 $460,000,000 3rd Fiscal Quarter, 2000 $470,000,000 4th Fiscal Quarter, 2000 $480,000,000 1st Fiscal Quarter, 2001 $490,000,000 2nd Fiscal Quarter, 2001 $495,000,000 3rd Fiscal Quarter, 2001 $505,000,000 4th Fiscal Quarter, 2001 $520,000,000 1st Fiscal Quarter, 2002 $530,000,000 2nd Fiscal Quarter, 2002 $540,000,000 3rd Fiscal Quarter, 2002 $550,000,000 4th Fiscal Quarter, 2002 $560,000,000 1st Fiscal Quarter, 2003 $570,000,000 2nd Fiscal Quarter, 2003 $580,000,000 3rd Fiscal Quarter, 2003 $590,000,000 4th Fiscal Quarter, 2003 $600,000,000
130 4. MINIMUM CONSOLIDATED NET WORTH. Company shall not permit Consolidated Net Worth at any time during the period commencing on the day immediately preceding the first day of any of the periods set forth below and ending on the day immediately preceding the last day of such period set forth below to be less than the correlative amount indicated below for such period set forth below:
MINIMUM CONSOLIDATED PERIOD NET WORTH ------ ------------ One day after the Effective Date through 4th Fiscal Quarter, 1997 ($75,000,000) 1st Fiscal Quarter, 1998 through 4th Fiscal Quarter, 1998 ($95,000,000) 1st Fiscal Quarter, 1999 through 4th Fiscal Quarter, 1999 ($75,000,000) 1st Fiscal Quarter, 2000 through 4th Fiscal Quarter, 2001 ($50,000,000) 1st Fiscal Quarter, 2002 through 4th Fiscal Quarter, 2002 -0- 1st Fiscal Quarter, 2003 and thereafter $25,000,000
G. RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS. Holdings shall not, and shall not permit any of its Subsidiaries to, alter the corporate, capital or legal structure of Holdings or any of its Subsidiaries, including the creation or acquisition of any Subsidiaries, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, sub-lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or a substantial portion of the business, property or assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, except: a. Alpha Beta may merge into Company with Company being the surviving corporation; b. Company and its Subsidiaries may make Consolidated Capital Expenditures permitted under subsection 7.8 and Development Investments (to the extent such Development Investments do not constitute Consolidated Capital Expenditures) permitted under subsection 7.3(vii); c. Company and its Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; provided that the consideration 131 received for such assets shall be in an amount at least equal to the fair market value thereof; d. Company and its Subsidiaries may sell or otherwise dispose of damaged, worn-out or obsolete assets that are no longer necessary for the proper conduct of their respective business for fair market value in the ordinary course of business; e. Company and its Subsidiaries may sell (a) furniture, fixtures and/or equipment acquired after December 14, 1994 and (b) grocery stores (including furniture, fixtures and equipment located therein and acquired after December 14, 1994) opened or acquired after December 14, 1994, in each case in connection with a concurrent lease-back of such furniture, fixtures and/or equipment and/or of such grocery stores to the extent such transactions are permitted under subsection 7.10 and Agent shall release any security interests in favor of Agent for the benefit of Lenders in such furniture, fixtures and/or equipment and/or such grocery stores; f. (a) Company and its Subsidiaries may sell up to eight grocery stores in any Fiscal Year, plus a number of stores equal to the difference between eight and the number of stores sold under this clause (vi) in the immediately preceding Fiscal Year, which stores are no longer useful to the businesses of Company and its Subsidiaries; and (B) with the approval of Agent, Company and its Subsidiaries may terminate the leases on up to six (6) grocery stores or other facilities in any Fiscal Year, which grocery stores or other facilities are no longer useful to the businesses of Company and its Subsidiaries and Agent shall release any security interests in favor of Agent for the benefit of Lenders in Company's or its Subsidiaries' leasehold interests in such stores or other facilities and any personal property remaining on any such premises; g. Company and its Subsidiaries may make any of the Planned Dispositions; provided that, in each case, the consideration received for each of such stores is in an amount at least equal to the fair market value thereof; h. Company or any of its Subsidiaries may sell any class of stock of Certified Grocers of California, Ltd., a California corporation ("Certified") owned by it pursuant to a redemption of such stock by Certified; i. Company and its Subsidiaries may lease or sublease any of their respective real or personal property in the ordinary course of business; j. (a) any wholly-owned Subsidiary of Company (other than Cala and its Subsidiaries, and Falley's) may be merged or consolidated with or into Company or any wholly-owned Subsidiary of Company (other than Bell Markets, Inc.), or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any wholly-owned Subsidiary of Company (other than Bell Markets, Inc.); provided that, in the case of such a merger or consolidation involving Company, Company shall be the continuing or surviving corporation and in the case of such a merger or consolidation involving two wholly-owned Subsidiaries of Company, the 132 surviving corporation shall be a party to the Guaranty and its capital stock shall be pledged to Secured Party (as defined in the Pledge Agreement) pursuant to the Pledge Agreement; and (B) the corporate existence of those Subsidiaries of Holdings identified as inactive on Schedule 5.1 annexed hereto may be terminated to the extent permitted under subsection 6.2; k. Company and its Subsidiaries may make Asset Sales of the Selected Assets pursuant to this subsection 7.7(xi) through the end of Fiscal Year 1998; provided that the consideration received for such assets shall be in an amount at least equal to the fair market value thereof, provided that for any individual transaction or series of related transactions for which the aggregate consideration equals or exceeds $25,000,000, Company shall provide to Agent a fairness opinion from an investment bank acceptable to Agent that the amount of the consideration is not less than the fair market value of such assets; l. subject to subsection 7.13, Company and its Subsidiaries may make Asset Sales of assets having an aggregate fair market value not in excess of $5,000,000 in the aggregate for all such Asset Sales; provided that the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; and m. so long as no Event of Default or Potential Event of Default shall have occurred and be continuing at the time of such incurrence or sale, Company and its Subsidiaries may incur Non-Recourse Indebtedness with respect to Planned Improvement Properties to the extent permitted under subsection 7.1(xiv) and may sell and concurrently lease-back Planned Improvement Properties to the extent permitted under clause (b) of subsection 7.10 and Agent shall release any Liens in favor of Agent for the benefit of Lenders on such Planned Improvement Properties, including any stores located thereon and any equipment or fixtures located in such stores. H. CONSOLIDATED CAPITAL EXPENDITURES. Holdings shall not make or incur any Consolidated Capital Expenditures and Company shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures, in any Fiscal Year indicated below, in an aggregate amount in excess of the corresponding amount (the "MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES AMOUNT") set forth below opposite such Fiscal Year; provided that the Maximum Consolidated Capital Expenditures Amount shall be increased (i) by an amount equal to the excess, if any (but in no event more than 20% of the Maximum Consolidated Capital Expenditures Amount for the immediately preceding Fiscal Year, as set forth in the table below) of the Maximum Consolidated Capital Expenditures Amount for the previous Fiscal Year over the actual amount of Consolidated Capital Expenditures for such previous Fiscal Year; (ii) by an amount up to, but in no event greater than, 15% of the Maximum Consolidated Capital Expenditures Amount for the immediately following Fiscal Year, as set forth in the table below, which amount described in this clause (ii) shall reduce the Maximum Consolidated Capital Expenditures Amount for the immediately following Fiscal Year; (iii) by an amount equal to (but in no event greater than $15,000,000 for any Fiscal 133 Year) the aggregate amount of proceeds (other than insurance proceeds, condemnation awards and indemnity payments) received by Company and its Subsidiaries from Asset Sales during such Fiscal Year (other than Asset Sales covered by clause (B) of subsection 2.4B(iii)(a)) to the extent such proceeds have been reinvested in new stores or the construction or remodeling of stores of Company and its Subsidiaries within 270 days of receipt; and (iv) by an amount equal to the Planned Improvement Financed Amount which has been applied by Company and its Subsidiaries during such Fiscal Year to remodel, expand, renovate or otherwise improve the stores located on the Planned Improvement Properties and which was not required to be used to prepay the Loans and/or permanently reduce Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a) or (b); provided, however, that the amount which may be added to the Maximum Consolidated Capital Expenditures Amount pursuant to clauses (i) and (ii) of the immediately preceding proviso shall not exceed for any Fiscal Year 20% of the Maximum Consolidated Capital Expenditures Amount for such Fiscal Year as set forth in the table below:
MAXIMUM CONSOLIDATED FISCAL YEAR CAPITAL EXPENDITURES AMOUNT ----------- --------------------------- Fiscal Year 1996 $ 95,000,000 Fiscal Year 1997 $150,000,000 Fiscal Year 1998 $135,000,000 Fiscal Year 1999 $135,000,000 Fiscal Year 2000 and each Fiscal Year thereafter $100,000,000
I. RESTRICTION ON LEASES. Holdings shall not become liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations of the lessee under any lease, whether an Operating Lease or a Capital Lease, and Company shall not, and shall not permit any of its Subsidiaries to, become liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations of the lessee under any lease, whether an Operating Lease or a Capital Lease (other than intercompany leases between Company and its wholly-owned Subsidiaries), unless, immediately after giving effect to the incurrence of liability with respect to such lease, all amounts paid or payable under all Capital Leases and Operating Leases (net of sublease income) at the time in effect during the then current Fiscal Year shall not exceed the corresponding amount set forth below opposite such Fiscal Year: 134
PERIOD MAXIMUM LEASE ------ PAYMENTS Fiscal Year 1997 $234,800,000 Fiscal Year 1998 $261,600,000 Fiscal Year 1999 $289,100,000 Fiscal Year 2000 $315,500,000 Fiscal Year 2001 $342,500,000 Fiscal Year 2002 $369,800,000 Fiscal Year 2003 and each Fiscal Year thereafter $389,900,000
J. SALES AND LEASE-BACKS. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which Holdings or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than Holdings or any of its Subsidiaries) or (ii) which Holdings or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by Holdings or any of its Subsidiaries to any Person (other than Holdings or any of its Subsidiaries) in connection with such lease; provided that (a) each of Holdings and Company and its Subsidiaries may become and remain liable as lessee, guarantor or other surety with respect to any such lease if and to the extent that Holdings, Company or any of their Subsidiaries would be permitted to enter into, and remain liable under, such lease under subsection 7.9 and (b) additionally, with respect to any such lease with respect to a Planned Improvement Property, the proceeds of which are to be principally used to remodel, expand, renovate or otherwise improve a store located on such Planned Improvement Property, (i) the amount of the sales price for such Planned Improvement Property shall not be less than 70% of the fair market value of such Planned Improvement Property, (ii) the proceeds of such sales price shall be applied to prepay Loans and/or permanently reduce Revolving Loan Commitments to the extent required by subsection 2.4B(iii)(a) or to remodel, expand, renovate or improve such store within two years of such sale and (iii) after giving effect to such sale, the aggregate amount of all Planned Improvement Financed Amounts received by Company and its Subsidiaries pursuant to this clause (b) or subsection 7.1(xiv) shall not exceed $80,000,000. K. SALE OR DISCOUNT OF RECEIVABLES. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes receivable or accounts receivable. 135 L. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Each of Holdings and Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of such Person, on terms that are less favorable to such Person or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such an Affiliate; provided that the foregoing restriction shall not apply to (i) any transaction between Company and any of its wholly-owned Subsidiaries or between any of its wholly-owned Subsidiaries; (ii) reasonable and customary fees paid to members of the Boards of Directors of Holdings and its Subsidiaries; (iii) issuances of stock, payments of bonuses and other transactions pursuant to employment or compensation agreements, stock option agreements, indemnification agreements and other arrangements, in each case satisfactory in form and substance to Agent and as in effect as of the Closing Date and unamended, and substantially similar agreements as may hereafter become effective, in each case with officers or directors who are Affiliates of Holdings or any of its Subsidiaries; (iv) payment of consulting and other fees and expenses and the reimbursement of losses, costs and expenses under the Consulting Agreement, as amended in accordance with subsection 7.15A, and in form and substance satisfactory to Agent; (v) transactions between Company and/or any of its Subsidiaries and Golden Alliance that are otherwise permitted under this Agreement; (vi) to the extent permitted under subsection 7.3(xiv), any repurchase of stock of Holdings from Company's employee stock ownership plan or participants or former participants in such plan, in each case to the extent such repurchases are required by the terms of such plan; (vii) payments by Holdings and its Subsidiaries pursuant to tax sharing agreements in effect from time to time among Holdings and its Subsidiaries; (viii) the issuance by Holdings of common stock to Yucaipa pursuant to Yucaipa's exercise of the warrant issued to it on the Closing Date by Holdings in connection with the acquisition of Company; (ix) transactions between Company and Holdings entered into pursuant to and in accordance with the Transfer and Assumption Agreement, and (x) a loan made by Company to RGC Investment Co., on the Closing Date in the original principal amount of $5,000,000, all of the proceeds of which loan will immediately be invested by RGC Investment Co. in RGC Partners, L.P. M. DISPOSAL OF SUBSIDIARY STOCK; RESTRICTIONS ON SUBSIDIARIES. 1. Except for any sale of 100% of the capital stock or other equity Securities of any of Company's Subsidiaries in compliance with the provisions of subsection 7.7(x) and except pursuant to the Collateral Documents, Holdings shall not and shall not permit any of its Subsidiaries to directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of any of its Subsidiaries, except to qualify directors if required by applicable law, or in the case of Company's Subsidiaries, to Company or to a wholly-owned Subsidiary of Company (other than Bell Markets, Inc.). 2. Except as otherwise provided herein or in any other Loan Document, Holdings will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Company to (i) pay dividends or make any other distributions on any of such Subsidiary's capital stock owned by Company or any other Subsidiary of 136 Company, (ii) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company, (iii) make loans or advances to Company or any other Subsidiary of Company, or (iv) transfer any of its property or assets to Company or any other Subsidiary of Company. 3. The Adams/Vermont Partnership shall not engage in any business, own or hold any assets or incur any Indebtedness, Contingent Obligations or other liabilities other than those reasonably related to the development of a shopping center located at Adams and Vermont Streets in Los Angeles, California. Neither Holdings, Company nor any other Loan Party shall incur any Indebtedness, Contingent Obligations or other liabilities on behalf of, or with respect to, the Adams/Vermont Partnership other than Company's liabilities as a general partner under the partnership agreement governing the Adams/Vermont Partnership substantially as in effect on the Effective Date to the extent permitted pursuant to subsections 7.3(vii) and 7.4(ix). Notwithstanding anything to the contrary contained herein or in the other Loan Documents, the Adams/Vermont Partnership shall not be required to execute a Guaranty or other Collateral Documents. N. CONDUCT OF BUSINESS. From and after the Closing Date, Company shall not, and shall not permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by Company and its Subsidiaries on the Closing Date and similar or related businesses and (ii) such other lines of business as may be consented to by Requisite Lenders. From and after the Closing Date, Holdings shall not engage in any business other than owning the capital stock of Company and entering into and performing its obligations under and in accordance with the Loan Documents, the Related Financing Documents to which it is a party and such other documents entered into by Holdings on or prior to the Closing Date and made available to Agent and shall not own any assets other than (a) the capital stock of Company and (b) Cash which has been paid to Holdings for the purpose of allowing Holdings to make the payments described in clauses (i), (iv) and (vii) of subsection 7.5A; provided that Holdings shall make such payments immediately upon (and in any event on the date of) receipt of such Cash. O. AMENDMENTS OF CERTAIN DOCUMENTS; NO PREPAYMENTS OF CERTAIN INDEBTEDNESS. 1. Holdings shall not, and shall not permit any of its Subsidiaries to, amend, waive any of its rights under, or otherwise change the terms of any of the Shareholders Agreement, the Indemnification Agreement, the Reimbursement Agreement, the Consulting Agreement, the Tax Election Agreement, the Transfer and Assumption Agreement, the Subscription Agreement or the certificate of designations with respect to the Holdings Preferred Stock, in each case as in effect on the Closing Date, without the prior written consent of the Requisite Lenders, if such amendment, waiver or change would increase materially the obligations of Holdings or any of its Subsidiaries or confer additional rights on any other party to any such agreement which would be adverse to Holdings or any of its Subsidiaries. 2. Other than the redemption of the 1995 13.75% Senior Subordinated Notes and the 1992 13.75% Senior Subordinated Notes from the proceeds of the 1997 11% Senior 137 Subordinated Notes, Holdings shall not, and shall not permit any of its Subsidiaries to, amend or otherwise change the terms of any of the Senior Indebtedness, the Subordinated Indebtedness, the Senior Debt Indentures, the Subordinated Debt Indentures, the Golden Alliance Agreement or any of the guarantees entered into by any Subsidiary of Company permitted under subsection 7.4(vi) (collectively, "RESTRICTED AGREEMENTS"), or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on any such Restricted Agreements, change any dates upon which payments of principal or interest are due thereon, change any of the covenants with respect thereto in a manner which is more restrictive to Holdings or any of its Subsidiaries, change any event of default or condition to an event of default with respect thereto, change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions (if any) thereof (or of any guaranty thereof, or change any collateral therefor (other than to release such collateral), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase the obligations of the obligor thereunder or to confer any additional rights on the holders of any such Restricted Agreements (or a trustee or other representative on their behalf) which would be adverse to any Loan Party or Lenders. P. FISCAL YEAR. Company shall not change its Fiscal Year-end from the Sunday closest to January 31 of the following calendar year. SECTION VII. EVENTS OF DEFAULT IF any of the following conditions or events ("Events of Default") shall occur: A. FAILURE TO MAKE PAYMENTS WHEN DUE. Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; failure by Company to pay when due any amount payable to an Issuing Lender in reimbursement of any drawing under a Letter of Credit; or failure by Company to pay any interest on any Loan or any fee or any other amount due under this Agreement within five days after the date due; or B. DEFAULT IN OTHER AGREEMENTS. a. Failure of Holdings or any of its Subsidiaries to pay when due (a) any principal of or interest on any Indebtedness (other than Indebtedness referred to in subsection 8.1) in an individual principal amount of $5,000,000 or more or any items of Indebtedness with an aggregate principal amount of $10,000,000 or more or (b) any Contingent Obligation in an individual principal amount of $5,000,000 or more or any Contingent Obligations with an aggregate principal amount of $10,000,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Holdings or any of its Subsidiaries with respect to any other material term of (a) any evidence of any Indebtedness in an individual principal amount of $5,000,000 or more or any items of Indebtedness with 138 an aggregate principal amount of $10,000,000 or more or any Contingent Obligation in an individual principal amount of $5,000,000 or more or any Contingent Obligations with an aggregate principal amount of $10,000,000 or more or (b) any loan agreement, mortgage, indenture or other agreement relating to such Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or C. BREACH OF CERTAIN COVENANTS. Failure of Holdings or Company to perform or comply with any term or condition contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or D. BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by the Loan Parties in any Loan Document or in any statement or certificate at any time given by any of the Loan Parties in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or E. OTHER DEFAULTS UNDER LOAN DOCUMENTS. Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within 30 days after the receipt by Company of notice from Agent or any Lender of such default; or F. INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. a. A court having jurisdiction in the premises shall enter a decree or order for relief in respect of Holdings or any of its Subsidiaries (other than an inactive Subsidiary identified as such in Schedule 5.1 annexed hereto whose aggregate assets and annual revenues do not exceed $1,000,000 and $1,000,000, respectively, and whose financial condition does not adversely affect any other Loan Party ("INSIGNIFICANT SUBSIDIARY")) in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Holdings or any of its Subsidiaries (other than an Insignificant Subsidiary) under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Holdings or any of its Subsidiaries (other than an Insignificant Subsidiary), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Holdings or any of its 139 Subsidiaries (other than an Insignificant Subsidiary) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Holdings or any of its Subsidiaries (other than an Insignificant Subsidiary), and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or G. VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. a. Holdings or any of its Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Holdings or any of its Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Holdings or any of its Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of Holdings or any of its Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or H. JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $5,000,000 or (ii) in the aggregate at any time an amount in excess of $10,000,000 (in either case not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Holdings or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any event later than five days prior to the date of any proposed sale thereunder); or I. DISSOLUTION. Any order, judgment or decree shall be entered against Holdings or any of its Subsidiaries decreeing the dissolution or split up of such Person and such order shall remain undischarged or unstayed for a period in excess of 30 days; or J. EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events which individually or in the aggregate results in or could reasonably be expected to result in liability of any of the Loan Parties or any of their respective ERISA Affiliates (unless no Loan Party shall be jointly and severally liable therefor) in excess of $5,000,000 during the term of this Agreement; or there shall exist an Amount of Unfunded Benefit Liabilities, individually or in the aggregate for all Pension Plans (excluding for purposes of such computation (1) any Pension Plans which have a negative Amount of Unfunded Benefit Liabilities and (2) any Pension Plan for which 140 neither Company nor any other Loan Party would have liability if the Pension Plan then terminated), which exceeds $10,000,000; or K. CHANGE IN CONTROL. A Change of Control shall have occurred; or L. INVALIDITY OF GUARANTIES. Either of the Holdings Guaranty or, upon execution and delivery thereof, the Guaranty for any reason, other than the satisfaction in full of all Obligations, ceases to be in full force and effect (other than in accordance with its terms) or is declared to be null and void, or any Loan Party denies that it has any further liability, including without limitation with respect to future advances by Lenders, under any Loan Document to which it is a party, or gives notice to such effect; or M. FAILURE OF SECURITY. Any Collateral Document shall, at any time, cease to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms thereof) or shall be declared null and void, or the validity or enforceability thereof shall be contested by any Loan Party, or Agent shall not have or cease to have a valid and perfected first priority security interest in any significant part of the Collateral (other than as a direct result of a breach by Agent of any obligation imposed on Agent under the Collateral Documents); or N. ACTION UNDER RELATED FINANCING DOCUMENTS. Any holder of any Indebtedness evidenced by the Related Financing Documents shall file an action seeking the rescission thereof or damages or injunctive relief relating thereto; or any event shall occur which, under the terms of any Related Financing Documents, shall require Holdings or any of its Subsidiaries to purchase, redeem or otherwise acquire or offer to purchase, redeem or otherwise acquire all or any portion of any Indebtedness evidenced by the Related Financing Documents; or Holdings or any of its Subsidiaries shall for any other reason purchase, redeem or otherwise acquire or offer to purchase, redeem or otherwise acquire, or make any other payments in respect of, all or any portion of any Indebtedness evidenced by the Related Financing Documents, except to the extent expressly permitted by subsection 7.5: THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Holdings and Company, and the obligation of each Lender to make any Loan (including the obligation of 141 Swing Line Lender to make any Swing Line Loan), the obligation of Agent to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Agent shall, upon the written request or with the written consent of Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (c) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan (including the obligation of Swing Line Lender to make any Swing Line Loan), the obligation of Agent to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate; provided that the foregoing shall not affect in any way the obligations of Revolving Lenders to purchase participations in Letters of Credit as provided in subsection 3.3C or the obligations of Lenders to purchase participations in any unpaid Swing Line Loans as provided in subsection 2.1A(iv). Any amounts described in clause (b) above, when received by Agent, shall be held by Agent pursuant to the terms of the Collateral Account Agreement and shall be applied as therein provided. Notwithstanding anything contained in the second preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than non-payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 11.6, then Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Lenders to a decision which may be made at the election of Requisite Lenders and are not intended to benefit Company and do not grant Company the right to require Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. SECTION VIII. HOLDINGS GUARANTY Holdings hereby consents to and confirms its guaranty of all Obligations of Company and all obligations of Company under Interest Rate Agreements permitted under subsection 7.4(ii) to which a Lender or an Affiliate of such Lender is a counterparty. In furtherance of the foregoing, Holdings hereby agrees as follows: A. GUARANTIED OBLIGATIONS. As consideration for Lenders agreeing to enter into this Agreement and extend the Commitments, make the Loans hereunder and issue the Letters of Credit, Holdings hereby unconditionally and irrevocably guaranties, as a primary obligor and not merely as a surety, the due and punctual payment when due (whether at stated maturity, by required 142 prepayment, declaration, demand or otherwise) (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)) of all Obligations of Company (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to Company would accrue on such Obligations, whether or not allowable as a claim) and all obligations of Company under Interest Rate Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") permitted under subsection 7.4(ii) to which a Lender or an Affiliate of such Lender (in such capacity, collectively, "INTEREST RATE EXCHANGERS") is a counterparty (the "GUARANTIED OBLIGATIONS"). For purposes of this Section 9, Holdings is referred to as a "GUARANTOR". Lenders and Interest Rate Exchangers are each referred to herein as a "GUARANTIED PARTY" and collectively as the "GUARANTIED PARTIES". B. TERMS OF HOLDINGS GUARANTY. Guarantor agrees that the Guarantied Obligations may be extended or renewed, and the Loans repaid and reborrowed in whole or in part, without notice or further assent from it, and that it will remain bound upon this Holdings Guaranty notwithstanding any extension, renewal or other alteration of any such Guarantied Obligation or repayment and reborrowing of the Loans. Guarantor waives presentation of, demand of, payment from and protest of any Guarantied Obligation and also waives notice of protest for nonpayment. The obligations of Guarantor under this Holdings Guaranty shall not be affected by, and Guarantor hereby waives its rights (to the extent permitted by law) in connection with: (1) the failure of Agent or any Guarantied Party to assert any claim or demand or to enforce any right or remedy against Company under the provisions of this Agreement, any Loan Documents or the Lender Interest Rate Agreements or any other agreement or otherwise, (2) any extension or renewal of any provision thereof, (3) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any instrument executed pursuant hereto or the Lender Interest Rate Agreements, (4) the release of any of the security held by Agent for any of the Guarantied Obligations, (5) the failure of Agent or any Guarantied Party to exercise any right or remedy against any other guarantor of any of the Guarantied Obligations, (6) Agent or any Guarantied Party taking and holding security or collateral for the payment of this Holdings Guaranty, any other guaranties of the Guarantied Obligations or other liabilities of Company, and exchanging, enforcing, waiving and releasing any such security or collateral, 143 (7) Agent or any Guarantied Party applying any such security or collateral and directing the order or manner of sale thereof as Agent in its discretion may determine, or (8) Agent or any Guarantied Party settling, releasing, compromising, collecting or otherwise liquidating the Guarantied Obligations and any security or collateral therefor in any manner determined by Agent or such Guarantied Party. Guarantor further agrees that this Holdings Guaranty constitutes a guaranty of payment when due and not of collection and waives any right to require that any resort be had by Agent or any other Person to any security held for payment of the Guarantied Obligations or to any balance of any deposit account or credit on the books of Agent or any other Person in favor of Company or any other Person. The obligations of Guarantor under this Holdings Guaranty shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Guarantied Obligations, discharge of Company from such Guarantied Obligations in a bankruptcy or similar proceeding or otherwise. Without limiting the generality of the foregoing, the obligations of Guarantor under this Holdings Guaranty shall not be discharged or impaired or otherwise affected by the failure of Agent or any Guarantied Party to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification of any provision thereof, by any default, failure or delay, willful or otherwise, in the performance of the Guarantied Obligations, or by any other act or thing or omission or delay to do any other act or thing that may or might in any manner or to any extent vary the risk of Guarantor or would otherwise operate as a discharge of Guarantor as a matter of law or equity. Agent may, at its election, foreclose on any security held by Agent by one or more judicial or nonjudicial sales, or exercise any other right or remedy Agent may have against Company or any security without affecting or impairing in any way the liability of Guarantor hereunder except to the extent the Guarantied Obligations have been paid. Guarantor waives any defense arising out of such election by Agent, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of Guarantor against Company or any security, so long as Agent has acted in a commercially reasonable manner. Guarantor further agrees that this Holdings Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guarantied Obligation is rescinded or must otherwise be restored by Agent upon the bankruptcy or reorganization of Company or otherwise. Guarantor further agrees, in furtherance of the foregoing and not in limitation of any other right that Agent may have at law or in equity against Guarantor by virtue hereof, upon the failure of Company to pay any of its Guarantied Obligations when and as the same shall become due (whether by required prepayment, declaration, demand or otherwise), Guarantor 144 will forthwith pay, or cause to be paid, in cash, to Agent an amount equal to the sum of the unpaid principal amount of such Guarantied Obligations, accrued and unpaid interest on such Guarantied Obligations and all other Obligations of Company to Agent. Guarantor further agrees as follows: a. Guarantor hereby waives (i) any claim, right or remedy, direct or indirect, that Guarantor now has or may hereafter have against Company or any of its assets in connection with this Holdings Guaranty or the performance by Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute (including without limitation under California Civil Code Section 2847, 2848 or 2849), under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that Guarantor now has or may hereafter have against Company, (b) any right to enforce, or to participate in, any claim, right or remedy that Agent or any Guarantied Party now has or may hereafter have against Company, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by Agent or any Guarantied Party, and (ii) any right of contribution Guarantor may have against any other guarantor of any of the Guarantied Obligations (including without limitation any such right of contribution under California Civil Code Section 2848); b. In accordance with Section 2856 of the California Civil Code, Guarantor waives any and all other rights and defenses available to Guarantor by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code, including without limitation any and all rights or defenses Guarantor may have by reason of protection afforded to the principal with respect to any of the Guarantied Obligations, or to any other guarantor (including any other guarantor under the Guaranty) of any of the Guarantied Obligations with respect to any of such guarantor's obligations under its guaranty, in either case pursuant to the antideficiency or other laws of the State of California limiting or discharging the principal's indebtedness or such guarantor's obligations, including without limitation Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure; and c. In accordance with Section 2856 of the California Civil Code, Guarantor waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a Guarantied Obligation, has destroyed Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the Code of Civil Procedure or otherwise; and even though that election of remedies by the creditor, such as nonjudicial foreclosure with respect to security for an obligation of any other guarantor (including any other guarantor under the Guaranty) of any of the Guarantied Obligations, has destroyed Guarantor's rights of contribution against such other guarantor. The foregoing California waivers are included solely out of an abundance of caution, and shall not be construed to mean that any of the above-referenced provisions of California law are in any way applicable to this Guaranty or to any of the Guarantied Obligations. As used in the foregoing paragraph, any reference to "the principal" includes 145 Company, and any reference to "the creditor" includes Agent, each Lender and each Interest Rate Exchanger. Guarantor hereby waives and relinquishes any duty on the part of Agent or any Lender to disclose any matter, fact or thing relating to the business, operations or conditions of Company or any of its Subsidiaries now known or hereafter known by Agent or any Lender. Guarantor further agrees that, to the extent the agreement to waive its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights or subrogation, reimbursement or indemnification Guarantor may have against Company or against any collateral or security, and any rights of contribution Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights Agent or Guarantied Parties may have against Company, to all rights, title and interest Agent or Guarantied Parties may have in any such collateral or security, and to any right Agent or Guarantied Parties may have against such other guarantor. Agent, on behalf of Guarantied Parties, may use, sell or dispose of any item of collateral or security as it sees fit without regard to any subrogation rights Guarantor may have, and upon any such disposition or sale any rights of subrogation Guarantor may have shall terminate. If any amount shall be paid to Guarantor on account of any such subrogation, reimbursement or indemnification rights at any time when all Guarantied Obligations (other than Guarantied Obligations which are contingent and unliquidated and not due and owing on such date and which pursuant to the provisions of the Credit Agreement survive the termination of the Credit Agreement, the repayment of the Guarantied Obligations, the termination of the Commitments and the expiration or cancellation of all Letters of Credit) shall not have been paid in full, such amount shall be held in trust for Agent on behalf of Guarantied Parties and shall forthwith be paid over to Agent for the benefit of Guarantied Parties to be credited and applied against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms hereof. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon failure of Company to pay its Guarantied Obligations when due (whether by required prepayment, declaration, demand or otherwise) and consequent acceleration of the Obligations pursuant to Section 8, Agent is hereby authorized by Guarantor at any time or from time to time, without notice to Guarantor or to any other Person, any such notice being hereby expressly waived to the extent permitted by applicable law, to set off and to appropriate and to apply any and all deposits (general or special, including, not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time owing by Agent to or for the credit or the account of Guarantor against and on account of the obligations and liabilities of Guarantor to Agent under this Holdings Guaranty, including, but not limited to, all such obligations and liabilities with respect to all claims of any nature or description arising out of or connected with this Agreement, this Holdings Guaranty or the Letters of Credit or any of the other Loan Documents, irrespective of whether or not Agent, with respect to any Obligation owed under the Letters of Credit or this Agreement, shall have made any demand hereunder. Agent agrees promptly to notify Guarantor after any such set-off and application is made by Agent. 146 Notwithstanding anything contained in this Section 9 to the contrary, this Holdings Guaranty shall not be effective or in full force and effect until the Closing Date. SECTION IX. AGENT A. APPOINTMENT. Each Lender hereby appoints, and each Interest Rate Exchanger, by its acceptance of the benefits of this Agreement and the other Loan Documents, shall be deemed to have appointed, Bankers as Agent hereunder and under the other Loan Documents and each Lender hereby authorizes, and each Interest Rate Exchanger, by its acceptance of the benefits of this Agreement and the other Loan Documents, shall be deemed to have authorized, Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents, and each Interest Rate Exchanger is considered to be a "Lender" for purposes of this Section 10. Each Lender hereby appoints the Co-Agents listed as such on the signature pages hereto as Co-Agents hereunder. Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 10 are solely for the benefit of Agent, Co-Agents and Lenders and no Loan Party shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement and other than as expressly provided for in subsection 2.1D(v), Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for any Loan Party. Each Lender named as a Co-Agent hereunder shall have no duties or responsibilities under this Agreement or any other Loan Document to any Person, other than as a Lender hereunder or thereunder. B. POWERS; GENERAL IMMUNITY. 1. DUTIES SPECIFIED. Each Lender irrevocably authorizes Agent to take such action on such Lender's behalf and to exercise such powers hereunder and under the other Loan Documents as are specifically delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents and it may perform such duties by or through its agents or employees. Agent shall not have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. 2. NO RESPONSIBILITY FOR CERTAIN MATTERS. Agent shall not be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by Agent to Lenders or by or on behalf of any Loan Party to Agent or any Lender in connection with the Loan Documents and the transactions 147 contemplated thereby or for the financial condition or business affairs of any Loan Party or any other Person liable for the payment of any Obligations, nor shall Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or the use of the Letters of Credit or as to the existence or possible existence of any Event of Default or Potential Event of Default. Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof. 3. EXCULPATORY PROVISIONS. Neither Agent nor any of its officers, directors, employees or agents shall be liable to Lenders for any action taken or omitted by Agent under or in connection with any of the Loan Documents except to the extent caused by Agent's gross negligence or willful misconduct. If Agent shall request instructions from Lenders with respect to any act or action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from Requisite Lenders. Without prejudice to the generality of the foregoing, (i) Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Loan Parties), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders. Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement or any of the other Loan Documents unless and until it has obtained the instructions of Requisite Lenders. 4. AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include Agent in its individual capacity. Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Holdings or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from any Loan Party for services in connection with this Agreement and otherwise without having to account for the same to Lenders. C. REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF CREDITWORTHINESS. Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Loan Parties in connection with the making of the Loans and the issuance of Letters of Credit hereunder and that it has made and 148 shall continue to make its own appraisal of the creditworthiness of the Loan Parties. Agent shall not have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and Agent shall not have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. D. RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify Agent, to the extent that Agent shall not have been reimbursed by any Loan Party, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, reasonable counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent in performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as Agent in any way relating to or arising out of this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or willful misconduct. If any indemnity furnished to Agent for any purpose shall, in the opinion of Agent, be insufficient or become impaired, Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. If indemnification payments made by Lenders pursuant to this subsection 10.4 are subsequently recovered by Agent from any Loan Party, Agent shall promptly refund such previously paid indemnification payments to Lenders. E. SUCCESSOR AGENT AND SWING LINE LENDER. 1. SUCCESSOR AGENT. Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Company, and Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company, to appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent and the retiring or removed Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Agent's resignation or removal hereunder as Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 2. SUCCESSOR SWING LINE LENDER. Any resignation or removal of Agent pursuant to subsection 10.5A shall also constitute the resignation or removal of Bankers or its successor as Swing Line Lender, and any successor Agent appointed pursuant to subsection 10.5A shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (i) Company shall prepay any outstanding Swing Line Loans made by the retiring or removed Agent in its capacity as Swing Line 149 Lender, (ii) upon such prepayment, the retiring or removed Agent and Swing Line Lender shall surrender the Swing Line Note held by it to Company for cancellation, and (iii) Company shall issue a new Swing Line Note to the successor Agent and Swing Line Lender substantially in the form of Exhibit VII annexed hereto, in the principal amount of the Swing Line Loan Commitment then in effect and with other appropriate insertions. F. GUARANTIES AND COLLATERAL DOCUMENTS. Each Lender hereby further authorizes Agent to enter into the Collateral Documents as secured party on behalf of and for the benefit of Lenders and agrees to be bound by the terms of the Collateral Documents; provided that, except as otherwise provided in subsection 11.6, Agent shall not enter into or consent to any amendment, modification, termination or waiver of any provision contained in the Collateral Documents without the prior consent of Requisite Lenders. Anything contained in any of the Loan Documents to the contrary notwithstanding, each Lender agrees that no Lender shall have any right individually to realize upon any of the Holdings Guaranty, the Guaranty or any of the Collateral under the Collateral Documents, it being understood and agreed that all rights and remedies under the Collateral Documents may be exercised solely by Agent for the benefit of Lenders and the other beneficially interested parties under the Collateral Documents and the other Loan Documents in accordance with the terms thereof. SECTION X. MISCELLANEOUS A. ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT. 1. GENERAL. Subject to subsection 11.1B, each Lender shall have the right at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of its Commitments or any Loan or Loans made by it or its Letters of Credit or participations therein or any other interest herein or in any other Obligations owed to it; provided that no such sale, assignment, transfer or participation shall, without the consent of Company, require Company to file a registration statement with the Securities and Exchange Commission or apply to qualify such sale, assignment, transfer or participation under the securities laws of any state; provided further that no such sale, assignment or transfer described in clause (i) above shall be effective unless and until an Assignment Agreement effecting such sale, assignment or transfer shall have been accepted by Agent and recorded in the Register as provided in subsection 11.1B(ii); provided further that no such sale, assignment, transfer or participation of any Letter of Credit or any participation therein may be made separately from a sale, assignment, transfer or participation of a corresponding interest in the Revolving Loan Commitment and the Revolving Loans of the Lender effecting such sale, assignment, transfer or participation; and provided further that, anything contained herein to the contrary notwithstanding, the Swing Line Loan Commitment and the Swing Line Loans of Swing Line Lender may not be sold, assigned or transferred as described in clause (i) above to any Person other than a successor Agent and Swing Line Lender to the extent contemplated by subsection 10.5. Except as otherwise provided in this subsection 11.1, no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment or transfer of, or any granting of 150 participations in, all or any part of its Commitments or the Loans, the Letters of Credit or participations therein, or the other Obligations owed to such Lender. 2. ASSIGNMENTS. a. Amounts and Terms of Assignments. Each Commitment, Loan, Letter of Credit or participation in any Letter of Credit or in any Swing Line Loan, or other Obligation may (a) be assigned in any amount to another Lender, or to an Affiliate of the assigning Lender or another Lender, with the giving of notice to Company and Agent or (b) be assigned in an aggregate amount of not less than $5,000,000 (or such lesser amount as shall constitute the aggregate amount of the Commitments, Loans, Letters of Credit and participations in any Letter of Credit or in any Swing Line Loan, and other Obligations of the assigning Lender) to any other Eligible Assignee with the giving of notice to Company and with the consent of Company and Agent (which consent of Company and Agent shall not be unreasonably withheld or delayed and provided that Company hereby consents to any assignment to any Eligible Assignee which immediately prior to the effectiveness of the Master Assignment Agreement was a Lender under the Existing Credit Agreement). To the extent of any such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Commitments, Loans, Letters of Credit or participations therein, or other Obligations or the portion thereof so assigned. The parties to each such assignment shall execute and deliver to Agent, for its acceptance and recording in the Register, an Assignment Agreement, together with a processing and recordation fee of, in the case of assignments to a Lender or an Affiliate of a Lender, $1,500 and, in the case of assignments to any other Eligible Assignee, $3,500 and such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Agent pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery, acceptance and recordation, from and after the effective date specified in such Assignment Agreement, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto); provided that the assigning Lender shall retain its rights (concurrently with assignee) under subsections 2.6D, 2.7, 3.5A, 3.6, 11.2, 11.3 and 11.4. The Commitments hereunder shall be modified to reflect the Commitment of such assignee and any remaining Commitment of such assigning Lender and, if any such assignment occurs after the issuance of the Notes hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to Agent for cancellation, and thereupon new Notes shall be issued to the assignee and to the assigning Lender, substantially in the form of Exhibit IV, Exhibit V or Exhibit VI annexed hereto, as the case may be, with appropriate 151 insertions, to reflect the new Commitments and/or outstanding Term Loans, as the case may be, of the assignee and/or the assigning Lender. b. Acceptance by Agent; Recordation in Register. Upon its receipt of an Assignment Agreement executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing and recordation fee referred to in subsection 11.1B(i) and any forms, certificates or other evidence with respect to United States federal income tax withholding matters that such assignee may be required to deliver to Agent pursuant to subsection 2.7B(iii)(a), Agent shall, if such Assignment Agreement has been completed and is in substantially the form of Exhibit XVII hereto and if Agent and Company have consented to the assignment evidenced thereby (in each case to the extent such consent is required pursuant to subsection 11.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of Agent to such assignment), (b) record the information contained therein in the Register, and (c) give prompt notice thereof to Company. Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 11.1B(ii). 3. PARTICIPATIONS. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting (i) the extension of the scheduled final maturity date of any Loan allocated to such participation, (ii) a reduction of the principal amount of or the rate of interest payable on any Loan allocated to such participation, (iii) the release of the Liens held by Agent on behalf of Lenders with respect to all or substantially all of the Collateral or (iv) a reduction of the amount of any fees payable hereunder to the extent subject to such participation, and all amounts payable by Company hereunder (including without limitation amounts payable to such Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall be determined as if such Lender had not sold such participation. Holdings, Company and each Lender hereby acknowledge and agree that, solely for purposes of subsections 11.4 and 11.5, (a) any participation will give rise to a direct obligation of Holdings or Company, as applicable, to the participant and (b) the participant shall be considered to be a "Lender". 4. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 11.1, any Lender may assign and pledge all or any portion of its Loans, the other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank and with the consent of Company and Agent, any Lender which is a fund may pledge all or any portion of its Notes or Loans to its trustee in support of its obligations to its trustee; provided that (i) no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. 152 5. INFORMATION. Each Lender may furnish any information concerning Holdings and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 11.19. B. EXPENSES. Whether or not the transactions contemplated hereby shall be consummated, each of Holdings and Company agrees to pay promptly (i) all the actual and reasonable costs and expenses of preparation of the Loan Documents; (ii) all the costs of furnishing all opinions by counsel for Holdings and its Subsidiaries (including without limitation any opinions requested by Lenders as to any legal matters arising hereunder) and of each Loan Party's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other Loan Documents including, without limitation, with respect to confirming compliance with environmental and insurance requirements; (iii) the reasonable fees, expenses and disbursements of counsel to Agent (including internal counsel) in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans and any consents, amendments, waivers or other modifications hereto or thereto and any other documents or matters requested by any Loan Party; (iv) all the reasonable costs and expenses of creating and perfecting Liens in favor of Agent on behalf of Lenders pursuant to any Loan Document, including filing and recording fees and expenses, title insurance, and reasonable fees and expenses of counsel for providing such opinions as Agent or Requisite Lenders may reasonably request and reasonable fees and expenses of legal counsel to Agent; (v) all the reasonable costs and expenses of obtaining and reviewing any appraisals or environmental reports provided for under subsection 4.1F or 6.11; (vi) all other actual and reasonable costs and expenses incurred by Agent in connection with the syndication of the Commitments and the negotiation, preparation and execution of the Loan Documents and the transactions contemplated hereby and thereby; and (vii) after the occurrence of an Event of Default, all reasonable costs and expenses, including reasonable attorneys' fees (including internal counsel) and costs of settlement, incurred by Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Loan Party hereunder or under the other Loan Documents by reason of such Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. C. INDEMNITY. In addition to the payment of expenses pursuant to subsection 11.2, whether or not the transactions contemplated hereby shall be consummated, each of Holdings and Company agrees to defend, indemnify, pay and hold harmless Agent and Lenders, and the officers, directors, trustees, employees, agents and affiliates of Agent and Lenders (collectively called the "INDEMNITEES") from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including without limitation the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, 153 statutes, rules or regulations (including without limitation securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents or any other Transaction Documents or the transactions contemplated hereby or thereby (including without limitation Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds of any of the Loans or the issuance of Letters of Credit hereunder or the use or intended use of any of the Letters of Credit) or the statements contained in the commitment letter delivered by any Lender to any Loan Party with respect thereto (collectively called the "INDEMNIFIED LIABILITIES"); provided that each of Holdings and Company shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities are directly attributable to the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction. To the extent that the undertaking to defend, indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, each of Holdings and Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. D. SET-OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default and consultation with Agent each Lender is hereby authorized by each of Holdings and Company at any time or from time to time, without notice to Holdings or Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of Holdings or Company against and on account of the obligations and liabilities of Holdings or Company to that Lender under this Agreement, the Notes, the Letters of Credit and participations therein and the other Loan Documents, including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement, the Notes, the Letters of Credit and participations therein or any other Loan Document, irrespective of whether or not (i) that Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 8 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Company hereby further grants to Agent and each Lender a security interest in all deposits and accounts maintained with Agent or such Lender as security for the Obligations. E. RATABLE SHARING. Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment, by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under 154 the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts (excluding amounts due and owing pursuant to subsections 2.6D, 2.7, 3.2(i)(a) and 3.2(ii)(a)) then due and owing to that Lender hereunder or under the other Loan Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Holdings or any of its Subsidiaries or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Each of Holdings and Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Holdings or any of its Subsidiaries to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. F. AMENDMENTS AND WAIVERS. 1. No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes, or consent to any departure by Holdings or Company therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; provided that no such amendment, modification, termination, waiver or consent shall, without the consent of each Lender (with Obligations directly affected in the case of the following clause (i)): (i) extend the scheduled final maturity of any Loan or Note, or extend the stated expiration date of any Letter of Credit beyond the Revolving Loan Commitment Termination Date, or reduce the rate of interest (other than any waiver of any increase in the interest rate applicable to any of the Loans pursuant to subsection 2.2E) or fees thereon, or extend the time of payment of interest or fees thereon, or reduce the principal amount thereof, (ii) release all or substantially all of the Collateral, release all or substantially all of the Loan Parties that are party to the Subsidiary Guaranty from the Subsidiary Guaranty or release Holdings from the Holdings Guaranty, in each case except as expressly provided in the Loan Documents, (iii) amend, modify, terminate or waive any provision of this subsection 11.6, (iv) reduce the percentage specified in the definition of Requisite Lenders (it being understood that, with the consent of the Requisite Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Requisite Lenders on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Effective Date) or (v) consent to the assignment or transfer by Holdings or Company of any of their respective rights and obligations under this Agreement; provided further that no such amendment, modification, termination or waiver shall (1) increase the Commitments of any Lender over the amount thereof then in effect 155 without the consent of such Lender (it being understood that amendments, modifications or waivers of conditions precedent, covenants, Potential Events of Default or Events of Default or of a mandatory reduction in the Commitments shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase in the Commitment of such Lender); (2) without the consent of the Swing Line Lender, amend, modify, terminate or waive any provision of subsection 2.1A(iv) or any other provision of this Agreement relating to the Swing Line Loan Commitment or the Swing Line Loans; (3) without the consent of the Requisite Class Lenders of each Class which is being allocated a lesser prepayment, repayment or commitment reduction as a result of the actions described below (or without the consent of the Requisite Class Lenders of each Class in the case of an amendment to the definition of Requisite Class Lenders), amend the definition of Requisite Class Lenders or alter the required application of any prepayments or repayments (or commitment reduction), as between the Classes pursuant to subsection 2.4B(iv) (although the Requisite Lenders may waive, in whole or in part, any such prepayment, repayment or commitment reduction so long as the application, as between the Classes, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered); (4) without the consent of Requisite Class Lenders of the respective Class, waive or reduce any scheduled repayment set forth in subsections 2.4A(i) and (ii) of such affected Class; (5) amend, modify, terminate or waive any obligations of Revolving Lenders relating to the purchase of participations in Letters of Credit shall be effective without the written concurrence of each Issuing Lender having a Letter of Credit then outstanding or which has not been reimbursed for a drawing under a Letter of Credit issued by it and of Agent; or (6) without the consent of Agent or any applicable Co-Agent, amend, modify, terminate or waive any provision of Section 10 as the same applies to Agent or any Co-Agent or of any other provision of this Agreement as the same applies to the rights or obligations of Agent or any Co-Agent. 2. If, in connection with any proposed amendment, modification, termination or waiver to any of the provisions of this Agreement or the Notes which requires the consent of all Lenders, the consent of the Requisite Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then Company shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clause (i) or (ii) below, to either (i) replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to subsection 2.8 so long as at the time of such replacement, each such Replacement Lender consents to the proposed amendment, modification, termination or waiver, or (ii) terminate such non-consenting Lender's Commitments and repay in full its outstanding Loans in accordance with subsections 2.4B(i)(b) and 2.4B(ii)(b); provided that unless the Commitments that are terminated and the Loans that are repaid pursuant to the preceding clause (ii) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to the preceding clause (ii), the Requisite Lenders (determined before giving effect to the proposed action) shall specifically consent thereto; provided further that Company shall not have the right to terminate such non-consenting Lender's Commitment and repay in full its outstanding Loans pursuant to clause (ii) of this subsection 11.6B if, immediately after the termination of such Lender's Revolving Loan Commitment in accordance with subsection 2.4B(ii)(b), the Revolving Loan Exposure of all Lenders would exceed the Revolving Loan Commitments of 156 all Lenders; provided still further that Company shall not have the right to replace a Lender solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to subsection 11.6A. 3. Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Company in any case shall entitle Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 11.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Company, on Company. G. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. H. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided that notices to Agent shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or (i) as to Holdings, Company and Agent, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to Agent. I. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. 1. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. 2. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Holdings and Company set forth in subsections 2.6D, 2.7, 3.5A, 3.6, 11.2, 11.3 and 11.4 and the agreements of Lenders set forth in subsections 10.2C, 10.4 and 11.5 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination of this Agreement. 157 J. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. K. MARSHALLING; PAYMENTS SET ASIDE. Neither Agent nor any Lender shall be under any obligation to marshal any assets in favor of Holdings, Company or any other party or against or in payment of any or all of the Obligations. To the extent that any Loan Party makes a payment or payments to Agent or Lenders (or to Agent for the benefit of Lenders), or Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. L. SEVERABILITY. In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. M. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. N. HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 158 O. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. P. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders (it being understood that Lenders' rights of assignment are subject to subsection 11.1). The terms and provisions of this Agreement shall enure to the benefit of any assignee or transferee of any of the Loans, and in the event of any such transfer or assignment the rights and privileges herein conferred upon Lenders shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. Neither Holdings' or Company's rights or obligations hereunder nor any interest therein may be assigned or delegated by Holdings or Company without the prior written consent of all Lenders. Q. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST HOLDINGS OR COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OBLIGATION MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH OF HOLDINGS AND COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH OTHER LOAN DOCUMENT OR SUCH OBLIGATION. Each of Holdings and Company hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to Holdings or Company, as the case may be, at its address provided in subsection 11.8, such service being hereby acknowledged by Holdings or Company, as the case may be, to be sufficient for personal jurisdiction in any action against Holdings or Company, as the case may be, in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of any Lender to bring proceedings against Holdings or Company in the courts of any other jurisdiction. R. WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR 159 ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. S. CONFIDENTIALITY. Each Lender shall hold all non-public information obtained pursuant to the requirements of or in connection with this Agreement which has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by Holdings and Company that in any event a Lender may make disclosures reasonably required by any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participation therein or to any direct or indirect contractual counterparties in swap agreements or such contractual counterparties' professional advisors provided that such contractual counterparties or their professional advisors agree to handle the above-described confidential information in accordance with safe and sound practices which are substantially the same as those followed by banking institutions or as required or requested by any governmental agency (including, without limitation, any regulatory body having jurisdiction over such Lender) or representative thereof or the NAIC or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided further that in no event shall any Lender be obligated or required to return any materials furnished by Holdings or any of its Subsidiaries; provided still further that expressly excluded from such non-public information referred to in this subsection 11.19 is information that, prior to such information being disclosed by a Lender, is made available by any Loan Party to the public. 160 T. COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Agent of written or telephonic notification of such execution and authorization of delivery thereof. 161 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. S-1 162 COMPANY: RALPHS GROCERY COMPANY By: ------------------------------------ Title: ------------------------------------ HOLDINGS: FOOD 4 LESS HOLDINGS, INC. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 163 BANKERS TRUST COMPANY, INDIVIDUALLY AND AS AGENT By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 164 BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 165 BANK OF AMERICA ILLINOIS By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 166 BANQUE PARIBAS, LOS ANGELES AGENCY By: ------------------------------------ Title: ------------------------------------ By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 167 THE CHASE MANHATTAN BANK By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 168 COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By: ------------------------------------ Title: ------------------------------------ By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 169 CREDIT LYONNAIS, LOS ANGELES BRANCH By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 170 CREDIT SUISSE FIRST BOSTON By: ------------------------------------ Title: ------------------------------------ By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 171 DLJ CAPITAL FUNDING, INC. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 172 THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 173 FLEET NATIONAL BANK By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 174 GOLDMAN SACHS CREDIT PARTNERS L.P. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 175 THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 176 THE MITSUBISHI TRUST AND BANKING CORPORATION By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 177 MORGAN STANLEY SENIOR FUNDING, INC. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 178 NATIONAL WESTMINSTER BANK PLC By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 179 UNION BANK OF CALIFORNIA, N.A. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 180 UNITED STATES NATIONAL BANK OF OREGON By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 181 THE TRAVELERS INSURANCE COMPANY By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 182 CIBC INC. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 183 GENERAL ELECTRIC CAPITAL CORPORATION By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 184 MARINE MIDLAND BANK By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 185 TRANSAMERICA BUSINESS CREDIT CORPORATION By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 186 KZH HOLDING CORPORATION II By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 187 MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 188 MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 189 SENIOR HIGH INCOME PORTFOLIO, INC. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 190 VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 191 DAI-ICHI KANGYO BANK, LTD., LOS ANGELES AGENCY By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 192 IMPERIAL BANK By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 193 NATIONAL CITY BANK By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 194 SOCIETE GENERALE By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 195 THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 196 THE SUMITOMO TRUST & BANKING CO., LTD., LOS ANGELES AGENCY By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 197 THE FIRST NATIONAL BANK OF BOSTON By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 198 CITIBANK, N.A. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 199 PRIME INCOME TRUST By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 200 THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND, L.P. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 201 CONTINENTAL CASUALTY COMPANY By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 202 UNITED COMPANIES LIFE INSURANCE COMPANY By: TCW Asset Management Company, as Attorney-in-Fact By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 203 INTEGON LIFE INSURANCE CORPORATION By: TCW Asset Management Company, as Attorney-in-Fact By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 204 LEHMAN COMMERCIAL PAPER INC. By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 205 PILGRIM AMERICA PRIME RATE TRUST By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 206 ML CBO IV (CAYMAN) LTD. By: Protective Asset Management, L.L.C., as Collateral Manager By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 207 PROTECTIVE LIFE INSURANCE COMPANY By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 208 OAK HILL SECURITIES FUND, L.P. By: Oak Hill Securities GenPar, L.P., its General Partner By: Oak Hill Securities MGP, Inc., its General Partner By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 209 PARIBAS CAPITAL FUNDING LLC By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 210 FIRSTRUST BANK By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 211 CITY NATIONAL BANK By: ------------------------------------ Title: ------------------------------------ CREDIT AGREEMENT 212 CO-AGENTS BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION THE CHASE MANHATTAN BANK COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE CREDIT SUISSE FIRST BOSTON THE MITSUBISHI TRUST AND BANKING CORPORATION UNION BANK OF CALIFORNIA, N.A. UNITED STATES NATIONAL BANK OF OREGON BANQUE PARIBAS, LOS ANGELES AGENCY CREDIT LYONNAIS, LOS ANGELES BRANCH FLEET NATIONAL BANK THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY MORGAN STANLEY SENIOR FUNDING, INC. DLJ CAPITAL FUNDING, INC. THE FIRST NATIONAL BANK OF CHICAGO GOLDMAN SACHS CREDIT PARTNERS L.P. NATIONAL WESTMINSTER BANK PLC CREDIT AGREEMENT EX-4.8 3 INDENTURE FOR THE 11% SR. SUBORDINATED NOTES 1 EXHIBIT 4.8 ================================================================================ RALPHS GROCERY COMPANY AND SUBSIDIARY GUARANTORS AND UNITED STATES TRUST COMPANY OF NEW YORK TRUSTEE --------------- INDENTURE Dated as of March 26, 1997 --------------- $155,000,000 11% Senior Subordinated Notes due 2005 ================================================================================ 2 ================================================================================ CROSS-REFERENCE TABLE
TIA Indenture Section Section - ------- ------- 310(a)(1)...................................................... 8.10 (a)(2)...................................................... 8.10 (a)(3)...................................................... N.A. (a)(4)...................................................... N.A. (a)(5)...................................................... 8.10; 8.11 (b)......................................................... 8.08; 8.10; 13,02 (c)......................................................... N.A. 311(a)......................................................... 8.11 (b)......................................................... 8.11 (c)......................................................... N.A. 312(a)......................................................... 2.05 (b)......................................................... 13.03 (c)......................................................... 13.03 313(a)......................................................... 8.06 (b)(1)...................................................... N.A (b)(2)...................................................... 8.06 (c)......................................................... 8.06; 13.02 (d)......................................................... 8.06 314(a)......................................................... 5.07; 5.09; 13.02 (b)......................................................... N.A. (c)(1)...................................................... 8.02; 13.04 (c)(2)...................................................... 8.02; 13.04 (c)(3)...................................................... N.A. (d)......................................................... N.A. (e) ........................................................ 13.05 (f)......................................................... N.A 315(a)......................................................... 8.01(b) (b)......................................................... 8.05; 13.02 (c)......................................................... 8.01(a) (d)......................................................... 8.01(c) (e)......................................................... 7.11 316(a)(last sentence).......................................... 2.09 (a)(1)(A)................................................... 7.05 (a)(1)(B)................................................... 7.04 (a)(2)...................................................... N.A. (b)......................................................... 7.07 317(a)(1)...................................................... 7.08 (a)(2)...................................................... 7.09 (b)......................................................... 2.04 318(a)......................................................... 13.01 (c)......................................................... 13.01
- ------------------ 3 N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 4 TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions........................................................... 1 SECTION 1.02. Incorporation by Reference of TIA..................................... 32 SECTION 1.03. Rules of Construction................................................. 33 ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating....................................................... 33 SECTION 2.02. Execution and Authentication.......................................... 34 SECTION 2.03. Registrar and Paying Agent............................................ 35 SECTION 2.04. Paying Agent To Hold Assets in Trust.................................. 35 SECTION 2.05. Securityholder Lists.................................................. 36 SECTION 2.06. Transfer and Exchange................................................. 36 SECTION 2.07. Replacement Securities................................................ 37 SECTION 2.08. Outstanding Securities................................................ 37 SECTION 2.09. Treasury Securities................................................... 38 SECTION 2.10. Temporary Securities.................................................. 38 SECTION 2.11. Cancellation.......................................................... 38 SECTION 2.12. Defaulted Interest.................................................... 39 SECTION 2.13. CUSIP Number.......................................................... 39 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee.................................................... 39 SECTION 3.02. Selection of Securities To Be Redeemed................................ 40 SECTION 3.03. Notice of Redemption.................................................. 40 SECTION 3.04. Effect of Notice of Redemption........................................ 41 SECTION 3.05. Deposit of Redemption Price........................................... 41 SECTION 3.06. Securities Redeemed in Part........................................... 42 ARTICLE FOUR SUBORDINATION SECTION 4.01. Securities Subordinated to Senior Indebtedness........................ 42
-i- 5
Page ---- SECTION 4.02. Suspension of Payment When Senior Indebtedness in Default............. 43 SECTION 4.03. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company................................... 44 SECTION 4.04. Securityholders To Be Subrogated to Rights of Holders of Senior Indebtedness......................................... 46 SECTION 4.05. Obligations of the Company Unconditional.............................. 47 SECTION 4.06. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice................................................... 48 SECTION 4.07. Application by Trustee of Assets Deposited with It.................... 48 SECTION 4.08. No Waiver of Subordination Provisions................................. 49 SECTION 4.09. Securityholders Authorize Trustee To Effectuate Subordination of Securities............................................... 50 SECTION 4.10. Right of Trustee To Hold Senior Indebtedness.......................... 51 SECTION 4.11. No Suspension of Remedies............................................. 51 SECTION 4.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness................................................ 51 ARTICLE FIVE COVENANTS SECTION 5.01. Payment of Securities................................................. 52 SECTION 5.02. Maintenance of Office or Agency....................................... 52 SECTION 5.03. Limitation on Restricted Payments..................................... 52 SECTION 5.04. Corporate Existence................................................... 54 SECTION 5.05. Payment of Taxes and Other Claims..................................... 54 SECTION 5.06. Maintenance of Properties and Insurance............................... 55 SECTION 5.07. Compliance Certificate; Notice of Default............................. 56 SECTION 5.08. Compliance with Laws.................................................. 57 SECTION 5.09. SEC Reports........................................................... 57 SECTION 5.10. Waiver of Stay, Extension or Usury Laws............................... 57 SECTION 5.11. Limitation on Transactions with Affiliates............................ 58 SECTION 5.12. Limitation on Incurrences of Additional Indebtedness.................. 60
-ii- 6
Page ---- SECTION 5.13. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries...................................... 60 SECTION 5.14. Limitation on Liens................................................... 61 SECTION 5.15. Limitation on Change of Control....................................... 62 SECTION 5.16. Limitation on Asset Sales............................................. 65 SECTION 5.17. Guarantees of Certain Indebtedness.................................... 68 SECTION 5.18. Limitation on Preferred Stock of Subsidiaries......................... 68 SECTION 5.19. Limitation on Other Senior Subordinated Indebtedness.................. 69 ARTICLE SIX SUCCESSOR CORPORATION SECTION 6.01. Limitations on Mergers and Certain Other Transactions................. 69 SECTION 6.02. Successor Corporation Substituted..................................... 70 ARTICLE SEVEN DEFAULT AND REMEDIES SECTION 7.01. Events of Default..................................................... 71 SECTION 7.02. Acceleration.......................................................... 73 SECTION 7.03. Other Remedies........................................................ 74 SECTION 7.04. Waiver of Past Defaults............................................... 75 SECTION 7.05. Control by Majority................................................... 75 SECTION 7.06. Limitation on Suits................................................... 75 SECTION 7.07. Rights of Holders To Receive Payment.................................. 76 SECTION 7.08. Collection Suit by Trustee............................................ 76 SECTION 7.09. Trustee May File Proofs of Claim...................................... 76 SECTION 7.10. Priorities............................................................ 77 SECTION 7.11. Rights and Remedies Cumulative........................................ 78 SECTION 7.12. Delay or Omission Not Waiver.......................................... 78 SECTION 7.13. Undertaking for Costs................................................. 78 ARTICLE EIGHT TRUSTEE SECTION 8.01. Duties of Trustee..................................................... 79 SECTION 8.02. Rights of Trustee..................................................... 80 SECTION 8.03. Individual Rights of Trustee.......................................... 81 SECTION 8.04. Trustee's Disclaimer.................................................. 81 SECTION 8.05. Notice of Default..................................................... 81 SECTION 8.06. Reports by Trustee to Holders......................................... 81
-iii- 7
Page ---- SECTION 8.07. Compensation and Indemnity............................................ 82 SECTION 8.08. Replacement of Trustee................................................ 83 SECTION 8.09. Successor Trustee by Merger, Etc...................................... 84 SECTION 8.10. Eligibility; Disqualification......................................... 84 SECTION 8.11. Preferential Collection of Claims Against Company..................... 84 ARTICLE NINE SATISFACTION AND DISCHARGE OF INDENTURE SECTION 9.01. Termination of the Company's Obligations.............................. 85 SECTION 9.02. Legal Defeasance and Covenant Defeasance.............................. 86 SECTION 9.03. Application of Trust Money............................................ 91 SECTION 9.04. Repayment to the Company or Subsidiary Guarantors..................... 91 SECTION 9.05. Reinstatement......................................................... 92 ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 10.01. Without Consent of Holders........................................... 92 SECTION 10.02. With Consent of Holders.............................................. 93 SECTION 10.03. Compliance with TIA.................................................. 95 SECTION 10.04. Revocation and Effect of Consents.................................... 95 SECTION 10.05. Notation on or Exchange of Securities................................ 96 SECTION 10.06. Trustee To Sign Amendments, Etc...................................... 96 ARTICLE ELEVEN GUARANTEE SECTION 11.01. Unconditional Guarantee.............................................. 96 SECTION 11.02. Subordination of Guarantee........................................... 98 SECTION 11.03. Severability......................................................... 98 SECTION 11.04. Release of a Subsidiary Guarantor.................................... 98 SECTION 11.05. Limitation of Subsidiary Guarantor's Liability....................... 99 SECTION 11.06. Subsidiary Guarantors May Consolidate, etc., on Certain Terms....................................................... 99 SECTION 11.07. Contribution......................................................... 100 SECTION 11.08. Waiver of Subrogation................................................ 101 SECTION 11.09. Execution of Guarantee............................................... 102 SECTION 11.10. Waiver of Stay, Extension or Usury Laws.............................. 102
-iv- 8 ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS
Page ---- SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness................................................ 103 SECTION 12.02. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default..................................... 103 SECTION 12.03. Guarantee Obligations Subordinated to Prior Payment of All Guarantor Senior Indebtedness on Dissolution, Liquidation or Reorganization of Such Subsidiary Guarantor................................................... 105 SECTION 12.04. Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of Guarantor Senior Indebtedness................. 107 SECTION 12.05. Obligations of the Subsidiary Guarantors Unconditional............... 108 SECTION 12.06. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice........................................... 109 SECTION 12.07. Application by Trustee of Assets Deposited with It................... 109 SECTION 12.08. No Waiver of Subordination Provisions................................ 109 SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations....................................... 111 SECTION 12.10. Right of Trustee To Hold Guarantor Senior Indebtedness............... 111 SECTION 12.11. No Suspension of Remedies............................................ 112 SECTION 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior Indebtedness................................................ 112 ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.01. TIA Controls......................................................... 112 SECTION 13.02. Notices.............................................................. 113 SECTION 13.03. Communications by Holders with Other Holders......................... 114 SECTION 13.04. Certificate and Opinion as to Conditions Precedent................... 114 SECTION 13.05. Statements Required in Certificate or Opinion........................ 114 SECTION 13.06. Rules by Trustee, Paying Agent, Registrar............................ 115
-v- 9
Page ---- SECTION 13.07. Legal Holidays....................................................... 115 SECTION 13.08. Governing Law........................................................ 115 SECTION 13.09. No Adverse Interpretation of Other Agreements........................ 116 SECTION 13.10. No Recourse Against Others........................................... 116 SECTION 13.11. Successors........................................................... 116 SECTION 13.12. Duplicate Originals.................................................. 116 SECTION 13.13. Severability......................................................... 116 SECTION 13.14. No Violation......................................................... 116 Signatures.......................................................................... S-1
Exhibit A - Form of Note Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -vi- 10 INDENTURE dated as of March 26, 1997, among RALPHS GROCERY COMPANY, a Delaware corporation (the "Company"), the SUBSIDIARY GUARANTORS, and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 11% Senior Subordinated Notes due 2005: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acquired Indebtedness" means (i) with respect to any person that becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) after the Issue Date, Indebtedness of such person or any of its Subsidiaries existing at the time such person becomes a Subsidiary of the Company (or is merged into the Company or any of its Subsidiaries) and which was not incurred in connection with, or in contemplation of, such person becoming a Subsidiary of the Company (or being merged into the Company or any of its Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries, any Indebtedness assumed by the Company or any of its Subsidiaries in connection with the acquisition of any assets from another person (other than the Company or any of its Subsidiaries), and which was not incurred by such other person in connection with, or in contemplation of, such acquisition. "Adjusted Net Assets" shall have the meaning provided in Section 11.07. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, for purposes of this Indenture, neither BT Securities Corporation nor any of its Af- 11 -2- filiates shall be deemed to be an Affiliate of the Company or any of its Subsidiaries. "Affiliate Transaction" shall have the meaning provided in Section 5.11. "Agent" means any Registrar, Paying Agent or co-Registrar. "Apollo Advisors, L.P." means Apollo Advisors, L.P., a Delaware limited partnership. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise) made by such person or any of its subsidiaries to any person other than such person or one of its wholly owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than the Company or a directly or indirectly wholly owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of related sales, transfers or other dispositions (i) involving only Excluded Assets, (ii) resulting in Net Proceeds to the Company and the Subsidiaries of $500,000 or less, (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company or any Subsidiary with a Lien on such assets, which Lien is permitted under this Indenture; provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law, (iv) involving only Cash Equivalents or inventory in the ordinary course of business or obsolete equipment in the ordinary course of business consistent with past practices of the Company, (v) involving only the lease or sub-lease of any real or personal property in the ordinary course of business or (vi) the proceeds of such Asset Sale which are not applied as contemplated in Section 5.16 and which, together with all other such Asset Sale Proceeds, do not exceed $20 million. "Average Life" means, as of the date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years 12 -3- from the date of determination to the dates of each successive scheduled principal payments of such debt security multiplied by the amount of each such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any person, the Board of Directors of such person or of a subsidiary of such person or any duly authorized committee of the Board of Directors. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means, with respect to any person, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's' Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii), (v) shares of any money market mutual 13 -4- fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500 million, and (c) has the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc. and (vi) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of Holdings or the Company such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of the Company (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of the Company's Board of Directors. "Change of Control Date" shall have the meaning provided in Section 5.15. "Change of Control Offer" shall have the meaning provided in Section 5.15. "Change of Control Payment Date" shall have the meaning provided in Section 5.15. "Commission" means the Securities and Exchange Commission. 14 -5- "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. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated Net Income," means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received by, such person or a subsidiary of such person not subject to any Payment Restriction; and (c)(i) the net income (or loss) of any other person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of such person or any of its subsidiaries and any gains on pension reversions received by such person or any of its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any of its subsidiaries of any securities of such person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended,(vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C) any other restructuring reserves or charges (provided, however, that any cash payments actually made with respect to the liabilities for which such restructuring reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case, incurred by the Company or any of its Sub- 15 -6- sidiaries 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 Section 5.03, "Consolidated Net Income" of the Company for any period shall be reduced by the aggregate amount of dividends paid by the Company or a Subsidiary to Holdings pursuant to clauses (v) and (viii) of the definition of "Permitted Payments" during such period. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Consulting Agreement" means that certain Consulting Agreement dated as of June 14, 1995 and as in effect on the Issue Date, among the Company, Holdings and The Yucaipa Companies (as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date). "Credit Agent" means, at any time, the then-acting Administrative Agent as defined in and under the Credit Agreement, which initially shall be Bankers Trust Company. The Company shall promptly notify the Trustee of any change in the Credit Agent. "Credit Agreement" means the Credit Agreement, dated as of June 14, 1995, as amended and in effect on the Issue Date, by and among Food 4 Less, as borrower, certain of its subsidiaries, Holdings, as guarantor, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or any such prior agreement as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, 16 -7- terms, conditions, covenants and other provisions). The term "Credit Agreement" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. The Company shall promptly notify the Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "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 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. "Disqualified Capital Stock" means, with respect to any person, any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security into which it is convertible, puttable or exchangeable is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder thereof, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date of the Securities or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (i) redeemable or repurchasable solely at the option of such person or (ii) issued to employees of the Company or its Subsidiaries or to any plan for the benefit of such employees, such Capital 17 -8- Stock shall not constitute Disqualified Capital Stock unless so designated. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credits) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period (excluding any such items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period) in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring reserve or charge referred to in clause (v) above (and was not otherwise deducted in the computation of Consolidated Net Income of such person for such period). "Event of Default" shall have the meaning provided in Section 7.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Excluded Assets" means assets of the Company or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. "Existing Indebtedness" means the following indebtedness of the Company to the extent outstanding on the Issue Date: (a) the 10.45% Senior Notes due 2004 issued pursuant to an indenture dated as of June 6, 1996; (b) the 10.45% Senior 18 -9- Notes due 2004 issued pursuant to an indenture dated as of June 1, 1995; (c) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (d) the 11% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of June 1, 1995; (e) the 9% Senior Subordinated Notes due 2003 issued pursuant to an indenture dated as of March 30, 1993; (f) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to an indenture dated as of July 29, 1992; and (g)(1) the 13.75% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of June 1, 1995, and (2) the 13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated as of June 15, 1991; provided that such indebtedness described under subclauses (1) and (2) of clause (g) hereof shall no longer constitute Existing Indebtedness from and after April 29, 1997. "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including, (without duplication) in the case of the Company, any original issue discount on the Securities but excluding amortization of debt issuance costs) and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period but excluding the amortization of debt issuance costs), (ii) dividend requirements on Preferred Stock of such person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock)) declared or paid or required to be declared or paid during such period (except to the extent accrued in a prior period) and excluding items eliminated in consolidation and (iii) dividends declared or paid or scheduled or required to be declared or paid to Holdings which are permitted to be paid pursuant to clause (v) 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 19 -10- at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pre-tax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "FFL" means Food 4 Less, Inc., a Delaware corporation, and its successors, including, without limitation, Holdings. "Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, the Company. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "Forward Period" shall have the meaning provided in the definition of "0perating Coverage Ratio" contained in this Section 1.01. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of June 1, 1995. "Guarantee" means the guarantee of each Subsidiary Guarantor set forth in Article Eleven and any additional guarantee of the Securities executed by any Subsidiary of the Company. "Guarantee Obligations" shall have the meaning provided in Section 12.01. 20 -11- "Guarantor Payment Blockage Period" shall have the meaning provided in Section 12.02. "Guarantor Senior Indebtedness" means, with respect to any Subsidiary Guarantor, the principal of, premium, if any, and interest on and all other Obligations with respect to 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 111(b) of Title 11, United States Code, is without recourse to such Subsidiary Guarantor (other than Capitalized Lease Obligations), (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 Guarantors for compensation to employees or for services rendered to such Subsidiary Guarantors, (g) any liability for federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (h) Indebtedness of such Subsidiary Guarantor representing a guarantee of Subordinated Indebtedness or Pari Passu Indebtedness (in each case, with respect to the Securities or any Guarantee) of the Company or any other Subsidiary Guarantor, (i) Indebtedness of such Subsidiary Guarantor to a Subsidiary of the Company and (j) that portion of any Indebtedness which is incurred by such Subsidiary Guarantor in violation of this Indenture. "Holder" or "Securityholder" means the person in whose name a Security is registered on the Registrar's books. 21 -12- "Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and its successors. "Holdings Registration Rights Agreement" means that certain Registration Rights Agreement by and between RGC Partners, L.P., Holdings and Food 4 Less, as such Registration Rights Agreement may be amended or replaced, so long as any amounts paid by Holdings and the Company under any amended or replacement agreement do not exceed the amounts payable by Holdings and the Company under such Registration Rights Agreement as in effect on June 14, 1995. "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 as- 22 -13- sets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes of this Indenture, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of the Company, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or nationally recognized investment banking or consulting firm that is, in the reasonable judgment of the Board of Directors of the Company, qualified to perform the tasks for which such firm has been engaged and disinterested and independent with respect to the Company and its Affiliates. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of in- 23 -14- terest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances, or to permit the purchase of Qualified Capital Stock of Holdings or any of its Subsidiaries and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of original issuance of the Securities under this Indenture. "Legal Holiday" shall have the meaning provided in Section 13.07. "Letter of Credit Obligations" means Indebtedness of the Company or any of its Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of the definition of the term "Permitted Indebtedness," the aggregate principal amount of Indebtedness outstanding at any time with respect thereto shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien under this Indenture. "Maturity Date" means June 15, 2005. 24 -15- "Merger" means (i) the merger of Food 4 Less into RSI (with RSI surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of Ralphs Grocery Company into RSI (with RSI surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated September 14, 1994, by and among Holdings, FFL, Food 4 Less, RSI and the stockholders of RSI, as such agreement was in effect on June 14, 1995. "Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in the form of cash or Cash Equivalents. "Net Proceeds" means (a) in the case of any Asset Sale or any issuance and sale by any person of Qualified Capital Stock, the aggregate net proceeds received by such person after payment of expenses, taxes, commissions and the like incurred in connection therewith (and, in the case of any Asset Sale, net of the amount of cash applied to repay Indebtedness secured by the asset involved in such Asset Sale), whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt, as determined with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution) and (b) in the case of any conversion or exchange of any outstanding Indebtedness or Disqualified Capital Stock of such person for or into shares of Qualified Capital Stock of the Company, the sum of (i) the fair market value of the proceeds received by the Company in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the holder to the Company upon such conversion or exchange. "New Discount Debenture Indenture" means the indenture dated as of June 14, 1995 under which the 13 5/8% Senior Discount Debentures due 2005 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof to the extent such refinancings are permitted under this Indenture. "New Discount Debentures" means the 13 5/8% Senior Discount Debentures due 2005 of Holdings issued pursuant to the New Discount Debenture Indenture, as the same may be modified and amended from time to time and future refinancings thereof 25 -16- to the extent such refinancings are permitted under this Indenture. "1995 11% Senior Subordinated Note Indenture" means the indenture dated as of June 1, 1995 among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as Trustee, under which the 11% Senior Subordinated Notes of the Company were issued, as the same may be modified and amended from time to time and refinancings thereof to the extent such refinancings are permitted under this Indenture. "Non-payment Default" means any event (other than a Payment Default) the occurrence of which entitles one or more persons to act to accelerate the maturity of any Designated Senior Indebtedness. "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; provided that the term "Obligations" shall not include the obligations of the Company to the Trustee under Section 8.07. "Officer" means, with respect to any person, the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Controller, or the Secretary of such person. "Officers' Certificate" means, with respect to any person, a certificate signed by two Officers or by an officer and either an Assistant Treasurer or an Assistant Secretary of such person and otherwise complying with the requirements of Sections 13.04 and 13.05. "Operating Coverage Ratio" means, with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. In 26 -17- addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by this Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 13.04 and 13.05. Unless otherwise required by the Trustee, the legal counsel may be an employee of or counsel to the Company or the Trustee. "Pari Passu Indebtedness" means, with respect to the Company or any Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in right of payment to the Securities or the Guarantee of such Subsidiary Guarantor, as the case may be (in each case, whether or not secured by any Lien). "Paying Agent" shall have the meaning provided in Section 2.03, except that, for the purposes of Articles Three and Nine and Sections 5.15 and 5.16, the Paying Agent shall not be the Company or an Affiliate of the Company. "Payment Blockage Notice" shall have the meaning provided in Section 4.02. 27 -18- "Payment Blockage Period" shall have the meaning provided in Section 4.02. "Payment Default" means any default in the payment of principal, premium, if any, or interest on any Designated Senior Indebtedness or Significant Senior Indebtedness beyond any applicable grace period with respect thereto. "Payment Restriction" means, with respect to a subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person, or (c) transfer any of its properties or assets to such person or any other subsidiary of such person, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The Yucaipa Companies or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of the Company, or any of its subsidiaries or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its Subsidiaries (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans in an aggregate principal amount at any time outstanding not to exceed $600 million less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the requirements of Section 5.16 of the 1995 11% Senior Subordinated Note Indenture subsequent to June 14, 1995, (ii) the revolving credit facility under the Credit Agreement (including the Letter of Credit Obligations) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the 28 -19- requirements of Section 5.16 of the 1995 11% Senior Subordinated Note Indenture since June 14, 1995, and (iii) any Indebtedness incurred under the Credit Agreement pursuant to and in compliance with (A) clause (m) of this definition and (B) Section 5.12 (other than Permitted Indebtedness that is not incurred pursuant to clause (m) or this clause (a) of this definition); (b) Indebtedness of the Company or a Subsidiary Guarantor owed to and held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred by the Company or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations; provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of the Company and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis and (ii) such Indebtedness, requirements of Section 5.16 of the 1995 11% Senior Subordinated Note Indenture subsequent to June 14, 1995, (ii) the revolving credit facility under the Credit Agreement (including the Letter of Credit Obligations) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the requirements of together with all then outstanding Indebtedness incurred in reliance upon this clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of the Company and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the end of the twelfth fiscal quarter following the Merger); (d) Indebtedness incurred by the Company or any Subsidiary in connection with capital expenditures in an aggregate principal amount not exceeding $150 million (less the aggregate principal amount of any Indebtedness incurred by the Company or any Subsidiary on or prior to the Issue Date in reliance on clause (d) of the definition of "Permitted Indebtedness" under the 1995 11% Senior Subordinated Note Indenture); provided that such capital expenditures relate solely to the integration of the operations of RSI, Food 4 Less and their respective subsidiaries as described in the Prospectus of Food 4 Less dated May 31, 1995; (e) Indebtedness of the Company or any Subsidiary incurred under Foreign Exchange Agreements and Interest Swap Obligations entered into with respect to Indebtedness otherwise permitted to be outstanding pursuant to Section 5.12 or this definition of Permitted Indebtedness in a notional amount not exceeding the aggregate principal amount of such Indebtedness; (f) guarantees incurred in the ordinary course of business by the Company or a Subsidiary of Indebtedness of any other person in the aggregate not to exceed $25 million at any time outstanding; (less the amount of any guarantees incurred by the Company or any Subsidiary on or prior to the Issue Date 29 -20- in reliance on clause (f) of the definition of "Permitted Indebtedness" under the 1995 11% Senior Subordinated Note Indenture until such guarantees are no longer outstanding); (g) guarantees by the Company or a Subsidiary Guarantor of Indebtedness incurred by a wholly owned Subsidiary Guarantor so long as the incurrence of such Indebtedness incurred by such wholly owned Subsidiary Guarantor is permitted under the terms of this Indenture; (h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (j) Existing Indebtedness and other Indebtedness outstanding on the Issue Date; (k) Indebtedness arising from guarantees of Indebtedness of the Company or any Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary in the ordinary course of business; and (m) additional Indebtedness of the Company and the Subsidiary Guarantors in an amount not to exceed $175 million at any time outstanding (less the amount of any Indebtedness incurred by the Company or any Subsidiary Guarantor on or prior to the Issue Date in reliance on clause (m) of the definition of "Permitted Indebtedness" under the 1995 11% Senior Subordinated Note Indenture until such Indebtedness is repaid or no longer outstanding). "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale made pursuant to Section 5.16 or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with Section 5.11, (vi) Investments by Subsidiary Guarantors in other Subsidiary Guarantors or the Company and Investments by the Company in a Subsidiary Guarantor in the form of Indebtedness owed to the Company by such Subsidiary Guarantor and Investments by Subsidiaries which 30 -21- are not Subsidiary Guarantors in other Subsidiaries which are not Subsidiary Guarantors and (vii) additional Investments in an aggregate amount not exceeding $15 million. "Permitted Liens" means (i) Liens for taxes, assessments and governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made thereof; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen, or other like Liens arising in the ordinary course of business, deposits made to obtain the release of such Liens, and with respect to amounts not yet delinquent for a period of more than 60 days or being contested in good faith by appropriate process of law, and for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (iii) Liens incurred or pledges or deposits made in the ordinary course of business to secure obligations under workers' compensation, unemployment insurance and other types of social security or similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, zoning or other restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any of its Subsidiaries 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 ordi- 31 -22- nary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Swap Obligations and Foreign Exchange Agreements and forward contracts, option futures contracts, futures options or similar agreements or arrangements designed to protect the Company or any Subsidiary from fluctuations in the price of commodities; (xii) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or its Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (xiii) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Subsidiary in the ordinary course of business in accordance with past practices; (xiv) any interest or title of a lessor in the property subject to any lease, whether characterized as capitalized or operating other than any such interest or title resulting from or arising out of a default by the Company or any Subsidiary of its obligations under such lease; (xv) Liens arising from filing UCC financing statements for precautionary purposes in connection with true leases of personal property that are otherwise permitted under this Indenture and under which the Company or any Subsidiary is lessee; (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 in an aggregate principal amount at any one time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the aggregate Consolidated Net Income of the Company earned subsequent to June 14, 1995 and on or prior to such time. "Permitted Payments" means (i) any payment by the Company or any Subsidiary, or any dividend by the Company or any Subsidiary to Holdings the proceeds of which are utilized by Holdings to make payments, to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar services, or for reimbursement of losses, costs and expenses pursuant to the Consulting Agreement, (ii) any payment by the Company or any Subsidiary pursuant to the Second Amended and Restated Tax Sharing Agreement, dated as of June 14, 1995, by and among Food 4 Less, all direct and indirect Subsidiaries, and Holdings, as such Tax 32 -23- Sharing Agreement may be amended from time to time, so long as the payment thereunder by the Company and its Subsidiaries shall not exceed the amount of taxes the Company would be required to pay if it were the filing person for all applicable taxes, (iii) any payment by the Company or any Subsidiary pursuant to the Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4 Less and Holdings, as in effect on the Issue Date, (iv) any payment by the Company or any Subsidiary, or any dividend by the Company or any Subsidiary to Holdings the proceeds of which are used by Holdings to make payments, (a) in connection with repurchases of outstanding shares of the Company's or Holding's Common Stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by Holdings, the Company or any of its Subsidiaries to participants or former participants in employee benefit plans upon termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period), (v) from and after June 15, 2000, payments of cash dividends to Holdings in an amount sufficient to enable Holdings to make payments of interest required to be made in respect of the Seller Debentures and the New Discount Debentures in an amount not to exceed the amount payable thereunder in accordance with the terms thereof in effect on June 14, 1995, (vi) dividends or other payments to Holdings sufficient to enable Holdings to perform accounting, legal, corporate reporting and administrative functions in the ordinary course of business or to pay required fees and expenses in connection with the Merger and the registration under applicable laws and regulations of its debt or equity securities, (vii) dividends by the Company to Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (a) the Company or any of the Subsidiaries is required pursuant to this Indenture to utilize such Net Cash Proceeds to repay the Securities (and has complied with all such requirements), (b) such Net Cash Proceeds are not required to be and have not been utilized to repay outstanding Indebtedness of the Company or any of the Subsidiaries and (c) Holdings is required pursuant to the documents governing any outstanding Indebtedness of Holdings to utilize such Net Cash Proceeds to repay such Indebtedness (it being understood that only the amounts not utilized as described in clauses (a) and (b) of this clause (vii) shall be permitted to be distributed to Holdings pursuant to this clause (vii)), and (viii) for so long as the sole business activity of such partnership is to acquire, hold, sell, ex- 33 -24- change, transfer or otherwise dispose of all or any portion of the New Discount Debentures and to manage its investment in the New Discount Debentures, any payment by the Company or any Subsidiary, or any dividend or loan to Holdings, the proceeds of which are utilized by Holdings to fund ongoing costs and expenses of RGC Partners, L.P. pursuant to the Subscription Agreement and the Holdings Registration Rights Agreement. "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")) or (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. "person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "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, 34 -25- lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such person, over shares of Capital Stock of any other class of such person. "principal" of any Indebtedness (including the Securities) means the principal of such Indebtedness plus the premium, if any, on such Indebtedness. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as interpreted by the Company's chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Public Equity Offering" means an underwritten public offering of Common Stock of the Company or Holdings pursuant to a registration statement filed with the Commission in accordance with the Securities Act which public equity offering results in gross proceeds to the Company or Holdings, as the case may be, of not less than $20 million; provided, however, that in the case of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company net proceeds in an amount sufficient to redeem Securities called for redemption in accordance with the terms thereof. "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. "Ralphs Grocery Company" means Ralphs Grocery Company, Inc., a Delaware corporation, and its successors. "Record Date" means the Record Dates specified in the Securities; provided that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. 35 -26- "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and Paragraph 5 of the Securities annexed hereto as Exhibit A. "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture and Paragraph 5 of the Securities annexed hereto as Exhibit A. "Reference Date" shall have the meaning provided in Section 5.03. "Reference Period" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.01. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (c), (d), (h) and (j) of the definition thereof) incurred in accordance with this Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment 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 Subordi- 36 -27- nated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Registrar" shall have the meaning provided in Section 2.03. "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment, in each case reasonably related to the business of the Company and its Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Indebtedness; provided that in no event shall United States Trust Company of New York, in its capacities as Trustee, Registrar, co-Registrar or Paying Agent, serve as Representative. "Restricted Debt Prepayment" means any purchase, redemption, defeasance (including, but not limited to, in-substance or legal defeasance) or other acquisition or retirement for value, directly or indirectly, by the Company or a Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment of principal or sinking fund payment, as the case may be, in respect of Subordinated Indebtedness. "Restricted Payment" means any (i) Stock Payment, (ii) Investment (other than a Permitted Investment, or (iii) Restricted Debt Prepayment. "RSI" means Ralphs Supermarkets Inc., a Delaware corporation, and its successors. "Securities" means the Company's 11% Senior Subordinated Notes due 2005, as amended or supplemented from time to 37 -28- time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings issued pursuant to the Seller Debenture Indenture, including any additional 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 issued as interest thereon, in each case, as such Seller Debentures may be modified or amended from time to time and future refinancings thereof to the extent such refinancings are permitted under this Indenture. "Seller Debenture Indenture" means the indenture between Holdings and Norwest Bank Minnesota, National Association, as trustee, dated as of June 14, 1995 under which the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings were issued, as the same may be modified and amended from time to time and refinancings thereof to the extent such refinancings are permitted under this Indenture. "Senior Indebtedness" means the principal of, premium, if any, and interest on, and all other Obligations with respect to, 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 Securities. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include (x) the principal of, premium, if any, and interest on all Obligations of every nature of the Company from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal of and interest on and all fees, indemnities, 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) of Section 7.01 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 Securities, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of the Company including, but not necessarily limited to (i) the 13.75% Senior Subordinated Notes 38 -29- due 2005 of the Company issued pursuant to an indenture dated as of June 1, 1995, (ii) the 13.75% Senior Subordinated Notes due 2001 of the Company issued pursuant to an indenture dated as of June 15, 1991, (iii) the 10.25% Senior Subordinated Notes due 2002 of the Company issued pursuant to an indenture dated as of July 29, 1992, (iv) the 9% Senior Subordinated Notes due 2003 of the Company issued pursuant to an indenture dated as of March 30, 1993 and (v) the 11% Senior Subordinated Notes due 2005 issued pursuant to the 1995 11% Senior Subordinated Note Indenture, each of (i) through (v) above which shall rank pari passu with the Securities, (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 (other than Capitalized Lease Obligations), (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 this Indenture. "Senior Notes" means (i) the 10.45% Senior Notes due 2004 of the Company issued pursuant to an indenture dated as of June 6, 1996, (ii) the 10.45% Senior Notes due 2004 of the Company issued pursuant to an indenture dated as of June 1, 1995 and (iii) the 10.45% Senior Notes due 2000 of the Company issued pursuant to an indenture dated as of April 15, 1992. "Significant Senior Indebtedness" means Senior Indebtedness which, at the time of determination, is equal to or greater than $50 million in aggregate principal amount. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each subsidiary of the Company that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the Issue Date) or (b) material to the financial condition or 39 -30- 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 Securities or the Guarantee of such Subsidiary Guarantor, as the case may be. "Subscription Agreement" means that certain Subscription Agreement between RGC Partners, L.P., Holdings, Food 4 Less and the partnership investors listed on Exhibit A thereto, as such Subscription Agreement may be amended or replaced, so long as any amounts paid by Holdings and the Company under any amended or replacement agreement do not exceed the amounts payable by Holdings and the Company under such Subscription Agreement as in effect on June 14, 1995. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and 40 -31- one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than fifty percent of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of the Company. "Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less GM, Inc., Food 4 Less of Southern California, Inc. and Crawford Stores, Inc., (ii) each of the Company's Subsidiaries which becomes a guarantor of the Securities in compliance with the provisions set forth in Section 5.17, and (iii) each of the Company's Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of this Indenture. "Term Loans" means the term loan facility under the Credit Agreement and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings outstanding under such facility or under any prior refunding, replacement or refinancing thereof (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb), as amended, as in effect on the date this Indenture is qualified under the TIA, except as otherwise provided in Section 10.03. "Transaction Date" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.01. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. 41 -32- "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "U.S. Government Obligations" shall have the meaning provided in Section 9.02. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Yearly Period" means each fiscal year of the Company. "Yucaipa Companies" means The Yucaipa Companies, a California general partnership, or any successor thereto which is an affiliate of Ronald W. Burkle or his Permitted Transferees and which has been established for the sole purpose of changing the form of The Yucaipa Companies from that of a partnership to that of a limited liability company or any other form of entity which is not materially adverse to the rights of the Holders under this Indenture. SECTION 1.02. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder or a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company, any Subsidiary Guarantor, or any other obligor on the Securities or the Guarantees. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute 42 -33- or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating. The Securities, the notation thereon relating to the Guarantee and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities and the Guarantee shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. 43 -34- SECTION 2.02. Execution and Authentication. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Securities for the Company by manual or facsimile signature. Each Subsidiary Guarantor shall execute the Guarantee in the manner set forth in Section 11.09. If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue in the aggregate principal amount of up to $155,000,000 upon a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $155,000,000, except as provided in Section 2.07. Upon the written order of the Company in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of the Company. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof. 44 -35- SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company may act as its own Registrar or Paying Agent except that for the purposes of Articles Three and Nine and Sections 5.15 and 5.16, neither the Company nor any Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company, upon notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional paying agent. The Company initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. SECTION 2.04. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that, subject to Article Four and Article Twelve, each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any Default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it 45 -36- shall segregate such assets and hold them as a separate trust fund, subject to Article Four and Article Twelve. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06. Transfer and Exchange. When Securities are presented to the Registrar or a co-Registrar with a request to register the transfer of such Securities or to exchange such Securities for an equal principal amount of Securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.02, 2.07, 2.10, 3.06, 5.15, 5.16 or 10.05). The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Security 46 -37- (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Security being redeemed in part. SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. The Company may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company, the Subsidiary Guarantors or any of their respective Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date the Paying Agent (other than the Company or a Subsidiary) holds U.S. Legal Tender or U.S. Government obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease 47 -38- to be outstanding and interest on them ceases to accrue unless, pursuant to the provisions of Article Four and Article Twelve, the Paying Agent is unable to make payments on the Securities to the Holders thereof. SECTION 2.09. Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company, the Subsidiary Guarantors or any of their respective Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows or has reason to know are so owned shall be disregarded. SECTION 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. SECTION 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than the Company or a Subsidiary), and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If the Company or any Subsidiary Guarantor shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. 48 -39- SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall, unless the-Trustee fixes another record date pursuant to Section 7.10, pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13. CUSIP Number. The Company in issuing the Securities may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to Paragraph 5 of the Securities, it shall notify the Trustee, with a copy to the Credit Agent, of the Redemption Date and the principal amount of Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders at least 30 days (unless a shorter notice shall be satisfactory to the Trustee) but not more than 60 days before the Redemption Date. In order to effect a redemption pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. Any such notice may be cancelled at any time prior to 49 -40- notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata by lot or by any other method that the Trustee considers fair and appropriate and, if such Securities are listed on any securities exchange, by a method that complies with the requirements of such exchange; provided, however, that any redemption pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering shall be made on a pro rata basis unless such method is otherwise legally prohibited. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or integral multiples thereof) of the principal amount of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed at such Holder's registered address, with a copy to the Trustee and the Credit Agent. In order to effect a redemption pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; 50 -41- (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) that, unless (a) the Company defaults in making the redemption payment or (b) such redemption payment is prohibited pursuant to Article Four or Article Twelve hereof or otherwise, interest on Securities called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price unless prohibited pursuant to Article Four or Article Twelve or otherwise pursuant to this Indenture. Securities that are redeemed by the Company or that are purchased by the Company pursuant to a Net Proceeds Offer as described in Section 5.16 or pursuant to a Change of Control Offer as described in Section 5.15 or that are otherwise acquired by the Company will be surrendered to the Trustee for cancellation. SECTION 3.05. Deposit of Redemption Price. On or before the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date (other than Securities or portions thereof called for 51 -42- redemption on that date which have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of the Company, except with respect to monies owed as obligations to the Trustee pursuant to Article Eight and Article Twelve hereof. If the Company complies with the preceding paragraph and payment of the Securities called for redemption is not prohibited under Article Four or Article Twelve or otherwise, then, unless the Company defaults in the payment of such Redemption Price, interest on the Securities to be redeemed will cease to accrue on and after the applicable Redemption Date whether or not such Securities are presented for payment. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE FOUR SUBORDINATION SECTION 4.01. Securities Subordinated to Senior Indebtedness. Anything herein to the contrary notwithstanding, the Company, for itself and its successors, and each Holder, by his acceptance of Securities, agrees that the payment of the Obligations on the Securities is subordinated, to the extent and in the manner provided in this Article Four, to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness. This Article Four shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. 52 -43- The obligations of the Company to the Trustee under Section 8.07 shall not be subject to the provisions of this Article Four. SECTION 4.02. Suspension of Payment When Senior Indebtedness in Default. (a) Unless Section 4.03 shall be applicable, upon (1) the occurrence of a Payment Default and (2) receipt by the Trustee and the Company from the Representatives of written notice of such occurrence, then no direct or indirect payment (other than payments previously made pursuant to Article Nine hereof) or distribution of any assets of the Company of any kind or character shall be made by or on behalf of the Company on account of the Obligations on the Securities or on account of the purchase or redemption or other acquisition of Securities whether pursuant to the terms of the Securities or upon acceleration or otherwise unless and until such Payment 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, as to which such Payment Default relates 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 Securities, including any missed payments. (b) Unless Section 4.03 shall be applicable, upon the occurrence of a Non-payment Default and (2) the earlier of (i) receipt by the Trustee from the Representative of written notice of such occurrence stating that such notice is a "Payment Blockage Notice" pursuant to Section 4.02(b) of this Indenture or (ii) if such Non-payment Default results from the acceleration of the Securities, the date of such acceleration, no such payment (other than payments previously made pursuant to Article Nine hereof) or distribution of any assets of the Company of any kind or character shall be made by the Company on account of any principal of, premium, if any, or interest on the Securities or on account of the purchase or redemption or other acquisition of Securities for a period ("Payment Blockage Period") commencing on the earlier to occur of the date of receipt by the Trustee of the written notice of a Non-payment Default from the Representative or the date of the acceleration referred to in clause (ii) above, as the case may be, unless and until the earlier to occur of the following events: (w) 179 days shall have elapsed since receipt of such notice or the date of the acceleration of the Securities, as the case may be (provided such Designated Senior Indebtedness shall theretofore not have been accelerated), (x) such Non-payment Default shall 53 -44- have been cured or waived or shall have ceased to exist, (y) such Designated Senior Indebtedness shall have been discharged or paid in full in cash or Cash Equivalents or (z) such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the Representative initiating such Payment Blockage Period or the holders of at least a majority in principal amount of such issue of Designated Senior Indebtedness initiating such Payment Blockage Period, after which, in the case of clause (w), (x), (y) or (z), the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. Notwithstanding any other provision of this Indenture, only one Payment Blockage Period may be commenced within any consecutive 365-day period and no Non-payment Default with respect to Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Payment Blockage Period shall be, or shall be made, the basis for the commencement of a second Payment Blockage Period, 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. In no event shall a Payment Blockage Period extend beyond 179 days from the date of the receipt of the written notice by the Trustee of a Non-payment Default or the date of the acceleration initiating such Payment Blockage Period, as the case may be. (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Security shall have received any payment prohibited by the foregoing provisions of this Section 4.02, then and in such event such payment shall be paid over and delivered forthwith to the Representatives or as a court of competent jurisdiction shall direct. SECTION 4.03. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company. Upon any payment or 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 (including, without limitation, in bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company and whether voluntary or involuntary): (a) the holders of all Senior Indebtedness shall first be entitled to receive payments in full in cash or 54 -45- 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 Designated Senior Indebtedness whether or not 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 Securities (excluding Permitted Subordinated Reorganization Securities), and until all Obligations with respect to the 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; provided, however, that no payment on any Guarantee shall constitute payment on behalf of the Company for purposes of this Section 4.03(a); (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled (excluding Permitted Subordinated Reorganization Securities) except for the provisions of this Article Four, shall be paid by the liquidating trustee or agent or other person making such a payment or distribution, directly to the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness remaining unpaid held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent on account of principal of, premium, if any, or interest on the Securities (excluding Permitted Subordinated Reorganization Securities) before all Senior Indebtedness is paid in full in cash or Cash Equivalents, such payment or distribution (subject to the provisions of Sections 4.06 and 4.07) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the re- 55 -46- spective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or willful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay over such payment over to, the holders of Senior Indebtedness or their Representative. The consolidation of the Company with, or the merger of the Company with or into, another person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another person upon the terms and conditions set forth in Article Six hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshalling of assets and liabilities of the Company for the purposes of this Article Four if the person formed by such consolidation or the surviving entity of such merger or the person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article Six. The Company shall give prompt notice to the Trustee prior to any dissolution, winding-up, total or partial liquidation or reorganization (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). SECTION 4.04. Securityholders To Be Subrogated to Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash or Cash Equivalents of all Senior Indebtedness, the Holders of Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distri- 56 -47- butions of assets of the Company applicable to the Senior Indebtedness until all amounts owing on the Securities shall be paid in full in cash, and for the purpose of such subrogation no payments or distributions to the holders of Senior Indebtedness by or on behalf of the Company, or by or on behalf of the Holders by virtue of this Article Four, which otherwise would have been made to the Holders, shall, as between the Company and the Holders, be deemed to be payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Article Four are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Four shall have been applied, pursuant to the provisions of this Article Four, to the payment of all amounts payable under the Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of the Senior Indebtedness in full in cash or Cash Equivalents. SECTION 4.05. Obligations of the Company Unconditional. Nothing contained in this Article Four or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Four, of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets or securities of the Company referred to in this Article Four, the Trustee, subject to the provisions of Sections 8.01 and 8.02, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the 57 -48- persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Four. Nothing in this Section 4.05 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 8.07. SECTION 4.06. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received written notice thereof from the Company or from one or more holders of Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 8.01 and 8.02, shall be entitled in all respects conclusively to assume that no such fact exists. SECTION 4.07. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government obligations deposited in trust with the Trustee pursuant to and in accordance with Section 9.02 shall be for the sole benefit of Securityholders and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Four. Otherwise, any deposit of assets or securities by or on behalf of the Company with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on any Securities shall be subject to the provisions of this Article Four; provided that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 4.06, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date; provided, further, that no payment on any Guarantee shall constitute payment on behalf of the Company for purposes of this Section 4.07. The foregoing shall not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is 58 -49- acting as Paying Agent. Nothing contained in this Section 4.07 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Four. SECTION 4.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 4.08, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article Four or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any person liable in any manner for the collection or payment of Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Company and any other person; provided, however, that in no event shall any such actions limit the right of the Holders of the Securities to take any action to accelerate the maturity of the Securities pursuant to Article Seven hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. (c) Each Holder by accepting a Security agrees that the Representative of any Senior Indebtedness (including without limitation, the Credit Agent), in its discretion, without notice or demand and without affecting any rights of any holder of Senior Indebtedness under this Article Four, may foreclose any mortgage or deed of trust covering interests in real property secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives any defense to the enforcement by the Rep- 59 -50- resentative (including without limitation, the Credit Agent) of any Senior Indebtedness or by any holder of any Senior Indebtedness against such Holder of this Article Four after a judicial or nonjudicial sale or other disposition of its interests in real property secured by such mortgage or deed of trust; and such Holder expressly waives any defense or benefits that may be derived from California Civil Code ss.ss. 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil Procedure ss.ss. 580a, 580d or 726, or comparable provisions of the laws of any other jurisdiction or any similar statute in effect in any other jurisdiction. SECTION 4.09. Securityholders Authorize Trustee To Effectuate Subordination of Securities. Each Holder of the Securities by his acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Four, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company) tending towards liquidation or reorganization of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of its or his Securities in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Securityholder in any such proceeding. 60 -51- SECTION 4.10. Right of Trustee To Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Four in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 4.11. No Suspension of Remedies. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article Four shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 7.01. Nothing contained in this Article Four shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article Seven or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Four of the holders, from time to time, of Senior Indebtedness. SECTION 4.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall in good faith mistakenly pay over or deliver to the Holders of Securities or the Company or any other person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Four or otherwise. Nothing in this Section 4.12 shall affect the obligation of any person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. 61 -52- ARTICLE FIVE COVENANTS SECTION 5.01. Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities. An installment of principal of or interest on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or a Subsidiary) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment; provided, however, that U.S. Legal Tender held by the Trustee for the benefit of holders of Senior Indebtedness or Guarantor Senior Indebtedness or the payment of which to the Holders is prohibited pursuant to the provisions of Article Four or Article Twelve hereof or otherwise shall not be considered to be designated for the payment of any installment of principal or interest on the Securities within the meaning of this Section 5.01. The Company shall pay interest on overdue principal at the rate borne by the Securities and it shall pay interest on overdue installments of interest at the same rate, to the extent lawful. SECTION 5.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.03 hereof. The Company shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.02. SECTION 5.03. Limitation on Restricted Payments. The Company shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) the Company could not incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 5.12 or (c) 62 -53- the aggregate amount expended for all Restricted Payments, including such proposed Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment, as determined in good faith by the Board of Directors of the Company), subsequent to June 14, 1995, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income is a loss, minus 100% of such loss) of the Company earned subsequent to June 14, 1995 and on or prior to the date of the proposed Restricted Payment (the "Reference Date"), plus (ii) 100% of the aggregate Net Proceeds received by the Company from any person (other than a Subsidiary of the Company) from the issuance and sale (including upon exchange or conversion for other securities of the Company) subsequent to June 14, 1995 and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary, until and to the extent such borrowing is repaid), plus (iii) 100% of the aggregate net cash proceeds received by the Company as capital contributions to the Company after June 14, 1995, plus (iv) $25 million. Notwithstanding the foregoing, if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of the Company or the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of the Company with an Average Life equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid and (4) Permitted Payments; provided, however, that the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (iii), (iv), (vi) and (vii) of the definition of the term "Permitted Payments" shall each be counted for purposes of computing 63 -54- amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and no amounts expended pursuant to clause (3) above or pursuant to clauses (i), (ii), (v) and (viii) of the definition of the term "Permitted Payments" shall be so counted; provided further that to the extent any payments made pursuant to clause (vi) 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. Prior to making any Restricted Payment under the first paragraph of this Section 5.03, the Company shall deliver to the Trustee an Officers' Certificate setting forth the computation by which the amount available for Restricted Payments pursuant to such paragraph was determined. The Trustee shall have no duty or responsibility to determine the accuracy or correctness of this computation and shall be fully protected in relying on such Officers' Certificate. SECTION 5.04. Corporate Existence. Except as otherwise permitted by Article Six, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each such Significant Subsidiary and the rights (charter and statutory) and franchises of the Company and each such Significant Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Significant Subsidiaries, any such existence, right or franchise, if the Board of Directors of the Company or such Significant Subsidiary, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any such Significant Subsidiary. SECTION 5.05. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful 64 -55- claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim if either (a) the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and an adequate reserve has been established therefor to the extent required by GAAP or (b) the failure to make such payment or effect such discharge (together with all other such failures) would not have a material adverse effect on the financial condition or results or operations of the Company and its Subsidiaries taken as a whole. SECTION 5.06. Maintenance of Properties and Insurance. (a) The Company shall cause all properties used or useful to the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times unless the failure to so maintain such properties (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole; provided, however, that nothing in this Section 5.06 shall prevent the Company or any Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is either (i) in the ordinary course of business, (ii) in the good faith judgment of the Board of Directors of the Company or the Subsidiary concerned, or of the senior officers of the Company or such Subsidiary, as the case may be, desirable in the conduct of the business of the Company or such Subsidiary, as the case may be, or (iii) is otherwise permitted by this Indenture. (b) The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company are adequate and appropriate for the conduct of the business of the Company and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality 65 -56- thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of the Company or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of the Company, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. SECTION 5.07. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee within 120 days after the end of the Company's fiscal year an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no event of default in respect of any payment obligation under the Credit Agreement, Default or Event of Default occurred during such year or, if such signers do know of such an event of default, Default or Event of Default, the certificate shall describe the event of default, Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the Company shall deliver to the Trustee within 120 days after the end of each fiscal year a written statement by the Company's independent certified public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof. (c) The Company shall deliver to the Trustee, forthwith upon becoming aware, and in any event within 5 days after the occurrence, of (i) any Default or Event of Default in the performance of any covenant, agreement or condition contained 66 -57- in this Indenture; (ii) any event of default in respect of any payment obligation under the Credit Agreement or any event of default under any other bond, debenture, note, or other evidence of Indebtedness of the Company or any of its Subsidiaries, or under any mortgage, indenture or other instrument if such event of default related to Indebtedness at any time in an aggregate principal amount exceeding $20 million, an Officers' Certificate specifying with particularity such event. SECTION 5.08. Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. SECTION 5.09. SEC Reports. The Company will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual report and of the information documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the Trustee and Holders of Securities with such annual reports and such information, documents and other reports specified in Section 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA Section 314(a). SECTION 5.10. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all 67 -58- or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.11. Limitation on Transactions with Affiliates. (a) Neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities (other than equity securities which do not constitute Disqualified Capital Stock) from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of the Company or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under Section 5.11(b) and (y) Affiliate Transactions in the ordinary course of business that are fair to the Company or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such transaction or series of transactions complies with clause (y) above (other than the requirement set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business), (B) with respect to Affiliate Transactions involving aggregate payments in excess of $5 million and less than $15 million, the Company or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (other than the requirement set forth in such clause (y) that such Affiliate Transaction be in the ordinary course of business) and that such Affiliate Transaction has received the approval of a majority of the disinterested members of the Board of Directors of the Company or the Subsidiary, as the case may be, or in the absence of any such approval by the disinterested members of the Board of Directors 68 -59- of the Company or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and that such Independent Financial Advisor has provided written confirmation of such determination to the Board of Directors and (C) with respect to Affiliate Transactions involving aggregate payments in excess of $15 million, the Company or such Subsidiary, as the case may be, shall have delivered to the Trustee a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to the Company or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. (b) The provisions of Section 5.11(a) shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of Section 5.03, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among the Company and any of its wholly owned Subsidiaries or exclusively between or among such wholly owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture, (v) any agreement as in effect as of June 14, 1995 or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Securityholders in any material respect, (vi) the existence of, or the performance by the Company or any of its Subsidiaries of its obligations under the terms of, any stockholder agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or Holdings) is a party as of June 14, 1995 and any similar agreements which it (or Holdings) may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after June 14, 1995 shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Securityholders in any material re- 69 -60- spect, (vii) transactions permitted by, and complying with, the provisions of Section 6.01 and (viii) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which are fair to the Company, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. SECTION 5.12. Limitation on Incurrences of Additional Indebtedness. The Company shall not, and shall not permit any of its Subsidiaries, directly or indirectly, to incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the Securities or Event of Default under this Indenture shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of the Company would be greater than 2.0 to 1.0; provided further a Subsidiary may incur Acquired Indebtedness to the extent such Indebtedness could have been incurred by the Company pursuant to the immediately preceding proviso. SECTION 5.13. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Credit Agreement in effect on the Issue Date, as any such Payment Restriction may apply to any present or future Subsidiary, (ii) this Indenture and any agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such In- 70 -61- debtedness is otherwise permitted to be incurred pursuant to Section 5.12), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 5.12 and 5.14 that limit the right of the debtor to dispose of the assets securing such Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole than those provided for in such Indebtedness being refinanced, refunded, extended or renewed and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 5.12; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect on June 14, 1995. SECTION 5.14. Limitation on Liens. The Company shall not and shall not permit any Subsidiary to create, incur, assume or suffer to exist any Liens upon any of their respective assets unless the Securities are equally and ratably secured by the Liens covering such assets, except for (i) 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 this 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 this Indenture; 71 -62- provided that (A) any such Lien is created solely for the purpose of securing such other Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection therewith) of the purchase (whether through stock or asset purchase, merger or otherwise) or construction or improvement of the property subject thereto (whether real or personal, including fixtures and other equipment), (B) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs and (C) such Lien does not extend to or cover any other property other than such item of property and any improvements on such item, (vi) Liens existing on the Issue Date, (vii) Liens in favor of the Trustee under this Indenture and any substantially equivalent Lien granted to any trustee or similar institution under any indenture for Indebtedness permitted to be incurred under this Indenture, and (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 replacement, extension or renewal shall increase the amount or the assets subject to such Liens, except to the extent that the Liens associated with such additional assets are otherwise permitted hereunder. SECTION 5.15. Limitation on Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to the offer described in paragraph (b) below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Prior to the mailing of the notice of a Change of Control Offer provided for in paragraph (b) below, within 30 days following any 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 such Indebtedness under the Credit Agreement and repay the Indebtedness owed to each lender which has accepted such offer), or (b) obtain the requisite consent under the Credit Agreement, the terms of which require repayment upon a Change of Control, to permit the repurchase of the Securities as provided for in this Section 5.15. The Com- 72 -63- pany shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Securities pursuant to this Section 5.15. The Company's failure to comply with the covenants described in this paragraph shall constitute an Event of Default under this Indenture. In addition, prior to purchasing Securities tendered into a Change of Control Offer, the Company shall purchase all 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 agreements governing such Indebtedness. (b) Within 30 days following the date upon which the Change of Control occurred (the "Change of Control Date"), the Company must send, by first class mail, a notice to each Holder of Securities, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. The Company shall give notice of an event giving rise to a Change of Control on the same date and in the same manner to all Holders of Securities. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 5.15 and that all Securities tendered will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); provided, however, that the Change of Control Payment Date for the Securities shall be subsequent to such date for the Senior Notes; (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless (i) the Company defaults in making payment therefor or (ii) such payment is prohibited pursuant to Article Four, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; 73 -64- (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portions of the Securities surrendered; provided that each Security purchased and each Security issued shall be in an original principal amount of $1,000 or integral multiples thereof; (8) that each Change of Control Offer is required to remain open for at least 20 Business Days or such longer period as may be required by law and until 12:00 Midnight New York City time on the applicable Change of Control Payment Date; and (9) the circumstances and relevant facts regarding such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price (and the Trustee shall promptly authenticate and mail to such Holders new Securities equal in principal amount to any unpurchased portion of the Securities surrendered provided that each such new Security shall be in the principal amount of $1,000 or integral multiples 74 -65- thereof) unless such payment is prohibited pursuant to Article Four or otherwise. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 5.15, the Trustee shall act as the Paying Agent. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities pursuant to a Change of Control Offer. To the extent the provisions of any securities laws or regulations conflict with the provisions under this Section 5.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 5.15 by virtue thereof. SECTION 5.16. Limitation on Asset Sales. Neither the Company nor any of its Subsidiaries shall consummate an Asset Sale unless (a) the Company or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold and (b) upon consummation of an Asset Sale, the Company will within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (A) a Related Business Investment, (B) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale or (C) an investment in properties and assets that will be used in the business of the Company and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto; (ii) in the case of a sale of a store or stores, deem such Net Cash Proceeds to have been applied to the extent of any capital expenditures made to acquire or construct a replacement store in the general vicinity of the store sold within 365 days preceding the date of the Asset Sale; (iii) apply or cause to be applied such Net Cash Proceeds to the permanent repayment of Pari Passu Indebtedness 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; (iv) use such Net Cash Proceeds to secure Letter of Credit obligations to the extent related letters of credit have not been drawn upon or returned undrawn; or (v) after such time as the accumulated Net Cash Proceeds of Asset Sales effected since June 14, 1995 equal or exceed $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of Securities tendered 75 -66- to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued interest thereon to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company shall have the right to exclude from the foregoing provisions Asset Sales subsequent to June 14, 1995, the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets or equipment which are acquired or constructed by the Company or a Subsidiary subsequent to the date that is six months prior to the Issue Date; provided that such sale and substantially concurrent lease-back occurs within 270 days following such acquisition or the completion of such construction, as the case may be. Pending the utilization of any Net Cash Proceeds in the manner (and within the time period) described above, the Company may use any such Net Cash Proceeds to repay revolving loans (under the Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. Notice of a Net Proceeds Offer pursuant to this Section 5.16 will be mailed to record Holders of Securities as shown on the register of Holders not less than 325 days nor more than 365 days after the relevant Asset Sale, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 5.16 and that all Securities tendered will be accepted for payment, provided, however, that if the aggregate principal amount of Securities tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or multiples thereof shall be purchased); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Proceeds Purchase Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; 76 -67- (4) that, unless (i) the Company defaults in making payment therefor or (ii) such payment is prohibited pursuant to Article Four hereof or otherwise, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities were purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Security purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof; and (8) that the Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. On or before the Proceeds Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price (and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion 77 -68- of the Security surrendered provided that each such new Security shall be in the principal amount of $1,000 or integral multiples thereof) unless such payment is prohibited pursuant to Article Four hereof or otherwise. The Company will publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date. For purposes of this Section 5.16, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer shall be returned by the Trustee to the Company. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase of Securities pursuant to a Net Proceeds Offer. To the extent the provisions of any securities laws or regulations conflict with the provisions under this Section 5.16, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 5.16 by virtue thereof. SECTION 5.17. Guarantees of Certain Indebtedness. The Company will not permit any of its Subsidiaries to (a) incur, guarantee or secure through the granting of Liens the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof or (b) pledge any intercompany notes representing obligations of any of its Subsidiaries, to secure the payment of any Indebtedness under the term portion of the Credit Agreement or refinancings thereof, in each case unless such Subsidiary, the Company and the Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Guarantee. SECTION 5.18. Limitation on Preferred Stock of Subsidiaries. The Company will not permit any of its Subsidiaries to issue 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. 78 -69- SECTION 5.19. Limitation on Other Senior Subordinated Indebtedness. 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 Securities or the Guarantee of such Subsidiary Guarantor, as the case may be, or (b) subordinate in right of payment to the Securities 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 Securities are subordinate to Senior Indebtedness or as such Guarantee is subordinated to Senior Guarantor Indebtedness of such Subsidiary Guarantor, as the case may be. ARTICLE SIX SUCCESSOR CORPORATION SECTION 6.01. Limitations on Mergers and Certain Other Transactions. (a) The Company shall not in a single transaction or through a series of related transactions, (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case: (1) either the Company shall be the continuing person, or the person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (the Company or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any State thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of the Company under the Securities and this Indenture; 79 -70- (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of an Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) the Surviving Person could incur at least $1 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 5.12; (3) immediately before and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing; and (4) each Subsidiary Guarantor, unless it is the other party to the transaction, shall have by supplemental indenture confirmed that its Guarantee of the obligations of the Company under the Securities and this Indenture shall apply, without alteration or amendment as such Guarantee applies on the date it was granted under this Indenture to the obligations of the Company under this Indenture and the Securities to the obligations of the Company or such Person as the case may be, under this Indenture and the Securities, after consummation of such transaction. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more direct or indirect Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 6.02. Successor Corporation Substituted. Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Company or any adoption of a Plan of Liquidation by the Company in accordance with Section 6.01, the Surviving Person formed by such consolidation or into which the Company is merged or to which such transfer is made (or in the case of a Plan of Liquidation, to 80 -71- which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Person had been named as the Company herein; provided, however, that solely for purposes of computing amounts described in subclause (c) of the first paragraph of Section 5.03, any such Surviving Person shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. When a successor corporation assumes all of the obligations of the Company hereunder and under the Securities and agrees to be bound hereby and thereby, the predecessor shall be released from such obligations. ARTICLE SEVEN DEFAULT AND REMEDIES SECTION 7.01. Events of Default. An "Event of Default" occurs if: (i) the Company defaults in the payment of interest on any Securities when the same becomes due and payable and the Default continues for a period of 30 days, whether or not such payment shall be prohibited by the provisions of Article Four hereof; (ii) the Company defaults in the payment of the principal of, or premium, if any, on the Securities when due whether at maturity, upon acceleration, redemption, required repurchase or otherwise, whether or not such payment shall be prohibited by the provisions of Article Four hereof; (iii) the Company fails to comply with any of its agreements contained in the Securities or this Indenture (other than a default specified in clause (i) or (ii) above), if such failure continues for the period and after the notice specified below; (iv) there shall be a default under any Indebtedness of the Company or any of its Subsidiaries, whether such Indebtedness now exists or shall hereafter be created, if both (A) such default either (1) results from the failure to pay any such Indebtedness at its stated final maturity 81 -72- or (2) relates to an obligation other than the obligation to pay such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated final maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, aggregates $20 million or more at any one time outstanding; (v) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $20 million, either individually or in the aggregate, shall be entered against the Company or any Subsidiary of the Company or any of their respective properties and shall not be discharged and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree shall not be in effect; (vi) either the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of a Bankruptcy Order for relief against it in an involuntary case or proceeding or the commencement of any case or proceeding against it; (c) consents to the appointment of a custodian of it or for substantially all of its property; or (d) makes a general assignment for the benefit of its creditors; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary, in an involuntary case or proceeding; (b) appoints a custodian of the Company or any Significant Subsidiary, or for all or any substantial part of their respective properties; or (c) orders the liquidation of the Company or any Significant Subsidiary and in each case the order or decree remains unstayed and in effect for 60 days; (viii) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of the Company and its Subsidiaries or shall have exercised any right under applicable law or applicable security documents to take ownership of any such assets in lieu of foreclosure; or 82 -73- (ix) any of the Guarantees shall be declared or adjudged invalid in a final judgment or order issued by any court or governmental authority. A Default under clause (iii) above (other than in the case of any Default under Section 5.03, 5.15, 5.16 or 6.01, which Defaults shall be Events of Default with the notice specified in this paragraph but without the passage of time specified in this paragraph) is not an Event of Default until the Trustee notifies the Company or the Holders of at least 25% in principal amount of the outstanding Securities notify the Company and the Trustee of the Default, and the Company does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in principal amount of the Securities then outstanding. When a Default is cured, it ceases. SECTION 7.02. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 7.01(vi) or (vii) with respect to the Company or a Subsidiary Guarantor) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities may, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the then outstanding Securities shall, declare due and payable all unpaid principal and interest accrued and unpaid on the then outstanding Securities by written notice to the Company (and, if any Indebtedness is outstanding under the Credit Agreement or the Credit Agreement is otherwise in effect, to the Credit Agent) and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become due and payable upon the first to occur of an acceleration under the Credit Agreement, or five business days after receipt by the Company and the Credit Agent of such Acceleration Notice. If an Event of Default specified in Section 7.01(vi) or (vii) occurs with respect to the Company or a Subsidiary Guarantor that is a Significant Subsidiary, all unpaid principal of and accrued interest on all then outstanding Securities shall be immediately due and payable without any declaration or other act on the part of the Trustee or any of the Holders. Upon payment of such principal amount, interest, and premium, if any, all of the Company's obligations under the Securities and 83 -74- this Indenture, other than obligations under Section 8.07, shall terminate. After a declaration of acceleration, the Holders of a majority in principal amount of the Securities then outstanding, by notice to the Trustee, may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the non-payment of the principal of the Securities which has become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iv) the Company has paid or deposited with the Trustee a sum sufficient to pay all sums paid or advanced by the Trustee under this Indenture and the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. (b) In the event of a declaration of acceleration under this Indenture because an Event of Default set forth in Section 7.01(iv) has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. SECTION 7.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing 84 -75- upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 7.04. Waiver of Past Defaults. Subject to Sections 7.07 and 10.02, the Holders of a majority in principal amount of the outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (i) and (ii) of Section 7.01. When a Default or Event of Default is waived, it is cured and ceases. SECTION 7.05. Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 7.03. Subject to Section 8.01, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Securityholder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 7.06. Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holder or Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; 85 -76- (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holder or Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. SECTION 7.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 7.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (i) or (ii) of Section 7.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 7.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relating to the Company or any other obligor upon the Securities, any of their respective 86 -77- creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 8.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 7.10. Priorities. If the Trustee collects any money pursuant to this Article Seven, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 8.07; Second: subject to Article Four and Article Twelve, to Holders for interest accrued on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for interest; Third: subject to Article Four and Article Twelve, to Holders for principal amounts due and unpaid on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal; and Fourth: subject to Article Four and Article Twelve, to the Company or the Subsidiary Guarantors, as their respective interests may appear. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 7.10. 87 -78- SECTION 7.11. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, And every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 7.12. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Seven or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 7.13. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 7.13 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 7.07, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Securities. ARTICLE EIGHT TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. 88 -79- SECTION 8.01. Duties of Trustee. (a) If a Default or an Event of Default of which the Trustee is aware has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need undertake to perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee shall have no liability except for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 8.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 7.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment 89 -80- of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 8.01. (f) The Trustee shall not be liable for interest on any assets received by it. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 8.02. Rights of Trustee. Subject to Section 8.01: (a) The Trustee may rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require in addition to written direction from the Company an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 13.04 and 13.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. 90 -81- (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. SECTION 8.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 8.10 and 8.11. SECTION 8.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than the Trustee's certificate of authentication. SECTION 8.05. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder of Securities notice of the Default or Event of Default within 90 days after such Default or Event of Default occurs or if such Default or Event of Default is known to the Trustee during such 90-day period, promptly after such Default or Event of Default becomes known to the Trustee; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of or interest on any Security, including the failure to make payment on a Change of Control Payment Date pursuant to a Change of Control offer or payment when due pursuant to a Net Proceeds Offer the Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders. SECTION 8.06. Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA ss. 313(a) 91 -82- occurred within the previous twelve months, but not otherwise, mail to each Securityholder a brief report dated as of such May 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss.ss. 313(b) and 313(c). A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee if the Securities become listed on any stock exchange. SECTION 8.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it except for such actions to the extent caused by any negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 8.07, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its 92 -83- capacity as Trustee, except assets held in trust to pay principal of or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 7.01(vi) or (vii) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 8.08. Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee and appoint a successor trustee with the Company's consent, by so notifying the Company and the Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 8.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 8.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the re- 93 -84- tiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 8.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 8.08, the Company's obligations under Section 8.07 shall continue for the benefit of the retiring Trustee. SECTION 8.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. SECTION 8.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA Sections 310(a)(1) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. SECTION 8.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. 94 -85- ARTICLE NINE SATISFACTION AND DISCHARGE OF INDENTURE SECTION 9.01. Termination of the Company's Obligations. The Company may terminate its obligations under the Securities and this indenture, and the obligations of any Subsidiary Guarantor shall terminate, except those obligations referred to in the penultimate paragraph of this Section 9.01, if all Securities previously authenticated and delivered (other than destroyed, lost or stolen Securities which have been replaced or paid or Securities for whose payment money has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 9.04) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (1) either (i) pursuant to Article Three, the Company shall have given notice to the Trustee and mailed a notice of redemption to each Holder of the redemption of all of the Securities under arrangements satisfactory to the Trustee for the giving of such notice or (ii) all Securities have otherwise become due and payable hereunder; (2) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, money in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal of, premium, if any, and interest on the outstanding Securities to maturity or redemption; provided that the Trustee shall have been irrevocably instructed to apply such money to the payment of said principal, premium, if any, and interest with respect to the Securities and, provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Indebtedness pursuant to the provisions of Article Four and Article Twelve; (3) no Default or Event of Default with respect to this Indenture or the Securities shall have occurred and be continuing on the date of such deposit or shall occur 95 -86- as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (4) the Company shall have paid all other sums payable by it hereunder; and (5) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for the termination of the Company's and any Subsidiary Guarantor's obligation under the Securities and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under the Credit Agreement (if then in effect) or any other agreement or instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 5.01, 5.02 and 8.07 and any Subsidiary Guarantor's obligations in respect thereof shall survive until the Securities are no longer outstanding pursuant to the last paragraph of Section 2.08. After the Securities are no longer outstanding, the Company's obligations in Sections 8.07, 9.04 and 9.05 and any Subsidiary Guarantor's obligations in respect thereof shall survive. After such delivery or irrevocable deposit the Trustee upon request shall acknowledge in writing the discharge of the Company's and any Subsidiary Guarantor's obligations under the Securities and this Indenture except for those surviving obligations specified above. SECTION 9.02. Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option by Board Resolution of the Board of Directors of the Company, at any time, with respect to the Securities, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Securities upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company and any Subsidiary Guarantor shall be deemed to have been released and discharged from its obligations with respect to the outstanding Securities on the date the conditions set forth below 96 -87- are satisfied (hereinafter, "legal defeasance"). For this purpose, such legal defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of paragraph (e) below and the other Sections of and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), and Holders of the Securities and the Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness or Guarantor Senior Indebtedness under Article Four, Article Twelve or otherwise, except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the funds held by the Trustee in the trust fund described in paragraph (d) below and as more fully set forth in such paragraph, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.06, 2.07 and 5.02, and, with respect to the Trustee, under Section 8.07 and any Subsidiary Guarantor's obligations in respect thereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Section 9.02 and Section 9.05. Subject to compliance with this Section 9.02, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to the Securities. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its. obligations under any covenant contained in Article Four and Article Six and in Sections 5.03, 5.05 through 5.09 and 5.11 through 5.19 with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding for all other purposes hereunder and Holders of the Securities and the Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, 97 -88- any holder of Senior Indebtedness or Guarantor Senior Indebtedness under Article Four, Article Twelve or otherwise. For this purpose, such covenant defeasance means that, with respect to the outstanding Securities, the Company and any Subsidiary Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 7.01(iii), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Securities: (i) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 8.10 who shall agree to comply with the provisions of this Section 9.02 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (x) money in an amount or (y) direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged ("U.S. Government Obligations") maturing as to principal, premium, if any, and interest in such amounts of money and at such times as are sufficient without consideration of any reinvestment of such interest, to pay principal of and interest on the outstanding Securities not later than one day before the due date of any payment, or (z) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge principal of, premium, if any, and interest on the outstanding Securities on the Maturity Date or otherwise in accordance with the terms of this Indenture and of such Securities; provided, however, that the Trustee (or other qualifying trustee) shall have received an irrevocable written order from the Company instructing the 98 -89- Trustee (or other qualifying trustee) to apply such money or the proceeds of such U.S. Government obligations to said payments with respect to the Securities; (ii) no Default or Event of Default or event which with notice or lapse of time or both would become a Default or an Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit or, insofar as Section 7.01(vi) or (vii) is concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (iii) such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any Securities of the Company or any Subsidiary Guarantor; (iv) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default or Event of Default under, this Indenture or any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound (and in that connection, the Trustee shall have received a certificate from the Credit Agent to that effect with respect to such Credit Agreement if then in effect); (v) in the case of an election under paragraph (b) above, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the Issue Date, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such legal defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (vi) in the case of an election under paragraph (c) above, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Securities will not recognize income, gain or 99 -90- loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (vii) in the case of an election under either paragraph (b) or (c) above, an Opinion of Counsel to the effect that after the 91st day following the deposit, (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 this Indenture and (B) the trust funds will not be subject to the effect of any applicable Bankruptcy Law; (viii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the legal defeasance under paragraph (b) above or the covenant defeasance under paragraph (c) above, as the case may be, have been complied with; and (ix) the Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Securities over other creditors of the Company or any Subsidiary Guarantor or with the intent of defeating, hindering, delaying or defrauding creditors of the Company, any Subsidiary Guarantor or others. (e) All money and U.S. Government obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d) above in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company or any Affiliate of the Company), to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government obligations deposited pursuant to paragraph (d) above or the principal, premium, if any, and in- 100 -91- terest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. The Company's obligations to pay and indemnify the Trustee as set forth in this paragraph shall survive the termination of this Indenture and the Securities. Anything in this Section 9.02 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request, in writing, by the Company any money or U.S. Government obligations held by it as provided in paragraph (d) above which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance. SECTION 9.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government obligations deposited with it pursuant to Sections 9.01 and 9.02, and shall apply the deposited money And the money from U.S. Government obligations in accordance with this Indenture to the payment of principal of, premium, if any, and interest on the Securities. SECTION 9.04. Repayment to the Company or Subsidiary Guarantors. Subject to Sections 8.07, 9.01 and 9.02, the Trustee shall promptly pay to the Company, or if deposited with the Trustee by any Subsidiary Guarantor, to such Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess money, determined in accordance with Section 9.02, held by it at any time. The Trustee and the Paying Agent shall pay to the Company or any Subsidiary Guarantor, as the case may be, upon receipt by the Trustee or the Paying Agent, as the case may be, of an Officers' Certificate, any money held by it for the payment of principal, premium, if any, or interest that remains unclaimed for two years after payment to the Holders is required; provided, however, that the Trustee and the Paying Agent before being required to make any payment may, but need not, at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such 101 -92- publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company or any Subsidiary Guarantor, as the case may be, Securityholders entitled to money must look solely to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. SECTION 9.05. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government obligations in accordance with this Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then and only then the Company's and each Subsidiary Guarantor's, if any, obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had been made pursuant to this Indenture until such time as the Trustee is permitted to apply all such money or U.S. Government obligations in accordance with this Indenture; provided, however, that if the Company or the Subsidiary Guarantors, as the case may be, has made any payment of principal of, premium, if any, or interest on any Securities because of the reinstatement of its obligations, the Company or the Subsidiary Guarantors, as the case may be, shall be, subrogated to the rights of the holders of such Securities to receive such payment from the money or U.S. Government obligations held by the Trustee or Paying Agent. ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 10.01. Without Consent of Holders. The Company and the Subsidiary Guarantors, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder; 102 -93- (2) to comply with Article Six and Section 11.06; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; (4) to make any other change that does not adversely affect the rights of any Securityholder in any material respect; or (5) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; provided that the Company has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 10.01. SECTION 10.02. With Consent of Holders. Subject to Section 7.07, the Company and each Subsidiary Guarantor, when authorized by a Board Resolution, and the Trustee, together with the written consent of the Holder or Holders of at least a majority in aggregate principal amount of the outstanding Securities, may amend or supplement, or waive compliance with any provision of, this Indenture, the Securities or any Guarantee without notice to any other Securityholders; provided that without the consent of Holders of not less than two thirds in aggregate principal amount of Securities then outstanding, no such amendment, supplement or waiver may release any Subsidiary Guarantor from any of its obligations under its Guarantee or this Indenture other than in accordance with the terms of such Guarantee and this Indenture; provided, further, that without the consent of Holders of not less than 75% in aggregate principal amount of the Securities then outstanding, no such amendment, supplement or waiver may change the Change of Control Payment Date or the purchase price in connection with any repurchase of Securities pursuant to Section 5.15 in a manner adverse to any Holder or waive a Default or Event of Default resulting from a failure to comply with Section 5.15. Without the consent of each Securityholder affected, however, no amendment, supplement or waiver, including a waiver pursuant to Section 7.04, may: (1) change the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture, the Securities or the Guarantees; 103 -94- (2) reduce the rate or extend the time for payment of interest on any Security; (3) reduce the principal amount of any Security; (4) change the Maturity Date of any Security or alter the redemption provisions in this Indenture or the Securities in a manner adverse to any Holder; (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders of the Securities or the rights of Holders to recover the principal of, interest on, or redemption payment with respect to, any Security; (6) make any changes in Section 7.04, 7.07 or this Section 10.02; (7) make the principal of, or the interest on any Security payable with anything or in any manner other than as provided for in this Indenture, the Securities and the Guarantees as in effect on the date hereof; (8) modify the subordination provisions of this Indenture (including the related definitions) so as to adversely affect the ranking of any Security or Guarantee; provided, however, that it is understood that any amendment the purpose of which is to permit the incurrence of additional Indebtedness under this Indenture shall not be construed as adversely affecting the ranking of any Security or Guarantee. The Company and each Subsidiary Guarantor agree that no amendment, supplement or waiver under this Article Ten may make any change that adversely affects the rights under Article Four or Twelve of any holders of any Senior Indebtedness or any Guarantor Senior Indebtedness unless the holders of such Senior Indebtedness or Guarantor Senior Indebtedness consent to the change. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, 104 -95- supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. In connection with any amendment, supplement or waiver under this Article Ten, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. SECTION 10.03. Compliance with TIA. From the date on which the Indenture is qualified under the TIA, every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 10.04. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. 105 -96- After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (1) through (8) of Section 10.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 10.05. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. SECTION 10.06. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Ten; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Ten is authorized or permitted by this Indenture. ARTICLE ELEVEN GUARANTEE SECTION 11.01. Unconditional Guarantee. Each Subsidiary Guarantor hereby unconditionally, jointly and severally, guarantees (such guarantee to be re- 106 -97- ferred to herein as the "Guarantee"), subject to Article Twelve, to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Securities or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Securities will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Securities and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Securities or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.05. Each Subsidiary Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and in this Guarantee. If any Securityholder or the Trustee is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the Trustee or such Securityholder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Seven for the purposes of this Guarantee, notwithstanding any 107 -98- stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Seven, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of this Guarantee. SECTION 11.02. Subordination of Guarantee. The obligations of each Subsidiary Guarantor to the Holders of Securities pursuant to the Guarantee and this Indenture are expressly subordinate and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, to the extent and in the manner provided in Article Twelve. SECTION 11.03. Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.04. Release of a Subsidiary Guarantor. Upon (i) the release by the lenders under the Term Loans, related documents and future refinancings thereof of all guarantees of a Subsidiary Guarantor and all Liens on the property and assets of such Subsidiary Guarantor relating to such Indebtedness, or (ii) the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all its assets) to an entity which is not a Subsidiary of the Company and which sale or disposition is otherwise in compliance with the terms of this Indenture, such Subsidiary Guarantor shall be deemed released from all obligations under this Article Eleven without any further action required on the part of the Trustee or any Holder; provided, however, that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, such Indebtedness of the Company shall also terminate upon such release, sale or transfer. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.04. Any Subsidiary Guaran- 108 -99- tor not so released remains liable for the full amount of principal of and interest on, and all other obligations under, the Securities as provided in this Article Eleven. SECTION 11.05. Limitation of Subsidiary Guarantor's Liability. Each Subsidiary Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Subsidiary Guarantor hereby irrevocably agree that the obligations of such Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including, but not limited to, the Guarantor Senior Indebtedness of such Subsidiary Guarantor) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to Section 11.07, result in the obligations of such Subsidiary Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. SECTION 11.06. Subsidiary Guarantors May Consolidate, etc., on Certain Terms. (a) nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety, to the Company or another Subsidiary Guarantor. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Subsidiary Guarantor shall no longer have any force or effect. (b) Except as set forth in Article Five and Article Six hereof, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into a corporation or corporations other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor); provided, however, that, subject to Sections 11.04 and 11.06(a), (i) im- 109 -100- mediately after such transaction, and giving effect thereto, no Default or Event of Default shall have occurred as a result of such transaction and be continuing, and (ii) upon any such consolidation, merger, sale or conveyance, the Subsidiary Guarantee set forth in this Article Eleven, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Subsidiary Guarantor, shall be expressly assumed (in the event that the Subsidiary Guarantor is not the surviving corporation in the merger), by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the corporation formed by such consolidation, or into which the Subsidiary Guarantor shall have merged, or by the corporation that shall have acquired such property. In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture executed and delivered to the Trustee and satisfactory in form to the Trustee of the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor; provided, however, that solely for purposes of computing amounts described in subclause (c) of the first paragraph of Section 5.03, any such successor corporation shall only be deemed to have succeeded to and be substituted for any Subsidiary Guarantor with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. SECTION 11.07. Contribution. In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Guarantor") under the Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Subsidiary Guarantors in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Subsidiary Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" with respect to the Guarantee of such Subsidiary Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contin- 110 -101- gent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to such Guarantee)), but excluding liabilities under the Guarantee, of such Subsidiary Guarantor at such date and (y) the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Indebtedness which constitutes Subordinated Indebtedness with respect to such Guarantee) and after giving effect to any collection from any Subsidiary of such Subsidiary Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding debt in respect of the Guarantee of such Subsidiary Guarantor, as they become absolute and matured. SECTION 11.08. Waiver of Subrogation. Each Subsidiary Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Subsidiary Guarantor's obligations under the Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Subsidiary Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall, subject to the provisions of Section 11.02, Article Four and Article Twelve, forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver 111 -102- set forth in this Section 11.08 is knowingly made in contemplation of such benefits. SECTION 11.09. Execution of Guarantee. To evidence their guarantee to the Securityholders set forth in this Article Eleven, the Subsidiary Guarantors hereby agree to execute the Guarantee in substantially the form included in Exhibit A, which shall be endorsed on each Security ordered to be authenticated and delivered by the Trustee. Each Subsidiary Guarantor hereby agrees that its Guarantee set forth in this Article Eleven shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. Each such Guarantee shall be signed on behalf of each Subsidiary Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Guarantee prior to the authentication of the Security on which it is endorsed, and the delivery of such Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Guarantee on behalf of such Subsidiary Guarantor. Such signatures upon the Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantee, and in case any such officer who shall have signed the Guarantee shall cease to be such officer before the Security on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Security nevertheless may be authenticated and delivered or disposed of as though the person who signed the Guarantee had not ceased to be such officer of the Subsidiary Guarantor. SECTION 11.10. Waiver of Stay, Extension or Usury Laws. Each Subsidiary Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Subsidiary Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each such Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power 112 -103- herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness. Anything herein to the contrary notwithstanding, each of the Subsidiary Guarantors, for itself and its successors, and each Holder, by his acceptance of Guarantees, agrees, that any payment of Obligations by a Subsidiary Guarantor in respect of its Guarantee (collectively, as to any Subsidiary Guarantor, its "Guarantee Obligations") is subordinated, to the extent and in the manner provided in this Article Twelve, to the prior payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of such Subsidiary Guarantor. This Article Twelve shall constitute a continuing offer to all persons who become holders of, or continue to hold, Guarantor Senior Indebtedness, and such provisions are made for the benefit of the holders of Guarantor Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. The obligations of the Subsidiary Guarantors to the Trustee under Section 8.07 shall not be subject to the provisions of this Article Twelve. SECTION 12.02. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default. (a) Unless Section 12.03 shall be applicable, upon (1) the occurrence of a Payment Default with respect to any Designated Senior Indebtedness or Significant Senior Indebtedness guaranteed by a Subsidiary Guarantor (which guarantee constitutes Guarantor Senior Indebtedness of such Subsidiary Guarantor) and (2) receipt by the Trustee, the Company and such Subsidiary Guarantor from the Representatives of written notice of such occurrence, then no payment (other than payments previously made pursuant to Article Nine hereof) or distribution of any assets of such Subsidiary Guarantor of any kind or character shall be made by such Subsidiary Guarantor on account of 113 -104- Obligations on the Securities or on account of the purchase, redemption or other acquisition of Securities or any of the obligations of such Subsidiary Guarantor under this Guarantee unless and until such Payment Default shall have been cured or waived or shall have ceased to exist or such Guarantor Senior Indebtedness shall have been discharged or paid in full cash or Cash Equivalents, after which such Guarantor shall resume making any and all required payments in respect of its obligations under this Guarantee. (b) Unless Section 12.03 shall be applicable upon (1) the occurrence of a Non-payment Default with respect to any Designated Senior Indebtedness guaranteed by a Subsidiary Guarantor (which guarantee constitutes Guarantor Senior Indebtedness of such Subsidiary Guarantor) and (2) the earlier of (i) receipt by the Trustee, the Company and such Subsidiary Guarantor from the Representatives of written notice of such occurrence stating that such notice is a "Payment Blockage Notice" pursuant to Sections 4.02(b) and 12.02(b) of this Indenture or (ii) if such Non-payment Default results from the acceleration of the Securities, the date of the acceleration of the Securities, no payment (other than payments previously made pursuant to Article Nine hereof) or distribution of any assets of such Subsidiary Guarantor of any kind or character shall be made by such Guarantor on account of principal, premium, if any, or interest on the Securities or on account of the purchase, redemption or other acquisition of Securities or on account of any of the other obligations of such Subsidiary Guarantor under this Guarantee for a period ("Guarantor Payment Blockage Period") commencing on the date of receipt by the Trustee of such notice or the date of the acceleration referred to in clause (ii) above, as the case may be, unless and until the earlier to occur of the following events: (w) 179 days shall have elapsed since receipt of such written notice by the Trustee or the date of the acceleration of the Securities, as the case may be (provided such Guarantor Senior Indebtedness shall theretofore not have been accelerated), (x) such Non-payment Default shall have been cured or waived or shall have ceased to exist, (y) such Guarantor Senior Indebtedness shall have been discharged or paid in full in cash or Cash Equivalents or (z) such Guarantor Payment Blockage Period shall have been terminated by written notice to the Guarantor or the Trustee from the Representative initiating such Guarantor Payment Blockage Period, or the holders of at least a majority in principal amount of such issue of such Guarantor Senior Indebtedness, after which, in the case of clause (w), (X), (y) or (z), the Subsidiary Guarantor shall resume making any and all required payments in respect of its obligations under this Guarantee. Notwithstanding any 114 -105- other provisions of this Indenture, only one Guarantor Payment Blockage Period may be commenced within any consecutive 365 day period and no Non-payment Default with respect to Guarantor Senior Indebtedness guaranteed by any Subsidiary Guarantor (which guarantee constitutes Guarantor Senior Indebtedness of such Subsidiary Guarantor) which existed or was continuing on the date of the commencement of any Guarantor Payment Blockage Period shall be, or be made, the basis for the commencement of a second Guarantor Payment Blockage Period, 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. In no event shall a Guarantor Payment Blockage Period extend beyond 179 days from the date of the receipt of the notice or the date of the acceleration of the Securities referred to in clause (2) hereof. (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Security shall have received any payment prohibited by the foregoing provisions of this Section 12.02, then and in such event such payment shall be paid over and delivered forthwith to the Representatives or as a court of competent jurisdiction shall direct. SECTION 12.03. Guarantee Obligations Subordinated to Prior Payment of All Guarantor Senior Indebtedness on Dissolution, Liquidation or Reorganization of Such Subsidiary Guarantor. Upon any payment or distribution of assets of any Subsidiary Guarantor of any kind or character, whether in cash, property or securities upon any dissolution, winding up, total or partial liquidation or reorganization of such Subsidiary Guarantor and whether voluntary or involuntary (including, without limitation, in bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of assets and liabilities of such Subsidiary Guarantor and whether voluntary or involuntary): (a) the holders of all Guarantor Senior Indebtedness of such Subsidiary Guarantor shall first be entitled to receive payments in full in cash or Cash Equivalents of all amounts payable under Guarantor Senior Indebtedness (including, with respect to Designated Senior Indebtedness guaranteed by such Subsidiary Guarantor, any interest accruing after the commencement of any such proceeding at the rate specified in the applicable Designated Senior Indebtedness whether or not interest is an allowed claim en- 115 -106- forceable against the Company in any such proceeding) before the Holders will be entitled to receive any payment with respect to the Guarantee (excluding Permitted Subordinated Reorganization Securities), and until all Obligations with respect to the Guarantor 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 Guarantor Senior Indebtedness; provided, however, that no payment by any other Subsidiary Guarantor or the Company shall constitute payment on behalf of such Subsidiary Guaranty for purposes of this Section 12.03(a); (b) any payment or distribution of assets of such Subsidiary Guarantor of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled (excluding Permitted Subordinated Indebtedness) except for the provisions of this Article Twelve, shall be paid by the liquidating trustee or agent or other person making such a payment or distribution, directly to the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor or their Representative, ratably according to the respective amounts of such Guarantor Senior Indebtedness remaining unpaid held or represented by each, until all such Guarantor Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment or distribution to the holders of such Guarantor Senior Indebtedness; (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of such Subsidiary Guarantor of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent in respect of payment of the Guarantee before all Guarantor Senior Indebtedness of such Subsidiary Guarantor is paid in full in cash or Cash Equivalents, such payment or distribution (subject to the provisions of Sections 12.06 and 12.07) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over to, the holders of such Guarantor Senior Indebtedness or their Representative, ratably according to the respective amounts of such Guarantor Senior Indebtedness held or represented by each, until all such Guarantor Senior Indebtedness remaining unpaid shall have been paid in full in 116 -107- cash or Cash Equivalents, after giving effect to any concurrent payment or distribution to the holders of Guarantor Senior Indebtedness. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or willful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay over such payment over to, the holders of such Guarantor Senior Indebtedness or their Representative. Each Subsidiary Guarantor shall give prompt notice to the Trustee prior to any dissolution, winding up, total or partial liquidation or total or reorganization (including, without limitation, in bankruptcy, insolvency, or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of such Subsidiary Guarantor's assets and liabilities). SECTION 12.04. Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of Guarantor Senior Indebtedness. Subject to the payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness, the Holders of Guarantee Obligations of a Subsidiary Guarantor shall be subrogated to the rights of the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor to receive payments or distributions of assets of such Subsidiary Guarantor applicable to such Guarantor Senior Indebtedness until all amounts owing on or in respect of the Guarantee Obligations shall be paid in full in cash, and for the purpose of such subrogation no payments or distributions to the holders of such Guarantor Senior Indebtedness by or on behalf of such Subsidiary Guarantor, or by or on behalf of the Holders by virtue of this Article Twelve, which otherwise would have been made to the holders, shall, as between such Subsidiary Guarantor and the Holders, be deemed to be payment by such Subsidiary Guarantor to or on account of such Guarantor Senior Indebtedness, it being understood that the provisions of this Article Twelve are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of such Guarantor Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Twelve shall have been applied, pursuant to the 117 -108- provisions of this Article Twelve, to the payment of all amounts payable under such Guarantor Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Guarantor Senior Indebtedness any payments or distributions received by such holders of such Guarantor Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Guarantor Senior Indebtedness in full in cash or Cash Equivalents. SECTION 12.05. Obligations of the Subsidiary Guarantors Unconditional. Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Guarantees is intended to or shall impair, as between the Subsidiary Guarantors and the Holders, the obligation of the Subsidiary Guarantors, which is absolute and unconditional, to pay to the Holders all amounts due and payable under the Guarantees as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Subsidiary Guarantors other than the holders of the Guarantor Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Twelve, of the holders of Guarantor Senior Indebtedness in respect of cash, property or securities of the Subsidiary Guarantors received upon the exercise of any such remedy. Upon any payment or distribution of assets of any Subsidiary Guarantor referred to in this Article Twelve, the Trustee, subject to the provisions of Sections 8.01 and 8.02, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Guarantor Senior Indebtedness and other Indebtedness of any Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve. Nothing in this Section 12.05 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 8.07. 118 -109- SECTION 12.06. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received notice thereof from the Company or any Subsidiary Guarantor or from one or more holders of Guarantor Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 8.01 and 8.02, shall be entitled in all respects conclusively to assume that no such fact exists. SECTION 12.07. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government obligations deposited in trust with the Trustee pursuant to and in accordance with Sections 9.01 and 9.02 shall be for the sole benefit of Securityholders and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Twelve. Otherwise, any deposit of assets or securities by or on behalf of a Subsidiary Guarantor with the Trustee or any Paying Agent (whether or not in trust) for payment of the Guarantee shall be subject to the provisions of this Article Twelve; provided that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 12.06, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent. Nothing contained in this Section 12.07 shall limit the right of the holders of Guarantor Senior Indebtedness to recover payments as contemplated by this Article Twelve. SECTION 12.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Guarantor Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or 119 -110- impaired by any act or failure to act on the part of any Subsidiary Guarantor or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by any Subsidiary Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 12.08, the holders of Guarantor Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Securities to the holders of Guarantor Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Guarantor Senior Indebtedness or any instrument evidencing the same or any agreement under which Guarantor Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Senior Indebtedness; (3) release any person liable in any manner for the collection or payment of Guarantor Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Company and any other person; provided, however, that in no event shall any such actions limit the right of the Holders of the Securities to take any action to accelerate the maturity of the Securities pursuant to Article Seven hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. (c) Each Holder by accepting a Security agrees that the Representative of any Guarantor Senior Indebtedness (including without limitation, the Credit Agent), in its discretion, without notice or demand and without affecting any rights of any holder of Guarantor Senior Indebtedness under this Article Twelve, may foreclose any mortgage or deed of trust covering interests in real property secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives any defense to the enforcement by the Representative (including without limitation, the Credit Agent) of any Guarantor Senior Indebtedness or by any holder of any Guarantor Senior Indebtedness against such Holder of this Article Twelve after a Judicial or nonjudicial sale or other disposition of its interests in real property secured by such mortgage or deed of trust; and such Holder expressly waives any defense or benefits that may 120 -111- be derived from California Civil Code ss.ss. 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil Procedure ss.ss. 580a, 580d or 726, or comparable provisions of the laws of any other jurisdiction or any similar statute in effect in any other jurisdiction. SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations. Each Holder of the Guarantee Obligations by his acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Twelve, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of any Subsidiary Guarantor (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Subsidiary Guarantor) tending towards liquidation or reorganization of the business and assets of any Subsidiary Guarantor, the immediate filing of a claim for the unpaid balance under its or his Guarantee obligations in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Guarantor Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Guarantee Obligations. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any holder of Guarantee Obligations any plan of reorganization, arrangement, adjustment or composition affecting the Guarantee Obligations or the rights of any Holder thereof, or to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to vote in respect of the claim of any holder of Guarantee Obligations in any such proceeding. SECTION 12.10. Right of Trustee To Hold Guarantor Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Twelve in respect of any Guarantor Senior Indebtedness at any time held by it to the same extent as any other holder of Guarantor Senior Indebtedness, and noth- 121 -112- ing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 12.11. No Suspension of Remedies. The failure to make a payment in respect of the Guarantees by reason of any provision of this Article Twelve shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 7.01. Nothing contained in this Article Twelve shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article Seven or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Twelve of the holders, from time to time, of Guarantor Senior Indebtedness. SECTION 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall in good faith mistakenly pay over or deliver to the holders of Guarantee Obligations or the Company or any other person, money or assets to which any holders of Guarantor Senior Indebtedness shall be entitled by virtue of this Article Twelve or otherwise. Nothing in this Section 12.12 shall affect the obligation of any person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Guarantor Senior Indebtedness or their Representative. ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.01. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed duties shall control. 122 -113- SECTION 13.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or any Subsidiary Guarantor: c/o The Yucaipa Companies 10000 Santa Monica Boulevard Fifth Floor Los Angeles, California 90067 Attention: Patrick L. Graham if to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036-1532 Attention: Corporate Trust Division if to the Credit Agent: Bankers Trust Company 130 Liberty Street, 14th Floor New York, NY 10006 Attention: Mary Jo Jolly w/a copy to: Bankers Trust Company 130 Liberty Street, 14th Floor New York, NY 10006 Attn.: Mary Kay Coyle Each of the Company, the Trustee, the Subsidiary Guarantors and the Credit Agent by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to the company, the Trustee, the Subsidiary Guarantors and the Credit Agent shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of 123 -114- address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Securityholder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar and any other person shall have the protection of TIA ss. 312(c). SECTION 13.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 13.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 5.07, shall include: 124 -115- (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 13.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 13.07. Legal Holidays. A legal Holiday used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, Los Angeles, California or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 13.08. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. 125 -116- SECTION 13.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this indenture. SECTION 13.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Securityholder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. SECTION 13.11. Successors. All agreements of the Company and each Subsidiary Guarantor in this indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 13.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 13.13. Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 13.14. No Violation. Notwithstanding the provisions of this Indenture, in no event shall any transaction, agreement, payment or other event to be consummated, entered into or made in connection 126 -117- with the Merger or any financing thereof be considered a violation of any provision of this Indenture or constitute a Change of Control hereunder. 127 S-1 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. RALPHS GROCERY COMPANY By: ------------------------------- Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: /s/ CHRISTINE C. COLLINS ------------------------------- Name: Christine C. Collins Title: Assistant Vice President 128 S-2 SUBSIDIARY GUARANTORS: CALA CO. CALA FOODS, INC. BELL MARKETS, INC. FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. ALPHA BETA COMPANY FOOD 4 LESS OF CALIFORNIA, INC. FALLEY'S, INC. BAY AREA WAREHOUSE STORES, INC. FOOD 4 LESS MERCHANDISING, INC. FOOD 4 LESS GM, INC. CRAWFORD STORES, INC. By: /s/ [ILLEGIBLE] ------------------------------- Name: (for each of the above- listed Subsidiary Guarantors) Attest: /s/ [ILLEGIBLE] ------------------------------- (for each of the above listed Subsidiary Guarantors) 129 EXHIBIT A [FORM OF NOTE] RALPHS GROCERY COMPANY 11% Senior Subordinated Note due 2005 No. $ RALPHS GROCERY COMPANY (the "Company", which term includes any successor corporation), for value received promises to pay to or registered assigns, the principal sum of Dollars, on June 15, 2005. Interest Payment Dates: June 15 and December 15 commencing on June 15, 1997. Record Dates: June 1 and December 1. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: RALPHS GROCERY COMPANY By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: A-1 130 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Securities described in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By ------------------------------- Authorized Signatory A-2 131 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT. A-3 132 RALPHS GROCERY COMPANY 11% Senior Subordinated Note due 2005 1. Interest. RALPHS GROCERY COMPANY (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually on each June 15 and December 15 of each year (the "Interest Payment Date"), commencing on June 15, 1997, to the Holders of record on the immediately preceding June 1 and December 1. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance of the Securities. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Company shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at a rate equal to the rate of interest otherwise payable on the Securities. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. Notwithstanding the foregoing, the Company shall pay or cause to be paid all amounts payable with respect to non-DTC eligible Securities by wire transfer of Federal funds to the account of the Holders of such Securities. A-4 133 3. Paying Agent and Registrar. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture and Guarantees. The Company issued the Securities under an Indenture, dated as of March 26, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of the Company limited in aggregate principal amount to $155,000,000. Payment on each Security is guaranteed on a senior subordinated basis, jointly and severally, by the Subsidiary Guarantors pursuant to Article Eleven of the Indenture. 5. Optional Redemption. On or after June 15, 2000 the Securities may be redeemed in whole at any time or in part from time to time, at the option of the Company, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, together with accrued and unpaid interest to the Redemption Date, if redeemed during the 12 months commencing on June 15 in the years set forth below:
Year Percentage ---- ---------- 2000 ................................ 105.500% 2001.................................... 103.667% 2002.................................... 101.833% 2003 and thereafter..................... 100.000%
A-5 134 In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offering to redeem up to an aggregate of 35% of the principal amount of the Securities originally issued, at a redemption price equal to 109.429% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1996 and 107.857% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. The documents evidencing Senior Indebtedness will restrict the Company's ability to optionally redeem the Securities. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. In order to effect a redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date and payment of the Securities called for redemption is not prohibited under Article Four or Article Twelve of the Indenture, then, unless the Company defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. The Company shall not be required to repurchase Securities until it has complied with its covenants to repay in full all Indebtedness of the Company and its Subsidiaries under the Credit Agreement or offer to repay in full all such Indebtedness and A-6 135 repay the Indebtedness of each lender who has accepted its offer to repay such Indebtedness or to obtain the requisite consent under the Credit Agreement to permit the repurchase of the Securities pursuant to a Change of Control Offer. In addition, prior to purchasing the Securities tendered in a Change of Control Offer, the Company shall purchase all Senior Notes (or permitted refinancings thereof) which it is required to purchase by reason of such Change of Control. 8. Limitation on Asset Sales. Under certain circumstances the Company is required to apply the net proceeds from Asset Sales to the repayment of Pari Passu Indebtedness or Senior Indebtedness, to make Related Business Investments, an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, an investment in properties and assets that will be used in the business of the Company and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto or to purchase in a Net Proceeds Offer (at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase) such aggregate principal amount of Securities which, when added to the accrued interest thereon, shall be equal to the net proceeds required to be applied thereto. 9. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. A-7 136 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agents will pay the money back to the Company at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture, the Securities and the Guarantees may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, comply with Article Six or Section 11.06 of the Indenture, or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not adversely affect the rights of any Holder of a Security. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness or Liens, make payments in respect of its Capital Stock and merge or consolidate with any other person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limita- A-8 137 tions are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Subordination. The Securities will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture) of the Company. The Guarantees are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of Guarantor Senior Indebtedness (as defined in the Indenture). To the extent and in the manner provided in the Indenture, Senior Indebtedness, and in the case of payment by a Subsidiary Guarantor, Guarantor Senior Indebtedness, must be paid before any payment may be made to any Holder of this Security. Any Securityholder by accepting this Security agrees to the subordination and authorizes the Trustee to give it effect. 16. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securi- A-9 138 ties and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: Ralphs Grocery Company, c/o The Yucaipa Companies, 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067, Attn: Patrick L. Graham. A-10 139 [FORM OF NOTATION ON NOTE RELATING TO GUARANTEE] GUARANTEE The Subsidiary Guarantors (as defined in the Indenture (the "Indenture") referred to in the Security upon which this notation is endorsed and each hereinafter referred to as a "Subsidiary Guarantor," which term includes any successor person under the Indenture) have unconditionally guaranteed on a senior subordinated basis (such guarantee by each Subsidiary Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Eleven and Article Twelve of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of each Subsidiary Guarantor to the Holders of Securities and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth and are expressly subordinated and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, to the extent and in the manner provided, in Article Eleven and Article Twelve of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Guarantee therein made. No stockholder, officer, director or incorporator, as such, past, present or future, of any Subsidiary Guarantor shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. A-11 140 The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. SUBSIDIARY GUARANTORS: CALA CO. CALA FOODS, INC. BELL MARKETS, INC. FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. ALPHA BETA COMPANY FOOD 4 LESS OF CALIFORNIA, INC. FALLEY'S, INC. FOOD 4 LESS MERCHANDISING, INC. BAY AREA WAREHOUSE STORES, INC. FOOD 4 LESS GM, INC. CRAWFORD STORES, INC. By: ------------------------------- Name: (for each of the above- listed Subsidiary Guarantors) By: ------------------------------- Name: (for each of the above- listed Subsidiary Guarantors) A-12 141 [FORM OF ASSIGNMENT] To assign this Security, fill in the form below: I or we assign and transfer this Security to ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) Please insert Social Security or other identifying number of assignee ______________________________________ and irrevocably appoint ____________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:______________________________ Signature:_______________________________ - -------------------------------------------------------------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee: ___________________________________________________________ A-13 142 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Security purchased by the Company pursuant to Section 5.15 or Section 5.16 of the Indenture, as the case may be, check the appropriate box below: Section 5.15 [ ] Section 5.16 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 5.15 or Section 5.16 of the Indenture, as the case may be, state the amount you want to be purchased: $ Date:_______________________________ Signature:_______________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:____________________________________________________________ A-14 143 RALPHS GROCERY COMPANY 11% Senior Subordinated Note due 2005 No. 751258 AG 9 $155,000,000 RALPHS GROCERY COMPANY (the "Company", which term includes any successor corporation), for value received promises to pay to CEDE & CO. or registered assigns, the principal sum of ONE HUNDRED FIFTY FIVE MILLION Dollars, on June 15, 2005. Interest Payment Dates: June 15 and December 15 commencing on June 15, 1997. Record Dates: June 1 and December 1. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: MARCH 26, 1997 RALPHS GROCERY COMPANY By: /s/ GREG MAYS -------------------------------- Name: Greg Mays Title: Executive Vice President By: /s/ JOHN STANDLEY -------------------------------- Name: John Standley Title: Chief Financial Officer 144 This is one of the Securities described in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By /s/ CHRISTINE C. COLLINS ------------------------------- Authorized Signatory 145 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT. 146 RALPHS GROCERY COMPANY 11% Senior Subordinated Note due 2005 1. Interest. RALPHS GROCERY COMPANY (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually on each June 15 and December 15 of each year (the "Interest Payment Date"), commencing on June 15, 1997, to the Holders of record on the immediately preceding June 1 and December 1. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance of the Securities. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Company shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at a rate equal to the rate of interest otherwise payable on the Securities. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. Notwithstanding the foregoing, the Company shall pay or cause to be paid all amounts payable with respect to non-DTC eligible Securities by wire transfer of Federal funds to the account of the Holders of such Securities. 147 3. Paying Agent and Registrar. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture and Guarantees. The Company issued the Securities under an Indenture, dated as of March 26, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of the Company limited in aggregate principal amount to $155,000,000. Payment on each Security is guaranteed on a senior subordinated basis, jointly and severally, by the Subsidiary Guarantors pursuant to Article Eleven of the Indenture. 5. Optional Redemption. On or after June 15, 2000 the Securities may be redeemed in whole at any time or in part from time to time, at the option of the Company, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, together with accrued and unpaid interest to the Redemption Date, if redeemed during the 12 months commencing on June 15 in the years set forth below:
Year Percentage ---- ---------- 2000.................................... 105.500% 2001.................................... 103.667% 2002.................................... 101.833% 2003 and thereafter..................... 100.000%
148 In addition, on or prior to June 15, 1998, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offering to redeem up to an aggregate of 35% of the principal amount of the Securities originally issued, at a redemption price equal to 109.429% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1996 and 107.857% of the principal amount thereof if redeemed during the 12 months commencing on June 15, 1997, in each case plus accrued and unpaid interest, if any, to the redemption date. The documents evidencing Senior Indebtedness will restrict the Company's ability to optionally redeem the Securities. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. In order to effect a redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date and payment of the Securities called for redemption is not prohibited under Article Four or Article Twelve of the Indenture, then, unless the Company defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. The Company shall not be required to repurchase Securities until it has complied with its covenants to repay in full all Indebtedness of the Company and its Subsidiaries under the Credit Agreement or offer to repay in full all such Indebtedness and 149 repay the Indebtedness of each lender who has accepted its offer to repay such Indebtedness or to obtain the requisite consent under the Credit Agreement to permit the repurchase of the Securities pursuant to a Change of Control Offer. In addition, prior to purchasing the Securities tendered in a Change of Control Offer, the Company shall purchase all Senior Notes (or permitted refinancings thereof) which it is required to purchase by reason of such Change of Control. 8. Limitation on Asset Sales. Under certain circumstances the Company is required to apply the net proceeds from Asset Sales to the repayment of Pari Passu Indebtedness or Senior Indebtedness, to make Related Business Investments, an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, an investment in properties and assets that will be used in the business of the Company and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto or to purchase in a Net Proceeds Offer (at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase) such aggregate principal amount of Securities which, when added to the accrued interest thereon, shall be equal to the net proceeds required to be applied thereto. 9. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 150 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agents will pay the money back to the Company at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture, the Securities and the Guarantees may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, comply with Article Six or Section 11.06 of the Indenture, or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not adversely affect the rights of any Holder of a Security. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness or Liens, make payments in respect of its Capital Stock and merge or consolidate with any other person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limita- 151 tions are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Subordination. The Securities will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture) of the Company. The Guarantees are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of Guarantor Senior Indebtedness (as defined in the Indenture). To the extent and in the manner provided in the Indenture, Senior Indebtedness, and in the case of payment by a Subsidiary Guarantor, Guarantor Senior Indebtedness, must be paid before any payment may be made to any Holder of this Security. Any Securityholder by accepting this Security agrees to the subordination and authorizes the Trustee to give it effect. 16. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securi- 152 ties and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: Ralphs Grocery Company, c/o The Yucaipa Companies, 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067, Attn: Patrick L. Graham. 153 GUARANTEE The Subsidiary Guarantors (as defined in the Indenture (the "Indenture") referred to in the Security upon which this notation is endorsed and each hereinafter referred to as a "Subsidiary Guarantor," which term includes any successor person under the Indenture) have unconditionally guaranteed on a senior subordinated basis (such guarantee by each Subsidiary Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Eleven and Article Twelve of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of each Subsidiary Guarantor to the Holders of Securities and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth and are expressly subordinated and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, to the extent and in the manner provided, in Article Eleven and Article Twelve of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Guarantee therein made. No stockholder, officer, director or incorporator, as such, past, present or future, of any Subsidiary Guarantor shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. EX-5.1 4 OPINION OF LATHAM & WATKINS REGARDING VALIDITY 1 EXHIBIT 5.1 LATHAM & WATKINS ATTORNEYS AT LAW 633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071-2007 June 6, 1997 Ralphs Grocery Company 1100 West Artesia Boulevard Compton, California 90220 Re: Ralphs Grocery Company Registration Statement on Form S-4 (File No. 333- ) -------------------------------------------------------- Ladies and Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (the "Registration Statement") referenced above, which you have filed with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of $155,000,000 principal amount of 11% Senior Subordinated Notes due 2005 (the "Exchange Notes"), to be offered and issued by Ralphs Grocery Company (the "Company"), together with guarantees of the Exchange Notes (the "Guarantees") by Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Crawford Stores, Inc., Food 4 Less of California, Inc., Food 4 Less GM, Inc., Food 4 Less Merchandising, Inc. and Food 4 Less of Southern California, Inc. (collectively, the "Guarantors"). We have examined such matters of fact and questions of law as we have considered appropriate for purposes of this opinion. We have examined, among other things, the terms of the Exchange Notes, the Guarantees and the Indenture pursuant to which the Exchange Notes and Guarantees are to be issued. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. 2 Ralphs Grocery Company June 6, 1997 Page 2 We are opining herein as to the effect on the subject transaction only of the federal laws of the United States, the internal laws of the State of New York and the General Corporation Law of the State of Delaware, and we express no opinion with respect to the applicability thereto, or the effect thereon, of any other laws. Based upon the foregoing, we are of the opinion that, upon issuance thereof in the manner described in the Registration Statement, the Exchange Notes will be legally valid and binding obligations of the Company and the Guarantees will be legally valid and binding obligations of the Guarantors, in each case except as may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; 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 you filing this opinion as an exhibit to the Registration Statement. Very truly yours, LATHAM & WATKINS EX-5.2 5 OPINION OF IRWIN CLUTTER SEVERSON & HINKEL 1 EXHIBIT 5.2 CLUTTER, HINKEL & AADALEN, LLP Attorneys at Law 2201 W. 29th Street P.O. Box 5514 Topeka, Kansas 66605-0514 913-266-5121 913-266-2116 (Fax) June 5, 1997 Falley's, Inc. 3120 South Kansas Avenue Topeka, KS 66611 Re: Ralphs Grocery Company Registration Statement on Form S-4 (File No. 333-_______) Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (File No. 333-_________) (the "Registration Statement") of Ralphs Grocery Company ("Ralphs") and the Subsidiary Guarantors (as defined therein), including Falley's, Inc. ("Falley's"), filed with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of the guarantee (the "Guarantee") by Falley's, and the other Subsidiary Guarantors, of $155 million principal amount of 11% Senior Subordinated Notes due 2005 to be issued in exchange for the issued and outstanding 11% Senior Subordinated Notes due 2005 of Ralphs. 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. 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, 2 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. Yours truly, CLUTTER, HINKEL & AADALEN, LLP EX-8 6 OPINION OF LATHAM & WATKINS RE: INCOME TAX MATTERS 1 EXHIBIT 8 LATHAM & WATKINS ATTORNEYS AT LAW 633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071-2007 June 6, 1997 Ralphs Grocery Company 1100 West Artesia Boulevard Compton, California 90220 Re: Ralphs Grocery Company Registration Statement on Form S-4 (File No. 333- ) ----------------------------------------------------- Ladies and Gentlemen: You have requested our opinion concerning the material federal income tax consequences of the exchange of 11% Senior Subordinated Notes due 2005 of Ralphs Grocery Company (the "Company") which have been registered under the Securities Act of 1933, as amended, for outstanding 11% Senior Subordinated Notes due 2005 of the Company, in connection with the Registration Statement on Form S-4 filed herewith (the "Registration Statement"). The facts, as we understand them, and upon which with your permission we rely in rendering the opinion expressed herein, are set forth in the Registration Statement. Based on such facts, it is our opinion that the material federal income tax consequences are accurately set forth under the heading "Certain Federal Income Tax Consequences" 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 2 Ralphs Grocery Company June 6, 1997 Page 2 retroactively. Also, any variation or difference in the facts from those set forth in the Registration Statement may affect the conclusion stated herein. This opinion is rendered to you solely for use in connection with the Registration Statement. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm under the headings "Certain Federal Income Tax Consequences" and "Legal Matters." Very truly yours, LATHAM & WATKINS EX-10.15 7 PURCHASE AGREEMENT 1 EXHIBIT 10.15 RALPHS GROCERY COMPANY $155,000,000 11% Senior Subordinated Notes due 2005 PURCHASE AGREEMENT March 21, 1997 BT Securities Corporation Bankers Trust International plc One Bankers Trust Plaza New York, New York 10006 CIBC Wood Gundy Securities Corp. 425 Lexington Avenue New York, New York 10017 Credit Suisse First Boston 55 East 52nd Street New York, New York 10055 Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Ladies and Gentlemen: Ralphs Grocery Company, a Delaware corporation (the "Company"), together with each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less of Southern California, Inc., Food 4 Less GM, Inc., and Crawford Stores, Inc. as guarantors (collectively, the "Subsidiary Guarantors", and together with the Company, the "Issuers"), hereby confirm that their agreement with you (the "Initial Purchasers"), as set forth below: 1. The Securities. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Initial Purchasers $155,000,000 aggregate principal amount of its Senior Subordinated Notes, the terms of which will be substantially identical to the Company's 11% Senior Subordinated Notes due 2005, which were issued in a registered offering on June 14, 1995 (the "Notes"). The Notes will be unconditionally guaranteed (the "Guarantees") on a joint and sev- 2 -2- eral basis, by the Subsidiary Guarantors. The Notes and the Guarantees are hereinafter referred to collectively as the "Securities". The Notes are to be issued under an indenture (the "Indenture") to be dated March 26, 1997, by and among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as trustee (the "Trustee"). The Notes will be offered and sold to the Initial Purchasers without such offers and sales being registered under the Securities Act of 1933, as amended (the "Act"), in reliance on exemptions therefrom. In connection with the sale of the Notes, the Company has prepared a preliminary offering memorandum dated March 1997 and distributed on March 19, 1997 (the "Preliminary Memorandum"), and a final offering memorandum dated March 21, 1997 (the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein being referred to as a "Memorandum") setting forth or including a description of the terms of the Notes, the terms of the offering of the Notes, a description of the Company and its subsidiaries and any material developments relating to the Company and its subsidiaries occurring after the date of the most recent historical financial statements included therein. The Company and the Subsidiary Guarantors understand that the Initial Purchasers propose to make an offering of the Notes only on the terms and in the manner set forth in the Memorandum and Section 8 hereof as soon as the Initial Purchasers deem advisable after this Agreement has been executed and delivered, to persons in the United States whom the Initial Purchasers reasonably believe to be qualified institutional buyers ("QIBs") as defined in Rule 144A under the Act, as such rule may be amended from time to time ("Rule 144A"), in transactions under Rule 144A and outside the United States to certain persons in reliance on Regulation S under the Act. The Initial Purchasers and their direct and indirect transferees of the Notes will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the Issuers have agreed, among other things, to file (i) a registration statement (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") registering the Securities or the Exchange Notes (as defined in the Registration Rights Agreement) under the Act or (ii) a shelf registration statement pursuant to Rule 415 under the Act relating to the resale of the Securities, by hold- 3 -3- ers thereof or, if applicable, relating to the resale of Private Exchange Notes (as defined in the Registration Rights Agreement) by the Initial Purchasers pursuant to an exchange of the Securities for Private Exchange Notes. 2. Representations and Warranties. Each Issuer jointly and severally represents and warrants to and agrees with the Initial Purchasers that: (i) Neither the Preliminary Memorandum as of the date thereof nor the Final Memorandum nor any amendment or supplement thereto as of the date thereof and at all times subsequent thereto up to the Closing Date (as defined in Section 3 below) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2 do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto. (ii) Each of the Issuers has all the necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby and by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). Each of the Issuers has taken all necessary corporate action to authorize the issuance of the Securities. (iii) Each of the Issuers is duly incorporated and validly existing in good standing as a corporation under the laws of its jurisdiction of incorporation, with all requisite corporate power and authority to own or lease its properties and conduct its businesses as now conducted as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), and each of the Issuers is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership 4 -4- or leasing of its properties or the conduct of its businesses requires such qualification, except where the failure to be so qualified would not have (x) a material adverse effect on the business, condition (financial or other) or results of operations of the Issuers taken as a whole; or (y) an adverse effect on the ability of any Issuer to perform any of its material obligations under this Agreement, the Indenture or the Securities (a "Material Adverse Effect"); the Company has, in all material respects, the authorized, issued and outstanding capitalization set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum); other than Adams/Vermont Renaissance Plaza, Ltd., a California limited partnership, the only direct or indirect subsidiaries of the Company are the Subsidiary Guarantors; except as aforesaid, none of the Issuers owns, directly or indirectly, any of the capital stock or other equity securities of any other person, except that Alpha Beta Company has an investment in Certified Grocers of California, Inc. ("Certified"), one of the Company's suppliers, and in Adams/Vermont and Food 4 Less GM has an interest in a joint venture with Certified; the outstanding shares of capital stock of each of the Issuers have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights granted by such person; and except as described in the Final Memorandum (or, if the Final Memorandum is not in existence the most recent Preliminary Memorandum), all of the outstanding shares of capital stock of each of the Subsidiary Guarantors are owned beneficially by the Company free and clear of all liens, encumbrances, security interests, mortgages, pledges, charges or claims. No holders of securities or any of the Issuers are entitled to have such securities registered under the Registration Statement. (iv) The Securities, the Exchange Securities and the Private Exchange Securities have been duly and validly authorized by the Issuers for issuance and conform in all material respects to the description thereof in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). The Securities, the Ex- 5 -5- change Securities and the Private Exchange Securities when executed by the Issuers and authenticated by the Trustee in accordance with the provisions of the Indenture, and, in the case of the Securities, delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Issuers entitled to the benefits of the Indenture and enforceable against the Issuers in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law), (iii) the unenforceability, under certain circumstances, of provisions imposing penalties, forfeitures, late payment charges or an increase in interest rate upon delinquency in payment or the occurrence of a default, and (iv) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable. The Issuers have all requisite corporate power and authority to execute, deliver and perform their respective obligations under the Indentures and the Guarantees to issue and deliver the Securities to the Initial Purchasers as provided herein and to issue the Exchange Securities and the Private Exchange Securities as provided in the Registration Rights Agreement. The Indenture has been duly authorized and, when executed and delivered by the Issuers (assuming the due authorization, execution and delivery thereof by the Trustee), will constitute a valid and legally binding agreement of each of the Issuers enforceable against each of them in accordance with its terms, except that the enforcement thereof may be subject to (v) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws now or hereafter in effect relating to creditors' rights generally, including, without limitation, the effect on the Guarantees of Section 548 of the Bankruptcy Code and comparable provisions of state law, (w) general principles of equity and the discretion of the court before which 6 -6- any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law), (x) the unenforceability, under certain circumstances, of provisions imposing penalties, forfeitures, late payment charges or an increase in interest rate upon delinquency in payment or the occurrence of a default, (y) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable and (z) the unenforceability of the provisions contained in the Indenture relating to the waiver of (A) stay, extension or usury laws and (B) subrogation rights or other rights and defences of the Subsidiary Guarantors. The Indenture meets the requirement for qualification under the Trust Indenture Act of 1939, as amended (the "TIA"). (v) The Guarantees endorsed on the Notes have been, and the guarantees endorsed on the Exchange Notes and the Private Exchange Notes will be, duly authorized and, when executed and delivered, will, upon the execution, authentication and delivery of the Notes, Exchange Notes and the Private Exchange Notes and, in the case of the Notes, payment therefor, be valid and binding obligations of each Subsidiary Guarantor enforceable against such Subsidiary Guarantor in accordance with their respective terms, except that the enforcement thereof may be subject to (v) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally, including, without limitation, the effect on such guarantees of Section 548 of the Bankruptcy Code and comparable provisions of state law, (w) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law), (x) the unenforceability, under certain circumstances, of provisions imposing penalties, forfeitures, late payment charges or an increase in interest rate upon delinquency in payment or the occurrence of a default, (y) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable and (z) the unenforceability of the provisions contained in 7 -7- the Indenture relating to the waiver of (A) stay, extension or usury laws and (B) subrogation rights or other rights and defences of the Subsidiary Guarantors. (vi) This Agreement has been duly authorized, executed and delivered by each of the Issuers and, assuming the due authorization, execution and delivery hereof by the Initial Purchasers, constitutes the valid and legally binding obligation of the Issuers enforceable against the Issuers in accordance with its terms, except that the enforcement hereof may be subject to (v) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (w) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law), (x) the unenforceability, under certain circumstances, of provisions imposing penalties, forfeitures, late payment charges or an increase in interest rate upon delinquency in payment or the occurrence of a default, (y) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable and (z) the unenforceability under certain circumstances under law or court decisions of provisions for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy (clauses (v) through (z) above are referred to collectively herein as the "Enforceability Limitations"). Except as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), no consent, approval, authorization or order of any court or governmental agency or body is required for the performance of this Agreement, the Securities, the Guarantees, the Exchange Securities, the Private Exchange Securities or the Indenture by any of the Issuers (to the extent each such person is a party thereto) or the consummation by any Issuer of any of the transactions contemplated hereby or thereby or by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), except such as have been obtained and such as may be required under the 8 -8- Act, the TIA or state securities or "Blue Sky" laws or where the failure to obtain such consent, approval, authorization or order would not have a Material Adverse Effect. None of the Issuers is (i) in violation of its certificate of incorporation or bylaws, (ii) in violation of any statute, judgment, decree, order, rule or regulation applicable to any of the Issuers which violation would have a Material Adverse Effect, or (iii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or other agreement or instrument to which any of the Issuers is subject, which default would have a Material Adverse Effect. The execution, delivery and performance by the Issuers of this Agreement, the Securities, the Guarantees, the Exchange Securities, the Private Exchange Securities or the Indenture (to the extent each such person is a party thereto), and the consummation by each of the Issuers of the transactions contemplated hereby, thereby and by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) will not conflict with or constitute or result in a breach or violation by any of the Issuers of any of (x) the terms or provisions of, or constitute a default by any of the Issuers under, any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, or other agreement or instrument to which any such person is a party or to which any of them or their respective properties is subject, which conflict, breach, violation or default would have a Material Adverse Effect, (y) the certificate of incorporation or bylaws of any such person, or (z) any statute, judgment, decree, order, rule or regulation (excluding state securities and "Blue Sky" laws) of any court or governmental agency or other body applicable to any such person, or any of their respective properties, which conflict, breach, violation or default would have a Material Adverse Effect. (vii) (x) Immediately after the consummation of the issuance of the Securities and the consummation of the other transactions contemplated by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), the fair value and present fair saleable value 9 -9- of the assets of each Issuer will exceed the sum of its stated liabilities and identified contingent liabilities; and (y) after giving effect to the issuance of the Securities and the consummation of the other transactions contemplated by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), none of the Issuers is (a) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (b) unable to pay its debts (contingent or otherwise) as they mature or (c) insolvent. (viii) Each of the Issuers has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and validly authorized and, when executed and delivered by the Issuers, will constitute a valid and legally binding agreement of each of the Issuers enforceable against each of the Issuers in accordance with its terms, except that the enforcement thereof may be subject to the Enforceability Limitations. (ix) Except as disclosed in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), and except as would not individually or in the aggregate have a Material Adverse Effect (w) each of the Issuers is in compliance with all applicable Environmental Laws (as defined below), (x) each of the Issuers has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with their requirements, (y) there are no pending, or, to the best knowledge of any of the Issuers threatened, Environmental Claims (as defined below) against any of the Issuers and (z) each of the Issuers does not have knowledge of any circumstances with respect to any of their respective properties or operations that could reasonably be anticipated to form the basis of an Environmental Claim against any of the Issuers or any of their respective properties or operations and the business operations relating thereto that could reasonably be expected to have a Material Adverse Effect. For purposes of this Agreement, the following terms shall have the following meanings: "Environmental 10 -10- Law" means, with respect any person, any federal, state, local or municipal statute, law, rule, regulation, ordinance, code and any published judicial or administrative interpretation thereof including any judicial or administrative order, consent decree or judgment binding on such person or any of its subsidiaries, relating to the environment, health, safety or any chemical material or substance, exposure to which is prohibited, limited or regulated by any such governmental authority. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law. (x) The audited consolidated financial statements of the Company included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) present fairly the consolidated financial position, results of operations and cash flows of the Company at the dates and for the periods to which they relate, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein, and the unaudited consolidated financial statements of the Company and the related notes included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) present fairly the consolidated financial position, results of operations and cash flows of the Company at the dates and for the periods to which they relate, subject to year-end audit adjustments, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein. Each of Arthur Andersen LLP and KPMG Peat Marwick, which has audited certain of such financial statements as set forth in their reports included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) is an independent public accounting firm as within the meaning of the Act. The statistical and market-related data (including, without limitation, the estimated cost savings information) included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memo- 11 -11- randum) are based on or derived from sources which the Issuers believe to be reliable and accurate. (xi) Except as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) there is not pending or, to the knowledge of any of the Issuers, threatened, any action, suit, proceeding, inquiry or investigation to which any Issuer, or to which the property of any Issuer, is subject, before or brought by any court or governmental agency or body, which is reasonably likely to have a Material Adverse Effect. (xii) Each of the Issuers has (a) good and marketable title to all the real properties and other material assets (personal, tangible, intangible or mixed) owned by it, or purported to be owned by it, and, as of the Closing Date, such title will be free and clear of all liens, except for liens which would be permitted under the Indenture and (b) peaceful and undisturbed possession under all leases to which it is a party as lessee or sublessee, except for such defects in title or lack of possession that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Each of the Issuers operates all material real and personal property leased by it under valid and enforceable leases and has performed in all material respects the obligations required to be performed by it with respect to each such lease, except for such leases and obligations which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. As to leases with respect to which any Issuer is the lessor, the lessees and other parties under such leases are in compliance with all terms and conditions thereunder and such leases are in full force and effect except for any failures to comply or remain in full force and effect which could not reasonably be expected to have a Material Adverse Effect. All tangible assets and properties of each Issuer are in good working order (subject to ordinary wear and tear) and are adequate for the uses to which they are being put or would be put in the ordinary course of business except for such assets and properties as are not material in the aggregate to the business, condition (financial 12 -12- or otherwise) or results of operations of the Issuers taken as a whole. (xiii) The Issuers own, or are licensed under, and have the rights to use, all trademarks and trade names (collectively, "Intellectual Property") used in, or necessary for the conduct of, their businesses as currently conducted, and the consummation of the transactions contemplated hereby and by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) will not alter or impair any such rights, except for such alterations or impairments as could not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Issuers no claims have been asserted by any person to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement related thereto, except for such claims as could not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Issuers, there is no valid basis for any such claim and the use of such Intellectual Property by the Issuers does not infringe on the rights of any person. Each of the Issuers has obtained all licenses, permits, franchises and other governmental authorizations, the lack of which would have a Material Adverse Effect. (xiv) Subsequent to the respective dates as of which information is given in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) and except as described therein or contemplated thereby, (x) none of the Issuers has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, not in the ordinary course of business and (y) none of the Issuers has purchased any of its respective outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on their respective capital stock or otherwise. (xv) All taxes, assessments, fees and other charges (including, without limitation, withholding taxes, penalties, and interest) due or claimed to be due from any of the Issuers that are due and payable have been paid, other than those being contested in 13 -13- good faith or those currently payable without penalty or interest and for which an adequate reserve or accrual has been established in accordance with generally accepted accounting principles, and except where the failure so to pay is not reasonably likely to have, singly or in the aggregate, a Material Adverse Effect. The Issuers know of no actual or proposed additional tax assessments for any fiscal period against the Issuers that, singly or in the aggregate, is reasonably likely to have a Material Adverse Effect. (xvi) None of the Issuers, or any agent acting on behalf of any of them has taken or will take any action that might cause this Agreement, the issuance or sale of the Securities or the issuance of the Guarantees to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System as in effect on the Closing Date. (xvii) None of the Issuers is now, nor after giving effect to the issuance of the Securities or the consummation of the other transactions contemplated by the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) will any Issuer be, an "investment company" or a company "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xviii) Except as stated in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) none of the Issuers knows of any outstanding claims for services, either in the nature of a finder's fee, financial advisory fee, origination fee or similar fee, with respect to the transactions contemplated hereby. (xix) Except as stated in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) none of the Issuers nor, to the best of the Issuers' knowledge, any of the Issuers' respective directors, officers or controlling persons has taken, directly or indirectly, any action designed, or which might reasonably be expected, to cause or result, under the Act or otherwise, in, or which has constituted, stabili- 14 -14- zation or manipulation of the price of any security of the Issuers to facilitate the issuance of the Securities. (xx) None of the Company, the Subsidiary Guarantors or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any "security" (as defined in the Act) which is or could be integrated with the sale of the Securities in a manner that would require the registration under the Act of the Securities or (ii) assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 8 hereof, engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. Assuming (i) the accuracy of the representations and warranties of the Initial Purchasers in Section 8 hereof, (ii) the due performance by the Initial Purchasers of the covenants and agreements set forth in Section 8 hereof, and (iii) compliance by the Initial Purchasers with the transfer restrictions described under the caption "Transfer Restrictions" in the Memorandum, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register any of the Securities under the Act or to qualify the Indenture under the TIA. (xxi) No securities of any Issuer are of the same class (within the meaning of Rule 144A under the Act) as the Securities and listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or quoted in a U.S. automated inter-dealer quotation system. (xxii) The Issuers have not (a) "incurred," as such term is defined in the Existing Indentures (as defined below), any "Indebtedness" pursuant to, or in reliance on, clause (m) of the definition of "Permitted Indebtedness," (b) "made," as such term is used in the Existing Indentures, any 15 -15- "Investments" pursuant to, or in reliance on, the last clause of the definition of "Permitted Investments," (c) made any Restricted Payments pursuant to clause (iv) of the first paragraph of Section 5.03 of the Indentures governing Existing Indebtedness or (d) "created, incurred, assumed or suffered to exist," as such terms are used in the Existing Indentures, any "Liens" pursuant to, or in reliance on, clause (xvii) of the definition of "Permitted Liens". The Securities constitute "Refinancing Indebtedness" as such term is defined in the Existing Indentures. For purposes of the preceding sentence, Existing Indentures shall mean, collectively, (i) the 13.75% Senior Subordinated Notes Indenture and the 11% Senior Subordinated Notes Indenture, each dated as of June 1, 1995 by and between the Issuers and United States Trust Company of New York, as trustee, (ii) the 10.45% Senior Notes Indenture dated as of June 1, 1995 by and between the Issuers and Norwest Bank Minnesota, National Association, as trustee and (iii) the 10.45% Senior Notes Indenture dated as of June 6, 1996 by and between the Issuers and Norwest Bank Minnesota, National Association, as trustee. The Issuers have "incurred" no more than $100 million and $10 million and $15 million of "Indebtedness" pursuant to clauses (c), (f) and (m) of the definition of Permitted Indebtedness, respectively. Capitalized terms in quotes used in this clause (xxii) shall have the meaning ascribed to such terms in the applicable Existing Indenture. Any certificate signed by any officer of any Issuer and delivered pursuant to this Agreement or in connection with the payment of the purchase price and delivery of the Securities shall be deemed a representation and warranty by the Issuers to the Initial Purchasers as to the matters covered thereby, and shall not be deemed a representation by such officer as an individual. 3. Purchase, Sale and Delivery of the Securities. (a) On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Issuers agree to issue and sell to the Initial Purchasers, and the Initial Purchasers agree to purchase from the Issuers, at 104.5% of their principal amount, the Securities. One or more certificates in definitive form for the Securities that the Initial Purchasers 16 -16- have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Issuers at least 48 hours prior to the Closing Date, shall be delivered by or on behalf of the Company, against payment by or on behalf of the Initial Purchasers of the purchase price therefor by wire transfer or check of immediately available funds to the account of the Company. Such delivery of and payment for the Securities shall be made at the offices of Cahill, Gordon & Reindel, 80 Pine Street, New York, New York 10005, at 10:00 A.M., New York time, on March 26, 1997, or at such other place, time or date as the Initial Purchasers and the Issuers may agree upon, such time and date of delivery against payment being herein referred to as the "Closing Date." The Issuers will make such certificate or certificates for the Securities available for checking and packaging by the Initial Purchasers at the offices in New York, New York of BT Securities Corporation at least 24 hours prior to the Closing Date. (b) The obligation of the Company and the Subsidiary Guarantors to issue and sell, and the obligations of the Initial Purchasers to purchase, the Securities hereunder shall be subject to the conditions that the Agent and the Requisite Lenders (as defined in the Credit Facility) shall have approved the terms thereof in accordance with the Third Amendment, Consent and Waiver dated as of March 8, 1996 under the Credit Facility, as amended by the Fourth Amendment dated as of November 7, 1996. 4. Offering by the Initial Purchasers. The Initial Purchasers propose to make an offering of the Securities at the price and upon the terms set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchasers is advisable. 5. Certain Covenants. Each Issuer jointly and severally covenants and agrees with the Initial Purchasers that: (i) The Issuers will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall not have given their consent (which consent shall not be unreasonably withheld). The Issuers will promptly, upon the reasonable request of the Initial Purchasers or counsel 17 -17- for the Initial Purchasers, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary in connection with the resale of the Securities by the Initial Purchasers for such Memorandum not to contain any untrue statement of a material fact or omission of a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or to comply with applicable laws, rules or regulations. (ii) Each Issuer will cooperate with the Initial Purchasers in arranging for the qualification of the Securities for offering and sale under the securities or "Blue Sky" laws of such jurisdictions as the Initial Purchasers may designate and will continue such qualifications in effect for as long as may be necessary to complete the resale of the Securities by the Initial Purchasers; provided, however, that in connection therewith no Issuer shall be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or, except at the expense of the Initial Purchasers, to keep any state qualification effective after one year. (iii) If, at any time prior to the completion of the initial resale by the Initial Purchasers of the Securities, any event shall occur as a result of which it is necessary, in the opinion of counsel for the Initial Purchasers, to amend or supplement the Final Memorandum in order to make the Final Memorandum not misleading in light of the circumstances existing at the time it is delivered to a purchaser, or if for any other reason it shall be necessary to amend or supplement the Final Memorandum in order to comply with applicable law, the Issuers shall (subject to Section 5(i)) forthwith amend or supplement the Final Memorandum (in form and substance reasonably satisfactory to counsel for the Initial Purchasers and in compliance with applicable law) so that, as so amended or supplemented, the Final Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time it is delivered to a purchaser, not misleading and will comply with applicable law, and the Issuers will 18 -18- furnish to the Initial Purchasers a reasonable number of copies of such amendment or supplement. (iv) The Issuers will, without charge, provide to the Initial Purchasers and to counsel for the Initial Purchasers as many copies of the Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request. (v) For so long as any of the Securities remain outstanding, the Company will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or to the holders of the Securities and, as soon as available, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (vi) Neither the Company nor any of its Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Act of the Securities. (vii) The Company will not, and will not permit any of its subsidiaries to, engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. (viii) For so long as any of the Securities remain outstanding, the Company will make available at its expense, upon request, to any holder of Securities and any prospective purchasers thereof the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (ix) The Company will use its best efforts to (i) permit the Securities to be designated PORTAL securities in accordance with the rules and regula- 19 -19- tions adopted by the NASD relating to trading in the Private Offerings, Resales and Trading through Automated Linkages market (the "Portal Market") and (ii) permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (x) The Company will apply the net proceeds from the sale of the Securities as set forth under "Use of Proceeds" in the Final Memorandum. (xi) Prior to the Closing Date, the Issuers will furnish to the Initial Purchasers, as soon as they have been prepared by or are available to the Issuers, a copy of any unaudited interim consolidated financial statements of the Company and its subsidiaries, for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum. 6. Expenses. The Issuers jointly and severally agree to pay all costs and expenses incident to the performance of their respective obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 hereof, including all costs and expenses incident to (i) the printing, word processing or other production of documents with respect to such transactions, including any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial Purchasers of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by any Issuer, (iv) the preparation, issuance and delivery to the Initial Purchasers of any certificates evidencing the Securities and the Guarantees, including trustees' fees, (v) the qualification of the Securities under state securities and "Blue Sky" laws, including filing fees and reasonable fees and disbursements of counsel for the Initial Purchasers relating thereto, (vi) expenses of the Issuers in connection with any meetings with prospective investors in the Securities, (vii) fees and expenses of the Trustee including fees and expenses of its counsel, (viii) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL Market, and (ix) any fees charged by investment rating agencies for the rating of the Securities. Notwithstanding any of the foregoing, the Company will not be responsible for any of the fees and expenses of the 20 -20- Initial Purchasers (including, without limitation, fees and disbursements of counsel for the Initial Purchasers) incurred in connection with the transactions contemplated hereby. 7. Conditions of the Initial Purchasers' Obligations. The obligations of the Initial Purchasers to purchase and pay for the Securities are subject to the accuracy of the representations and warranties contained herein, to the performance by each Issuer of its covenants and agreements hereunder and to the following additional conditions: (i) The Initial Purchasers shall have received opinions in form and substance satisfactory to the Initial Purchasers, dated the Closing Date, of (a) Latham & Watkins, special counsel for the Issuers, substantially in the form of Exhibit B hereto, and (b) Irwin, Clutter & Severson, special Kansas counsel to the Issuers, substantially in the form of Exhibit C hereto. (ii) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Cahill Gordon & Reindel, counsel for the Initial Purchasers, with respect to the sufficiency of certain corporate proceedings and other legal matters relating to this Agreement, and such other related matters as the Initial Purchasers may require. In rendering such opinion, Cahill Gordon & Reindel shall have received and may rely upon such certificates and other documents and information as they may reasonably request to pass upon such matters. In addition, in rendering their opinion, Cahill Gordon & Reindel may state that their opinion is limited to matters of New York, Delaware corporate and federal law. (iii) The Initial Purchasers shall have received, from Arthur Andersen LLP, independent public accountants for the Issuers, letters dated, respectively, the date hereof and the Closing Date, in form and substance satisfactory to the Initial Purchasers and Cahill Gordon & Reindel, counsel for the Initial Purchasers. (iv) The Initial Purchasers shall have received from KPMG Peat Marwick, independent public accountants for Ralphs Supermarkets, Inc., letters dated, respectively, the date hereof and the Closing Date, in form and substance satisfactory to the Ini- 21 -21- tial Purchasers and Cahill Gordon & Reindel, counsel for the Initial Purchasers. (v) The representations and warranties of each Issuer contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date (other than to the extent any such representation or warranty is expressly made as to a certain date); each Issuer shall have complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and subsequent to the date of the most recent financial statements in the Final Memorandum, there shall have been no material adverse change in the business, condition (financial or other) or results of operations of the Company and its subsidiaries taken as a whole (a "Material Adverse Change"), or any development involving a prospective Material Adverse Change, except as set forth in, or contemplated by, the Final Memorandum. (vi) Neither the issuance and sale of the Securities pursuant to this Agreement nor any of the other transactions contemplated by the Final Memorandum shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued or any action, suit or proceeding shall have been commenced with respect to this Agreement or any of the transactions contemplated by the Final Memorandum, before any court or governmental authority. (vii) The Initial Purchasers shall have received a certificate, dated the Closing Date, of the Vice Chairman, President or any Vice President (and with respect to (B) below, the Chief or Principal Financial Officer) of the Company to the effect that: (A) The representations and warranties of each Issuer in this Agreement are true and correct in all material respects as if made on and as of the Closing Date, and each Issuer has performed all covenants and agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date after giving effect to the transactions contemplated hereby and in the Final Memorandum; 22 -22- (B) Subsequent to the date as of which information is given in the Final Memorandum, there has not been any Material Adverse Change; (C) Neither the sale of the Securities by the Issuers nor any of the other transactions contemplated hereby or by the Final Memorandum has been enjoined (temporarily or permanently); and (D) The Issuers have obtained the approval of the Agent and the Requisite Lenders (as defined in the Credit Facility) regarding the offering of the Notes and the application of the proceeds thereof such approval remains in full force and effect. (viii) On the Closing Date, the Initial Purchasers shall have received the Registration Rights Agreement executed by the Issuers and such agreement shall be in full force and effect at all times from and after the Closing Date. On or before the Closing Date, the Initial Purchasers and counsel for the Initial Purchasers shall have received such further documents, opinions, certificates and schedules or instruments relating to the business, corporate, legal and financial affairs of the Issuers as they shall have heretofore reasonably requested from the Issuers. All such opinions, certificates, letters, schedules, documents or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Initial Purchasers and counsel for the Initial Purchasers. The Issuers shall furnish to the Initial Purchasers such conformed copies of such opinions, certificates, letters, schedules, documents and instruments in such quantities as the Initial Purchasers shall reasonably request. 8. Offering of Securities; Restrictions on Transfer. The Initial Purchasers represent and warrant that they are QIBs. The Initial Purchasers agree with the Issuers that (i) they have not and will not solicit offers for, or offer or sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (ii) they have and will solicit offers for the Securities only from, and will offer the Securities only to, (A) in the case of offers 23 -23- inside the United States persons whom the Initial Purchasers reasonably believe to be QIBs or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchasers that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A and, in each case, in transactions under Rule 144A and (B) in the case of offers outside the United States, to persons other than U.S. persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust); provided, however, that, in the case of this clause (B), in purchasing such Securities such persons are deemed to have represented and agreed as provided under the caption "Transfer Restrictions" contained in the Final Memorandum. 9. Indemnification and Contribution. (a) Each Issuer jointly and severally agrees to indemnify and hold harmless the Initial Purchasers, and each person, if any, who controls any of the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which such Initial Purchasers or such controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in (A) any Memorandum or any amendment or supplement thereto or (B) any application or other document, or any amendment or supplement thereto, executed by any Issuer or based upon written information furnished by or on behalf of any Issuer filed in any jurisdiction in order to qualify the Securities under the securities or "Blue Sky" laws thereof or filed with any securities association or securities exchange (each an "Application") or (ii) the omission or alleged omission to state, in any Memorandum or any amendment or supplement thereto, or any Application, a material fact required to be stated therein or necessary to make the statements therein not misleading, 24 -24- and will reimburse, as incurred, the Initial Purchasers and each such controlling person for any legal or other expenses reasonably incurred by the Initial Purchasers or such controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, that none of the Issuers will be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Memorandum or any amendment or supplement thereto, or any Application in reliance upon and in conformity with written information furnished to any Issuer by the Initial Purchasers specifically for use therein; and provided, further, that neither the Company nor the Subsidiary Guarantors will be liable to the Initial Purchasers or any person controlling the Initial Purchasers with respect to any such untrue statement or omission made in the Preliminary Memorandum that is corrected in the Offering Memorandum (or any amendment or supplement thereto) if the person asserting any such loss, claim, damage or liability purchased Securities from the Initial Purchasers in reliance upon the Preliminary Memorandum but was not sent or given a copy of the Offering Memorandum (as amended or supplemented) at or prior to the written confirmation of the sale of such Notes to such person, unless such failure to deliver the Offering Memorandum (as amended or supplemented) was a result of noncompliance by the Company or the Subsidiary Guarantors with Section 5(iv) of this Agreement. This indemnity agreement will be in addition to any liability that any Issuer may otherwise have to the indemnified parties. None of the Issuers will, without the prior written consent of the Initial Purchasers, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification from the Initial Purchasers may be sought hereunder (whether or not the Initial Purchasers or any person who controls any of the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Initial Purchasers and each such controlling person from all liability arising out of such claim, action, suit or proceeding. (b) The Initial Purchasers will indemnify and hold harmless each Issuer, their respective directors, their respective officers and each person, if any, who controls any Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or li- 25 -25- abilities to which any Issuer or any such director, officer or controlling person may become subject under the Act, the Exchange Act, or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto, or any Application or (ii) the omission or the alleged omission to state therein a material fact required to be stated in any Memorandum or any amendment or supplement thereto, or any Application, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to any Issuer by the Initial Purchasers specifically for use therein; and, subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses reasonably incurred by any Issuer or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability that the Initial Purchasers may otherwise have to the indemnified parties. The Initial Purchasers will not, without the prior written consent of the Company and any affected Subsidiary Guarantor, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification from the Company or any affected Subsidiary Guarantor may be sought hereunder (whether or not the Company or any such affected Subsidiary Guarantor or any person who controls the Company or any such affected Subsidiary Guarantor within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Company or any such affected Subsidiary Guarantor and each such controlling person from all liability arising out of such claim, action, suit or proceeding. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 9. In case 26 -26- any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, then the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Initial Purchasers in the case of paragraph (a) of this Section 9 or the Issuers in the case of paragraph (b) of this Section 9, representing the indemnified parties under such paragraph (a) or paragraph (b), as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying party, unless such indemnified party waived its rights under this Section 9, in which case the indemnified party may effect such a settlement without such consent. 27 -27- (d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 9 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers on the one hand and the Initial Purchasers on the other shall be deemed to be in the same proportion as the total proceeds from the offering (before deducting expenses other than underwriting discounts and commissions) received by the Company bear to the total discounts and commissions received by the Initial Purchasers. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Subsidiary Guarantors on the one hand, or the Initial Purchasers on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. Each Issuer and Initial Purchaser agrees that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the Issuers on the one hand and the Initial Purchasers on the other hand were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), the Initial Purchasers shall not be obligated to make contributions hereunder that in the aggregate exceed the total underwriting discounts and commissions received by the Initial Purchasers under this Agreement, less the aggregate amount of any damages that the Initial Purchasers have otherwise been required to pay by reason of the untrue or alleged untrue statements or the 28 -28- omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls any of the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Initial Purchasers, and each director of each Issuer, each officer of each Issuer and each person, if any, who controls any Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as each such Issuer. 10. Survival Clause. The respective representations, warranties, agreements, covenants, indemnities and other statements of each Issuer, their respective officers and the Initial Purchasers set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of any Issuer, any of their respective officers or directors, the Initial Purchasers or any controlling person referred to in Section 9 hereof and (ii) delivery of and payment for the Securities, and shall be binding upon and shall inure to the benefit of, any successors, assigns, heirs, personal representatives of the Issuers, the Initial Purchasers and indemnified parties referred to in Section 9 hereof. The respective agreements, covenants, indemnities and other statements set forth in Section 6 and 9 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. Termination. (a) This Agreement may be terminated in the sole discretion of the Initial Purchasers by notice to the Issuers given prior to the Closing Date in the event that any Issuer shall have failed, refused or been unable to perform all obligations and satisfy all conditions on their respective part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing Date: (i) Any Issuer shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, which loss or interference has had or has a Material Adverse Effect, or there shall have been any Material Adverse Change, 29 -29- or any development involving a prospective Material Adverse Change (including without limitation a change in management or control of any Issuer), except as described in or contemplated by the Final Memorandum (exclusive of any amendment or supplement thereto); (ii) trading in securities generally on the New York or American Stock Exchange shall have been suspended or minimum or maximum prices shall have been established on any such exchange; (iii) a banking moratorium shall have been declared by New York or United States authorities; or (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or (C) any material change in the financial markets of the United States which, in the sole judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities as contemplated by the Final Memorandum, as amended as of the date hereof. (b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof. 12. Notices. All communications hereunder shall be in writing and, if sent to the Initial Purchasers, shall be mailed or delivered or telecopied and confirmed in writing to the Initial Purchasers c/o BT Securities Corporation, One Bankers Trust Plaza, New York, New York 10006, Attention: Gerald McConnell; and with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, Attention: William M. Hartnett, Esq. If sent to any Issuer, shall be mailed, delivered or telegraphed and confirmed in writing to Ralphs Grocery Company, 1100 West Artesia Blvd., Compton, California 90220, Attention: General Counsel with a copy to Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California 90071, Attention: Pamela B. Kelly, Esq. 13. Successors. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, each Issuer and their respective successors and legal representatives, 30 -30- and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of each Issuer contained in Section 9 of this Agreement shall also be for the benefit of any person or persons who control the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 9 of this Agreement shall also be for the benefit of the directors of each Issuer, their respective officers and any person or persons who control any Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from the Initial Purchasers will be deemed a successor because of such purchase. 14. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW. 15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 31 -31- If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among each of the Issuers and the Initial Purchasers. Very truly yours, RALPHS GROCERY COMPANY By: /s/ JOHN STANDLEY ------------------------------- Name: John Standley Title: Chief Financial Officer ALPHA BETA COMPANY, BAY AREA WAREHOUSE STORES, INC., BELL MARKETS, INC., CALA CO., CALA FOODS, INC., FALLEY'S, INC., FOOD 4 LESS OF CALIFORNIA, INC., FOOD 4 LESS MERCHANDISING, INC., FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC., FOOD 4 LESS GM, INC., CRAWFORD STORES, INC., as Subsidiary Guarantors By: /s/ [ILLEGIBLE] ------------------------------- Name: Title: 32 -32- The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT SECURITIES CORPORATION By: /s/ CHRISTINE B. FOGGIA ------------------------------- Name: Title: CIBC WOOD GUNDY SECURITIES CORP. By: /s/ PATRICE M. DANIELS ------------------------------- Name: Patrice M. Daniels Title: Managing Director CREDIT SUISSE FIRST BOSTON By: /s/ G. DAVID M. MALETTA, II ------------------------------- Name: David M. Maletta, II Title: Managing Director DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: [ILLEGIBLE] ------------------------------- Name: Title: BANKERS TRUST INTERNATIONAL, PLC By: [ILLEGIBLE] ------------------------------- Name: Title: 33 FOR EXHIBIT A SEE REG RIGHTS AGREEMENT 34 Exhibit B Form of Opinion of Latham & Watkins 1. Each of Ralphs Grocery Company (the "Company") and the Subsidiary Guarantors (other than Falley's ) (collectively, the "Corporations") has been duly incorporated and is validly existing and in good standing under the laws of its state of incorporation with corporate power and authority to own or lease its properties and to conduct its business as now conducted as described in the Final Memorandum. 2. Each of the Company, Cala Co. and Food 4 Less of Southern California, Inc. is duly qualified to do business as a foreign corporation in California and is in good standing in California. 3. The Company or a subsidiary or subsidiaries of the Company own of record in the aggregate 100% of the capital stock of each corporation that is a Subsidiary Guarantor (other than Falley's) and all such capital stock has been duly authorized and validly issued and is fully paid and nonassessable. 4. Each of the Corporations has full corporate power and authority to execute, deliver and perform each of its obligations under the Purchase Agreement, the Indenture, the Notes, the Exchange Notes, the Private Exchange Notes and the Guarantees and to issue the Notes, the Exchange Notes, the Private Exchange Notes and the Guarantees to be issued by it pursuant to the Indenture. 5. Except as set forth in the Final Memorandum, to the best of such counsel's knowledge, no holder of securities of the Corporations is entitled to have such securities registered under a registration statement filed by the Company pursuant to the Registration Rights Agreement. 6. To the best of our knowledge, there is no action, suit, proceeding or investigation pending or threatened against or affecting any of the Corporations or any of their respective properties or assets in any court or before any governmental authority or arbitration board or tribunal that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the Purchase Agreement, the Registration Rights Agreement, the Indenture or the issuance, sale and delivery of the Notes or the Guarantees. 35 7. The Indenture has been duly authorized, executed and delivered by the Corporations and (assuming due authorization, execution and delivery by the Trustee) is the legally valid and binding agreement of the Corporations, enforceable against the Corporations in accordance with its terms; the Indenture meets the requirements for qualification under the Trust Indenture Act of 1939, as amended. 8. The Notes have been duly authorized by the Company for issuance and, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of the Purchase Agreement, will be legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. 9. The Exchange Notes and the Private Exchange Notes have been duly and validly authorized by the Company and when the Exchange Notes and the Private Exchange Notes have been duly executed and delivered by the Company in accordance with the terms of the Registration Rights Agreement and the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee and due authentication and delivery of the Exchange Notes and the Private Exchange Notes by the Trustee in accordance with the Indenture), will constitute the valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms. 10. Each of the Purchase Agreement and the Registration Rights Agreement has been duly authorized, executed and delivered by the Corporations; the execution and delivery of the Purchase Agreement, the Registration Rights Agreement, the Indenture, the Notes and the Guarantees by the Corporations, to the extent each is a party thereto, and the issuance and sale of the Notes pursuant to the Purchase Agreement and the making of the Guarantees pursuant to the Indenture will not result in the violation by any Corporation of its certificate or articles of incorporation or bylaws or any federal, New York, California, or Delaware General Corporation Law statute, rule or regulation known to us to be applicable to the Corporations (other than federal or state securities laws, which are specifically addressed elsewhere herein) or in the breach of or default by any Corporation under any of the material agreements or court orders specifically directed to the Corporations (which material agreements have been identified to us by an officer of such person as material to such person), which conflict, viola- B-2 36 tion, breach or default would have a material adverse effect on the Company and the Subsidiary Guarantors, taken as a whole. 11. The Company and the Subsidiary Guarantors have all requisite corporate power and authority to execute, deliver and perform their obligations under the Registration Rights Agreement; the Registration Rights Agreement has been duly and validly authorized, executed and delivered by the Company and the Subsidiary Guarantors and (assuming due authorization, execution and delivery thereof by the Initial Purchasers) constitutes the valid and legally binding agreement of the Company and the Subsidiary Guarantors and is enforceable against the Company and the Subsidiary Guarantors and in accordance with its terms. 12. To the best of our knowledge, no consent, approval, authorization or order of, or filing with, any federal, New York, California, or Delaware court or governmental agency or body is required for the issuance and sale of the Notes by the Company pursuant to the Purchase Agreement and the making of the Guarantees by the respective Subsidiary Guarantors (other than Falley's) pursuant to the Indenture, except such as may be required under state securities laws in connection with the purchase and distribution of such Notes and Guarantees by the Initial Purchasers. 13. We call your attention to the fact that the Purchase Agreement, the Registration Rights Agreement, the Indenture, the Notes and the Guarantees select the internal laws of the State of New York as the governing law. It is our opinion that a New York State court or a federal court sitting in New York will honor the parties' choice of the internal laws of the State of New York as the law applicable to such documents. 14. The statements set forth in the Offering Memorandum under the caption "Description of Notes", insofar as they purport to summarize certain provisions of the Notes and the Indenture, provide fair summaries thereof and are accurate in all material respects. 15. No registration under the Act of the Notes is required in connection with the sale of the Notes to the Initial Purchasers as contemplated by this Agreement and the Final Memorandum or in connection with the initial resale of the Notes by the Initial Purchasers in accordance with Section 8 of this Agreement, and prior to the commencement of the Exchange Offer (as defined B-3 37 in the Registration Rights Agreement) or the effectiveness of the Shelf Registration Statement (as defined in the Registration Rights Agreement), the Indenture is not required to be qualified under the TIA, in each case assuming (i) that the Initial Purchasers and the purchasers who buy such Notes in the initial resale thereof are qualified institutional buyers as defined in Rule 144A promulgated under the Act ("QIBs"), (ii) the accuracy of the Initial Purchasers' representations in Section 8 and those of the Corporations contained in this Agreement regarding the absence of a general solicitation in connection with the sale of such Notes to the Initial Purchasers and the initial resale thereof, (iii) the due performance by the Initial Purchasers of the agreements set forth in Section 8 hereof and (iv) compliance by the Initial Purchasers with the transfer restrictions described under the caption "Transfer Restrictions" in the Memorandum. 16. In addition, we have participated in conferences with officers and other representatives of the Company and the Subsidiary Guarantors, representatives of the independent public accountants for the company and the Subsidiary Guarantors and your representatives, at which the contents of the Final Memorandum and related matters were discussed and, although we are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Final Memorandum and have not made any independent check or verification thereof, during the course of such participation (relying as to materiality to a large extent upon the statements of officers and the representatives of the Company and the Subsidiary Guarantors), no facts came to our attention that caused us to believe that the Final Memorandum, at the date thereof or at the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; it being understood that we express no belief with respect to the financial statements, schedules and other financial and statistical data included in the Memorandum. B-4 38 Exhibit C Form of Opinion of Irwin, Clutter & Severson 1. Falley's is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Kansas, and has the requisite corporate power and authority to own, lease and operate its properties and to conduct its business as now conducted. 2. The authorized capital stock of Falley's is 1,000 shares of common stock, ten cents par value. As of the date herein, 1,000 shares of such common stock are issued and outstanding, all of which are owned of record by the Company. All such outstanding shares of stock have been duly authorized and validly issued and are fully paid and nonassessable. 3. Falley's has full corporate power and authority to execute, deliver and perform its obligations under the Purchase Agreement, the Registration Rights Agreement, the Indenture and the Guarantees pursuant thereto. 4. Each of the Purchase Agreement, the Registration Rights Agreement, the Indenture and the Guarantees has been duly authorized by all necessary corporate action, executed and delivered by Falley's. 5. The execution and delivery of the Purchase Agreement, the Registration Rights Agreement, the Indenture and the issuance of the Guarantees by Falley's pursuant to the Indenture will not result in the violation of any Kansas statute, rule or regulation (other than state securities laws) known to us to be applicable to Falley's, which violation would have a material adverse effect on the Company and the Subsidiary Guarantors, taken as a whole. To the best of our knowledge, no consent, approval, authorization or order of, or filing with, any Kansas court or governmental agency or body is required for the making of the Guarantees by Falley's pursuant to the Indenture, except as such as may be required under state securities laws. C-1 EX-10.16 8 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.16 REGISTRATION RIGHTS AGREEMENT Dated as of March 26, 1997 by and among RALPHS GROCERY COMPANY, THE GUARANTORS named herein and BT SECURITIES CORPORATION BANKERS TRUST INTERNATIONAL, PLC CIBC WOOD GUNDY SECURITIES CORP. CREDIT SUISSE FIRST BOSTON and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION as Initial Purchasers ----------------------------- $155,000,000 11% SENIOR SUBORDINATED NOTES DUE 2005 2 TABLE OF CONTENTS
Page ---- 1. Definitions.......................................................................1 2. Exchange Offer....................................................................5 3. Shelf Registration................................................................9 4. Liquidated Damages...............................................................10 5. Registration Procedures..........................................................12 6. Registration Expenses............................................................23 7. Indemnification..................................................................24 8. Rules 144 and 144A...............................................................28 9. Underwritten Registrations.......................................................28 10. Miscellaneous....................................................................29 (a) Remedies..................................................................29 (b) No Inconsistent Agreements................................................29 (c) Adjustments Affecting Registrable Notes...................................29 (d) Amendments and Waivers....................................................29 (e) Notices...................................................................30 (f) Successors and Assigns....................................................31 (g) Counterparts..............................................................31 (h) Headings..................................................................32 (i) Governing Law.............................................................32 (j) Severability..............................................................32 (k) Notes Held by an Issuer or Its Affiliates.................................32 (l) Third Party Beneficiaries.................................................32 (m) Joint and Several Obligations.............................................32 (n) Entire Agreement..........................................................33
3 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of March 26, 1997, by and among Ralphs Grocery Company, a Delaware corporation (the "Company"), Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less GM, Inc., Food 4 Less of Southern California, Inc. and Crawford Stores, Inc. (collectively, the "Guarantors") and BT Securities Corporation, Bankers Trust International, plc, CIBC Wood Gundy Securities Corp., Credit Suisse First Boston and Donaldson, Lufkin & Jenrette Securities Corporation (collectively, the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated March 21, 1997, by and among the Company, the Guarantors and the Initial Purchasers (the "Purchase Agreement") relating to the sale by the Company to the Initial Purchasers of $155,000,000 aggregate principal amount of the Company's 11% Senior Subordinated Notes due 2005 (the "Notes"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company and the Guarantors have agreed to provide the registration rights set forth in this Agreement for the benefit of the holders of Registrable Notes (as defined), including, without limitation, the Initial Purchasers. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Advice: See the last paragraph of Section 5. Agreement: See the first introductory paragraph to this Agreement. Applicable Period: See Section 2(b). Business Day: A day that is not a Saturday, a Sunday, or a day on which banking institutions in New York, New York are required to be closed. 4 -2- Closing Date: The Closing Date as defined in the Purchase Agreement. Company: See the first introductory paragraph to this Agreement. Effectiveness Date: The 120th day after the Filing Date. Effectiveness Period: See Section 3(a). Event Date: See Section 4(b). Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Notes: See Section 2(a). Exchange Offer: See Section 2(a). Exchange Registration Statement: See Section 2(a). Filing Date: The 75th day after the Issue Date. Guarantors: See the first introductory paragraph to this Agreement. Holder: Any registered holder of Registrable Notes. Indemnified Person: See Section 7(c). Indemnifying Person: See Section 7(c). Indenture: The Indenture, dated as of March 26, 1997, by and among the Company, the Guarantors and United States Trust Company of New York, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the first introductory paragraph to this Agreement. Initial Shelf Registration: See Section 3(a). Inspectors: See Section 5(o). 5 -3- Issue Date: The date on which the original Notes were sold to the Initial Purchasers pursuant to the Purchase Agreement. Issuers: The Company and the Guarantors. Liquidated Damages: See Section 4(a). NASD: National Association of Securities Dealers, Inc. Notes: See the second introductory paragraph to this Agreement. Participant: See Section 7(a). Participating Broker-Dealer: See Section 2(b). Person: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Private Exchange: See Section 2(b). Private Exchange Notes: See Section 2(b). Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Notes covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the second introductory paragraph to this Agreement. Records: See Section 5(o). Registrable Notes: Each Note upon original issuance thereof and at all times subsequent thereto, each Exchange Note 6 -4- as to which Section 2(c)(iv) hereof is applicable upon original issuance thereof and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until, in the case of any such Note, Exchange Note or Private Exchange Note, as the case may be, the earliest to occur of (i) a Registration Statement (other than with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable) covering such Note, Exchange Note or Private Exchange Note, as the case may be, has been declared effective by the SEC and such Note, Exchange Note or Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note, as the case may be, is sold in compliance with Rule 144, (iii) in the case of any Note, such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes which may be resold without restriction under federal securities laws, or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture. Registration Statement: Any registration statement of the Company, including, but not limited to, the Exchange Registration Statement, that covers any of the Registrable Notes pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. 7 -5- SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(c). Shelf Registration: See Section 3(b). Subsequent Shelf Registration: See Section 3(b). TIA: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and, if existent, the trustee under any indenture governing the Exchange Notes and Private Exchange Notes (if any). Underwritten registration or underwritten offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Exchange Offer Each of the Issuers agrees to file with the SEC no later than the Filing Date, an offer to exchange (the "Exchange Offer") any and all of the Registrable Notes (other than Private Exchange Notes, if any) for a like aggregate principal amount of debt securities of the Company, guaranteed by the Guarantors, which are identical in all material respects to the Notes (the "Exchange Notes") (and which are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA) and which, in either case, has been qualified under the TIA), except that the Exchange Notes shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon. The Exchange Offer shall be registered under the Securities Act on the appropriate form (the "Exchange Registration Statement") and shall comply with all applicable tender offer rules and regulations under the Exchange Act. Each of the Issuers agrees to use its best efforts to (x) cause the Exchange Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer 8 -6- open for at least 20 Business Days (or longer if required by applicable law) after the date that notice of the Exchange Offer is first mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 60th day following the date on which the Exchange Registration Statement is declared effective. If after such Exchange Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Exchange Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder who participates in the Exchange Offer will be required to represent that any Exchange Notes received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes, that such Holder is not an affiliate of any of the Issuers within the meaning of the Securities Act, and any additional representations that in the written opinion of counsel to the Issuers are necessary under then-existing interpretations of the SEC in order for the Exchange Registration Statement to be declared effective. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Notes that are Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the Issuers shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 of this Agreement. (b) The Issuers shall include within the Prospectus contained in the Exchange Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the Staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the Staff of the SEC or such positions or policies, in the judgment of the Initial Purchasers, represent the prevailing views of the Staff of the SEC. Such "Plan of Distribution" section shall also allow, to the extent permitted 9 -7- by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent so permitted, all Participating Broker-Dealers, and include a statement describing the manner in which Participating Broker-Dealers may resell the Exchange Notes. Each of the Issuers shall use its best efforts to keep the Exchange Registration Statement effective and to amend and supplement the Prospectus contained therein, in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such Persons must comply with such requirements in connection with offers and sales of the Exchange Notes, provided that such period shall not exceed 180 days after the Exchange Registration Statement is declared effective (or such longer period if extended pursuant to the last paragraph of Section 5.) (the "Applicable Period"). If, upon consummation of the Exchange Offer, the Initial Purchasers hold any Notes acquired by them and having the status of an unsold allotment in the initial distribution, the Issuers upon the request of any such Initial Purchaser shall, simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to the Initial Purchasers, in exchange (the "Private Exchange") for the Notes held by the Initial Purchasers, a like principal amount of debt securities of the Company that are identical in all material respects to the Exchange Notes except for the existence of restrictions on transfer thereof under the Securities Act and securities laws of the several states of the U.S. (the "Private Exchange Notes") (and which are issued pursuant to the same indenture as the Exchange Notes). The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes. Interest on the Exchange Notes and Private Exchange Notes will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the Issue Date. In connection with the Exchange Offer, the Issuers shall: (1) mail to each Holder a copy of the Prospectus forming part of the Exchange Registration Statement, together with an appropriate letter of transmittal and related documents; 10 -8- (2) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate thereof; (3) permit Holders to withdraw tendered Registrable Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (4) otherwise comply in all material respects with all applicable laws. As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, the Issuers shall: (1) accept for exchange all Registrable Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer or the Private Exchange; (2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder tendering such Registrable Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture, which in either event will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture and that the Exchange Notes, the Private Exchange Notes and the Notes, if any, will vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes, if any, will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Company is not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not consummated within 285 days of the Issue Date, (iii) any holder of Private Exchange Notes so requests in writing to the Company or (iv) in the case of any Holder that 11 -9- participates in the Exchange Offer (and tenders its Registrable Notes prior to the expiration thereof), such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under federal securities laws (other than due solely to the status of such Holder as an affiliate of any of the Issuers within the meaning of the Securities Act) and so notifies the Company within 30 days following the consummation of the Exchange Offer (and providing a reasonable basis for its conclusions), in the case of each of clauses (i)-(iv), then the Issuers shall promptly deliver to the Holders and the Trustee written notice thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant to Section 3. 3. Shelf Registration If a Shelf Notice is delivered as contemplated by Section 2(c), then: (a) Shelf Registration. The Issuers shall as promptly as reasonably practicable file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes (the "Initial Shelf Registration"). If the Issuers shall not have yet filed the Exchange Registration Statement, each of the Issuers shall use its best efforts to file with the SEC the Initial Shelf Registration on or prior to the Filing Date and shall use its best efforts to cause such Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date. Otherwise, each of the Issuers shall use its best efforts to file with the SEC the Initial Shelf Registration within 30 days of the delivery of the Shelf Notice and shall use its best efforts to cause such Shelf Registration to be declared effective under the Securities Act as promptly as practicable thereafter. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). No Issuers shall permit any securities other than the Registrable Notes to be included in any Shelf Registration. Each of the Issuers shall use its best efforts to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is 24 months from the Issue Date (or, if Rule 144(k) under the Securities Act is amended to permit unlimited resales by non-affiliates within a lesser period, such lesser period) (subject to extension pursuant to the last paragraph of Section 5 hereof) or such shorter period ending when 12 -10- (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes has been declared effective under the Securities Act (the "Effectiveness Period"). (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), each of the Issuers shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend the Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, each of the Issuers shall use its best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registrations was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Issuers shall promptly supplement and amend any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Shelf Registration or by any underwriter of such Registrable Notes. 4. Liquidated Damages (a) The Issuers and the Initial Purchasers agree that the Holders of Registrable Notes will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, 13 -11- the Issuers agree to pay liquidated damages ("Liquidated Damages") to holders of the Registrable Notes under the circumstances and to the extent set forth below (each of which shall be given independent effect): (i) if neither the Exchange Registration Statement nor the Initial Shelf Registration has been filed on or prior to the Filing Date, then commencing on the day after the Filing Date, Liquidated Damages shall accrue on the Registrable Notes at a rate of 0.50% per annum of the principal amount of the Registrable Notes for the first 90 days immediately following the Filing Date, such Liquidated Damages increasing by an additional 0.25% per annum of the principal amount of the Registrable Notes at the beginning of each subsequent 90-day period; (ii) if neither the Exchange Registration Statement nor the Initial Shelf Registration is declared effective on or prior to the Effectiveness Date applicable thereto, then commencing on the day after such Effectiveness Date, Liquidated Damages shall accrue on the Registrable Notes at a rate of 0.50% per annum of the principal amount of the Registrable Notes for the first 90 days immediately following the day after the Effectiveness Date, such Liquidated Damages rate increasing by an additional 0.25% per annum of the principal amount of the Registration Notes at the beginning of each subsequent 90-day period; and (iii) if (A) the Company has not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to 60 days after the date on which the Exchange Registration Statement was declared effective or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period, then Liquidated Damages shall accrue on the Registrable Notes at a rate of 0.50% per annum of the principal amount of the Registrable Notes for the first 90 days commencing on the (x) 61st day after such effective date in the case of (A) above or (y) the day such Shelf Registration ceases to be effective in the case of (B) above, such Liquidated Damages increasing by an additional 0.25% per annum of the principal amount of the Registrable Notes at the beginning of each such subsequent 90-day period; 14 -12- provided, however, that Liquidated Damages on the Registrable Notes may not exceed in the aggregate 1.0% per annum of the principal amount of the Registrable Notes; provided further that (1) upon the filing of the Exchange Registration Statement or the Initial Shelf Registration (in the case of (i) above), (2) upon the effectiveness of the Exchange Registration Statement or the Initial Shelf Registration, as the case may be (in the case of (ii) above), or (3) upon the exchange of Exchange Notes for all Registrable Notes tendered (in the case of (iii)(A) above) or upon the effectiveness of a Shelf Registration which had ceased to remain effective (in the case of (iii)(B) above), Liquidated Damages on any Registrable Notes then accruing Liquidated Damages as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Company shall notify the Trustee within one business day after each and every date on which an event occurs in respect of which Liquidated Damages are required to be paid (an "Event Date"). Any Liquidated Damages due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semi-annually on each regular interest payment date specified in the Indenture (to the Holders of Registrable Notes of record on the regular record date therefor (as specified in the Indenture) immediately preceding such dates), commencing with the first such regular interest payment date occurring after any such Liquidated Damages commence to accrue. The amount of Liquidated Damages will be determined by multiplying the applicable Liquidated Damages rate by the principal amount of the Notes subject thereto, multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of such securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder, each of the Issuers shall: (a) Prepare and file with the SEC prior to the Filing Date, the Ex- 15 -13- change Registration Statement or if the Exchange Registration Statement is not filed or is unavailable, a Shelf Registration as prescribed by Section 2 or 3, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided that, if (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period and has advised the Company that it is a Participating Broker-Dealer, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall, if requested, furnish to and afford the Holders of the Registrable Notes to be registered pursuant to such Shelf Registration or each such Participating Broker-Dealer, as the case may be, covered by such Registration Statement, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five business days prior to such filing). The Issuers shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their best efforts to keep a Registration Statement effective during the Applicable Period if any of them voluntarily takes any action that would result in selling Holders of the Registrable Notes cov- 16 -14- ered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law, rule or regulation or unless each of the Issuers complies with this Agreement, including, without limitation, the provisions of paragraph 5(k) hereof and the last paragraph of Section 5. (c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period from whom the Company has received written notice that it will be a Participating Broker-Dealer, notify the selling Holders of Registrable Notes, and each such Participating Broker-Dealer, their counsel and the managing underwriters, if any, promptly (but in any event within two business days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes the representations and warranties of any Issuer contained in any agreement (including any underwriting agreement) contemplated by Section 5(n) hereof cease to be true and correct in any material respect, (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any 17 -15- material respect or that requires the making of any changes in, or amendments or supplements to, such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible date. (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information or revisions to information therein relating to such underwriters or selling Holders as the managing underwriters, if any, or such Holders or their counsel reasonably request to be included or made therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Regis- 18 -16- tration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, without charge, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer, deliver to each selling Holder of Registrable Notes or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes and each Participating Broker-Dealer, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to register or qualify, and cooperate with the selling Holders of Registrable Notes and each such Participating Broker-Dealer, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes or Exchange Notes, as the case may be, for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters, if any, reasonably request in writing; 19 -17- provided that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered pursuant to an underwritten offering, counsel to the underwriters shall, at the cost and expense of the Issuers, perform the Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided that no Issuer shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3, cooperate with the selling Holders of Registrable Notes, any Participating Broker-Dealer and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) Use its best efforts to cause the Registrable Notes covered by the Registration Statement to be registered with or approved by such governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Notes, except as may be required solely as a consequence of the nature of such selling holder's business, in which case the Issuers will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Bro- 20 -18- ker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the Issuers' sole expense, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (l) Use its best efforts to cause the Registrable Notes covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement or the managing underwriter or underwriters, if any. (m) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with printed certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (n) In connection with an underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to the underwriters, with respect to the business of the Issuers and their subsidiaries and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested; (ii) obtain the 21 -19- opinion of counsel to the Issuers and updates thereof in form and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of debt securities similar to the Notes and such other matters as may be reasonably requested by underwriters; (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of any subsidiary of the Issuers or of any business acquired by any of the Issuers for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and such other matters as reasonably requested by the managing underwriter or underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (o) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, and each Participating Broker-Dealer, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder, each Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of any of the Issuers and their subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to 22 -20- exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of each Issuer and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records which an Issuer determines, in good faith, to be confidential and any Records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) the information in such Records has been made generally available to the public other than as a result of a disclosure or failure to safeguard by such Inspector or (iv) disclosure of such information is, in the opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, related to, or involving this Agreement, or any transactions contemplated hereby or arising hereunder. Each selling Holder of such Registrable Notes and each Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of any Issuer unless and until such is made generally available to the public. Each Inspector, each selling Holder of such Registrable Notes and each Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction or is deemed necessary or advisable pursuant to clauses (ii) or (iv) of the previous sentence or otherwise, give notice to the Company and allow the Company to undertake appropriate action to obtain a protective order or otherwise prevent disclosure of the Records deemed confidential at its expense. (p) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a), as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trus- 23 -21- tee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (q) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (r) Upon consummation of the Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or the Private Exchange Notes, as the case may be, and the related indenture constitute legally valid and binding obligations of the Issuers, enforceable against each Issuer in accordance with their respective terms. (s) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Issuers (or to such other Person as directed by the Issuers) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall mark, or caused to be marked, on such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (t) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the NASD. 24 -22- (u) Use its reasonable best efforts to take all other steps reasonably necessary to effect the registration of the Registrable Notes covered by a Registration Statement contemplated hereby. The Issuers may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Notes as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Notes of any seller who fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, and, in each case, dissemination of such Prospectus until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Company shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) or (y) the Advice. 25 -23- 6. Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers shall be borne by the Issuers whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, or by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or by any Participating Broker-Dealer, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Issuers and fees and disbursements of special counsel for the sellers of Registrable Notes (subject to the provisions of Section 6(b)), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(n)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) rating agency fees, (vii) Securities Act liability insurance, if the Issuers desire such insurance, (viii) fees and expenses of all other Persons retained by the Issuers, (ix) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of any Issuers performing legal or accounting duties), (x) the expense of any annual or special audit, (xi) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, (xii) the fees and disbursements of underwriters, if any, customarily paid by issuers or sellers of securities (but not including any underwriting discounts or com- 26 -24- missions or transfer taxes, if any, attributable to the sale of the Registrable Notes which discounts, commissions or taxes shall be paid by Holders of such Registrable Notes) and (xiii) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. (b) In connection with any Shelf Registration hereunder, the Issuers, jointly and severally, shall reimburse the Holders of the Registrable Notes being registered in such registration for the fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Registrable Notes to be included in such Registration Statement. 7. Indemnification (a) Each of the Issuers agrees, jointly and severally, to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker-Dealer, the officers and directors of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other reasonable expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (as amended or supplemented if any Issuer shall have furnished any amendments or supplements thereto) or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to any Issuer in writing by or on behalf of such Participant expressly for use therein; provided, however, that the Issuers shall not be liable if such untrue statement or omission or alleged untrue statement or omission was contained or made in (A) any preliminary prospectus and corrected in the Prospectus or any amend- 27 -25- ment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and any such loss, liability, claim, damage or expense suffered or incurred by the Participants resulted from any action, claim or suit by any Person who purchased Registrable Notes or Exchange Notes which are the subject thereof from such Participant and it is established in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Notes or Exchange Notes sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by any Issuer with Section 5 of this Agreement or (B)(i) any preliminary prospectus or Prospectus, as the case may be, (or an amendment or supplement thereto) which is the subject of a notice delivered by the Issuers pursuant to, and in accordance with Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), and (ii) any such losses arise out of the breach by such Indemnified Person of the obligations of such Indemnified Person contained in the last paragraph of Section 5, unless the Issuers fail to deliver a supplemented or amended prospectus as contemplated by Section 5(k). (b) Each Participant will be required to agree, severally and not jointly, to indemnify and hold harmless the Issuers, their respective directors and officers and each Person who controls any Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Issuers to each Participant, but only with reference to information relating to such Participant furnished to any Issuer in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the 28 -26- Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such proceeding and shall pay the reasonable fees and expenses incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Person shall not relieve it of any obligation or liability which it may have hereunder or otherwise, except to the extent the Indemnifying Person is actually damaged by such failure. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, unless there is a conflict among Indemnified Persons, the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes sold by all such Participants and any such separate firm for the Issuers, their respective directors, officers and such control Persons of the Issuers shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there is a final non-appealable judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person, in form and substance satisfactory to such Indem- 29 -27- nified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of an Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions (or alleged statements or omissions) that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or by the Participants or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission and any other equitable considerations appropriate under the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or 30 -28- Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rules 144 and 144A Each of the Issuers covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner and, if at any time it is not required to file such reports, it will, upon the request of any Holder of Registrable Notes, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. Each of the Issuers further covenants, for so long as any Registrable Notes remain outstanding, to make available to any Holder or beneficial owner of Registrable Notes in connection with any sale thereof and any prospective purchaser of such Registrable Notes from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Registrable Notes pursuant to Rule 144A. 9. Underwritten Registrations If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes included in such offering and reasonably acceptable to the Issuers. No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attor- 31 -29- ney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous (a) Remedies. In the event of a breach by any Issuer of any of its obligations under this Agreement, each Holder of Registrable Notes and each Participating Broker-Dealer holding Exchange Notes, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of each of the Initial Purchasers, in the Purchase Agreement, or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Each Issuer agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. None of the Issuers has entered, as of the date hereof, and none of the Issuers shall enter, after the date of this Agreement, into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. None of the Issuers has entered or will enter into any agreement with respect to any of its securities which will grant to any Person piggy-back rights with respect to a Registration Statement. (c) Adjustments Affecting Registrable Notes. None of the Issuers shall, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Ex- 32 -30- change Notes held by all Participating Broker-Dealers; provided, however, that Section 7 and this Section 10(d) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being tendered pursuant to the Exchange Offer or sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being tendered or being sold by such Holders pursuant to such Registration Statement. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or telecopier: 1. if to a Holder of Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchasers as follows: BT SECURITIES CORPORATION Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Facsimile No.: (212) 250-7200 Attention: Corporate Finance Department with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Facsimile No.: (212) 269-5420 Attention: William M. Hartnett, Esq. 33 -31- (2) if to the Initial Purchasers, at the addresses specified in Section 10(e)(1); (3) if to the Company, as follows: Ralphs Grocery Company 1100 West Artesia Boulevard Compton, California 90220 Facsimile No.: (310) 884-2610 Attention: Jan Charles Gray, Esq. with copies to: Latham & Watkins 633 West Fifth Street Suite 4000 Los Angeles, California 90071 Facsimile: (213) 891-8763 Attention: Thomas C. Sadler, Esq. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier guaranteeing overnight delivery; and when receipt is acknowledged by the addressee, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in such Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto and the Holders. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 34 -32- (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (j) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) Notes Held by an Issuer or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by an Issuer or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (l) Third Party Beneficiaries. Holders of Registrable Notes and Participating Broker-Dealers are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. (m) Joint and Several Obligations. Unless otherwise stated herein, each of the obligations of the Issuers under this Agreement shall be joint and several obligations of each of them. (n) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral 35 -33- or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchasers on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 36 -34- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. RALPHS GROCERY COMPANY By: /s/ [ILLEGIBLE] --------------------------------- Name: Title: ALPHA BETA COMPANY, BAY AREA WAREHOUSE STORES, INC. BELL MARKETS, INC., CALA CO., CALA FOODS, INC., FALLEY'S, INC., FOOD 4 LESS OF CALIFORNIA, INC., FOOD 4 LESS MERCHANDISING, INC., FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC., FOOD 4 LESS GM, INC. CRAWFORD STORES, INC. as Subsidiary Guarantors By: /s/ [ILLEGIBLE] -------------------------------- Name: Title: BT SECURITIES CORPORATION By: /s/ CHRISTINE B. FOGGIA -------------------------------- Name: Title: BANKERS TRUST INTERNATIONAL, PLC By: /s/ [ILLEGIBLE] -------------------------------- Name: Title: 37 -35- CIBC WOOD GUNDY SECURITIES CORP. By: /s/ PATRICE DANIELS -------------------------------- Name: Patrice Daniels Title: Managing Director CREDIT SUISSE FIRST BOSTON By: /s/ G. DAVID M. MALETTA, II -------------------------------- Name: G. David M. Maletta, II Title: Managing Director DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ [ILLEGIBLE] -------------------------------- Name: Title: EX-12 9 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS) (UNAUDITED)
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 31 WEEKS ENDED JUNE 27, 1992 JUNE 26, 1993 JUNE 25, 1994 JANUARY 29, 1995 ------------------ ------------------ ------------------ ------------------ FIXED FIXED FIXED FIXED EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES -------- ------- -------- ------- -------- ------- -------- ------- Income (loss) before provision for income taxes and extraordinary charges......... $(25,555) $ -- $(25,936) $ -- $ -- $ -- $(11,500) $ -- Add: Fixed charges: Interest expense including amortization of deferred financing costs............... 70,211 70,211 69,732 69,732 68,250 68,250 42,222 42,222 Interest factor in rent expense(1).................... 15,569 15,569 14,835 14,835 16,596 16,596 11,153 11,153 -------- ------- -------- ------- ------- ------- -------- ------- $ 60,225 $85,780 $ 58,631 $84,567 $84,846 $84,846 $ 41,875 $53,375 ======== ======= ======== ======= ======= ======= ======== ======= Ratio of earnings to fixed charges....................... -- -- 1.0 -- ======== ======== ======= ======== Deficiency of earnings to cover fixed charges................. $ 25,555 $ 25,936 $ -- $ 11,500 ======== ======== ======= ========
- --------------- (1) Calculated as one-third of minimum rent expense:
31 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED JANUARY 29, JUNE 27, 1992 JUNE 26, 1993 JUNE 25, 1994 1995 --------------- --------------- --------------- --------------- Minimum rent....................... $46,706 $44,504 $49,788 $33,458 Interest factor.................... /3 /3 /3 /3 ------- ------- ------- ------- $15,569 $14,835 $16,596 $11,153 ======= ======= ======= =======
2 RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS) (UNAUDITED)
52 WEEKS ENDED 53 WEEKS ENDED 12 WEEKS ENDED 12 WEEKS ENDED JANUARY 28, 1996 FEBRUARY 2, 1997 APRIL 21, 1996 APRIL 27, 1997 -------------------- ------------------- ------------------ ------------------- FIXED FIXED FIXED FIXED EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES --------- -------- -------- -------- -------- ------- -------- -------- Income (loss) before provision for income taxes and extraordinary charges................. $(259,617) $ -- $(93,791) $ -- $(31,981) $ -- $(11,995) $ -- Add Fixed charges: Interest expense including amortization of deferred financing costs......... 178,774 178,774 248,428 248,428 56,084 56,084 57,041 57,041 Interest factor in rent expense(1).............. 32,584 32,584 48,700 48,700 9,873 9,873 12,099 12,099 --------- -------- -------- ------- -------- ------- -------- -------- $ (48,259) $211,358 $203,337 $297,128 $ 33,976 $65,957 $ 57,145 $ 69,140 ========= ======== ======== ======= ======== ======= ======== ======== Ratio of earnings to fixed charges................. -- -- -- -- ========= ======== ======== ======== Deficiency of earnings to cover fixed charges..... $ 259,617 $ 93,791 $ 31,981 $(11,995) ========= ======== ======== ========
- --------------- (1) Calculated as one-third of minimum rent expenses.
52 WEEKS ENDED 53 WEEKS ENDED 12 WEEKS ENDED 12 WEEKS ENDED JANUARY 28, 1996 FEBRUARY 2, 1997 APRIL 21, 1996 APRIL 27, 1997 ------------------- ------------------ ---------------- ------------------ Minimum rent.............. $97,752 $146,101 $ 29,620 $ 36,298 Interest factor........... /3 /3 /3 /3 ------- -------- ------- ------- $32,584 $ 48,700 $ 9,873 $ 12,099 ======= ======== ======= =======
3 RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a) (IN THOUSANDS) (UNAUDITED)
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ----------- ----------- ----------- Earnings before income taxes, cumulative effect of change in accounting and extraordinary item.................... $ 2,792 $ 30,317 $ 32,118 Add: Portion of rents representative of the interest factor............................................... 17,745 19,218 19,467 Capitalized interest.................................... 1,074 740 325 Interest expense........................................ 125,611 108,755 112,651 ----------- ----------- ----------- Earnings as adjusted.................................... $ 147,222 $ 159,030 $ 164,561 ======== ======== ======== Fixed charges: Interest expense........................................ 125,611 108,755 112,651 Capitalized interest.................................... 1,074 740 325 Portion of rents representative of the interest factor............................................... 17,745 19,218 19,467 ----------- ----------- ----------- Total fixed charges..................................... $ 144,430 $ 128,713 $ 132,443 ======== ======== ======== Ratio of earnings to fixed charges........................ 1.02 1.24 1.24 ======== ======== ========
- --------------- (a) The ratio of earnings to fixed charges has been computed based upon net earnings before income taxes, cumulative effect of change in accounting, extraordinary item and fixed charges. Fixed charges consist of interest expense (including amortization of self-insurance reserves discount), capitalized interest, amortization of debt discount and expense and one-third of rental expense (the proportion deemed representative of the interest factor). EX-23.1 10 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Los Angeles, California June 5, 1997 EX-23.2 11 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC AUDITORS The Board of Directors Ralphs Grocery Company: The audits referred to in our report dated March 9, 1995, included the related financial statement schedule for the two years ended January 29, 1995 included in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the headings "Selected Historical Financial Data of Ralphs," "Summary of Historical Financial Data of Ralphs" and "Experts" in the prospectus. KPMG PEAT MARWICK LLP Los Angeles, California June 5, 1997 EX-99.1 12 LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 11% SENIOR SUBORDINATED NOTES DUE 2005 OF RALPHS GROCERY COMPANY PURSUANT TO THE PROSPECTUS DATED , 1997 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE EXCHANGE AGENT IS: UNITED STATES TRUST COMPANY OF NEW YORK By Registered or Certified Mail: In Person: United States Trust Company of New York United States Trust Company of New York P.O. Box 843 111 Broadway Cooper Station New York, New York 10006 New York, New York 10276 Attention: Lower Level Corporate Trust Window Attention: Corporate Trust Services By Hand or Overnight Courier: By Facsimile (for Eligible Institutions only): United States Trust Company of New York (212) 420-6152 770 Broadway, 13th Floor New York, New York 10003 Confirm Receipt of Notice of Attention: Corporate Trust Unit Guaranteed Delivery by Telephone: 1-800-548-6565
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The undersigned acknowledges receipt of the Prospectus dated , 1997 (the "Prospectus"), of Ralphs Grocery Company, a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which together with the Prospectus constitutes the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 11% Senior Subordinated Notes due 2005 (the "Exchange Notes") for each $1,000 principal amount of its outstanding 11% Senior Subordinated Notes due 2005 (the "Private Notes"). Recipients of the Prospectus should read the requirements described in such Prospectus with respect to eligibility to participate in the Exchange Offer. Capitalized terms used but not defined herein have the meaning given to them in the Prospectus. The undersigned hereby tenders the Private Notes described in the box entitled "Description of Private Notes" below pursuant to the terms and conditions described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the Private Notes and the undersigned represents that it has received from each beneficial owner of Private Notes ("Beneficial Owners") a duly completed and executed form of "Instruction to Registered Holder from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. This Letter of Transmittal is to be used by a holder of Private Notes (i) if certificates representing Private Notes are to be forwarded herewith, (ii) if delivery of Private Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in the section of the Prospectus entitled "The Exchange Offer -- Procedures for Tendering," or (iii) if a tender is made pursuant to the guaranteed delivery procedures in the section of the Prospectus entitled "The Exchange Offer -- Guaranteed Delivery Procedures." 2 The undersigned hereby represents and warrants that the information received from the beneficial owners is accurately reflected in the boxes entitled "Beneficial Owner(s) -- Purchaser Status" and "Beneficial Owner(s) -- Residence." Any beneficial owner whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder of Private Notes promptly and instruct such registered holder of Private Notes to tender on behalf of the beneficial owner. If such beneficial owner wishes to tender on its own behalf, such beneficial owner must, prior to completing and executing this Letter of Transmittal and delivering its Private Notes, either make appropriate arrangements to register ownership of the Private Notes in such beneficial owner's name or obtain a properly completed bond power from the registered holder of Private Notes. The transfer of record ownership may take considerable time. In order to properly complete this Letter of Transmittal, a holder of Private Notes must (i) complete the box entitled "Description of Private Notes," (ii) complete the boxes entitled "Beneficial Owner(s) -- Purchaser Status" and "Beneficial Owner(s) -- Residence," (iii) if appropriate, check and complete the boxes relating to book-entry transfer, guaranteed delivery, Special Issuance Instructions and Special Delivery Instructions, (iv) sign the Letter of Transmittal by completing the box entitled "Sign Here" and (v) complete the Substitute Form W-9. Each holder of Private Notes should carefully read the detailed instructions below prior to completing the Letter of Transmittal. Holders of Private Notes who desire to tender their Private Notes for exchange and (i) whose Private Notes are not immediately available or (ii) who cannot deliver their Private Notes, this Letter of Transmittal and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date, must tender the Private Notes pursuant to the guaranteed delivery procedures set forth in the section of the Prospectus entitled "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2. Holders of Private Notes who wish to tender their Private Notes for exchange must complete columns (1) through (3) in the box below entitled "Description of Private Notes," complete the boxes entitled and sign the box below entitled "Sign Here." If only those columns are completed, such holder of Private Notes will have tendered for exchange all Private Notes listed in column (3) below. If the holder of Private Notes wishes to tender for exchange less than all of such Private Notes, column (4) must be completed in full. In such case, such holder of Private Notes should refer to Instruction 5. DESCRIPTION OF PRIVATE NOTES - ------------------------------------------------------------------------------------------------------------------------------ (1) (2) (3) (4)
PRINCIPAL AMOUNT TENDERED PRIVATE FOR NOTE AGGREGATE EXCHANGE NUMBER(S) PRINCIPAL (MUST NAME(S) AND ADDRESS(ES) OF REGISTERED (ATTACH AMOUNT BE IN HOLDER(S) OF PRIVATE NOTE(S), EXACTLY AS NAME(S) SIGNED LIST REPRESENTED INTEGRAL APPEAR(S) ON PRIVATE NOTE CERTIFICATE(S) IF BY MULTIPLES (PLEASE FILL IN, IF BLANK) NECESSARY) CERTIFICATE(S)(1) OF $1,000)(2) ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ TOTAL PRINCIPAL AMOUNT OF NOTES TENDERED: ------------------------------------------------------------------------------------------------------------------------------ 1. Unless indicated in the column "Principal Amount Tendered For Exchange," any tendering Holder of 11% Senior Subordinated Notes due 2005 will be deemed to have tendered the entire aggregate principal amount represented by the column labelled "Aggregate Principal Amount Represented by Certificate(s)." 2. The minimum permitted tender is $1,000 in principal amount of 11% Senior Subordinated Notes due 2005. All other tenders must be in integral multiples of $1,000.
- -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH. [ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED) ONLY): 2 3 Name of Tendering Institution: Account Number: Transaction Code Number: [ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY): Name of Registered Holder of Private Note(s): Date of Execution of Notice of Guaranteed Delivery: Window Ticket Number (if available): Name of Institution which Guaranteed Delivery: Account Number (if delivered by book-entry transfer): [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: 3 4 SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 6, 7 AND 8) To be completed ONLY (i) if the Exchange Notes issued in exchange for Private Notes, certificates for Private Notes in a principal amount not exchanged for Exchange Notes, or Private Notes (if any) not tendered for exchange, are to be issued in the name of someone other than the undersigned or (ii) if Private Notes tendered by book-entry transfer which are not exchanged are to be returned by credit to an account maintained at DTC. Issue to: - --------------------------------------------------------- Name (PLEASE TYPE OR PRINT) - --------------------------------------------------------- Address - --------------------------------------------------------- - --------------------------------------------------------- (INCLUDE ZIP CODE) - --------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) Credit Private Notes not exchanged and delivered by book-entry transfer to DTC account set forth below: - --------------------------------------------------------- (ACCOUNT NUMBER) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 6, 7 AND 8) To be completed ONLY if the Exchange Notes issued in exchange for Private Notes, certificates for Private Notes in a principal amount not exchanged for Exchange Notes, or Private Notes (if any) not tendered for exchange, are to be mailed or delivered (i) to someone other than the undersigned or (ii) to the undersigned at an address other than the address shown below the undersigned's signature. Mail or deliver to: - --------------------------------------------------------- Name (PLEASE TYPE OR PRINT) - --------------------------------------------------------- Address - --------------------------------------------------------- - --------------------------------------------------------- (INCLUDE ZIP CODE) - --------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) 4 5 - -------------------------------------------------------------------------------- BENEFICIAL OWNER(S) -- RESIDENCE - -------------------------------------------------------------------------------- STATE OF DOMICILE/PRINCIPAL PLACE OF BUSINESS OF PRINCIPAL AMOUNT OF PRIVATE NOTES EACH BENEFICIAL OWNER OF PRIVATE NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER(S) - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BENEFICIAL OWNER(S) -- PURCHASER STATUS - -------------------------------------------------------------------------------- The beneficial owner of each of the Private Notes described herein is (check the box that applies): [ ] A "Qualified Institutional Buyer" (as defined in Rule 144A under the Securities Act) [ ] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) [ ] A non "U.S. person" (as defined in Regulation S of the Securities Act) that purchased the Private Notes outside the United States in accordance with Rule 904 of the Securities Act [ ] Other (describe) - -------------------------------------------------------------------------------- SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Pursuant to the offer by Ralphs Grocery Company, a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus dated , 1997 (the "Prospectus") and this Letter of Transmittal (the "Letter of Transmittal"), which together with the Prospectus constitutes the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 11% Senior Subordinated Notes due 2005 (the "Exchange Notes") for each $1,000 principal amount of its outstanding 11% Senior Subordinated Notes due 2005 (the "Private Notes"), the undersigned hereby tenders to the Company for exchange the Private Notes indicated above. By executing this Letter of Transmittal and subject to and effective upon acceptance for exchange of the Private Notes tendered for exchange herewith, the undersigned will have irrevocably sold, assigned, transferred and exchanged, to the Company, all right, title and interest in, to and under all of the Private Notes tendered for exchange hereby, and hereby will have appointed the Exchange Agent as the true and lawful agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as agent of the Company) of such holder of Private Notes with respect to such Private Notes, with full power of substitution to (i) deliver certificates representing such Private Notes, or transfer ownership of such Private Notes on the account books maintained by DTC (together, in any such case, with all accompanying evidences of transfer and authenticity), to the Company, (ii) present and deliver such Private Notes for transfer on the books of the Company and (iii) receive all benefits and otherwise exercise all rights and incidents of beneficial ownership with respect to such Private Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest. The undersigned hereby represents and warrants that (i) the undersigned is the owner; (ii) has a net long position within the meaning of Rule 14e-4 under the Securities Exchange Act as amended ("Rule 14e-4") equal to or greater than the principal amount of Private Notes tendered hereby; (iii) the tender of such Private Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is applicable to such exchange); (iv) the undersigned has full power and authority to tender, exchange, assign and transfer the Private Notes and (v) that when such Private Notes are accepted for exchange by the Company, the Company will acquire good and marketable title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon receipt, execute and deliver 5 6 any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Private Notes tendered for exchange hereby. By tendering, the undersigned hereby further represents to the Company that (i) the Exchange Notes to be acquired by the undersigned in exchange for the Private Notes tendered hereby and any beneficial owner(s) of such Private Notes in connection with the Exchange Offer will be acquired by the undersigned and such beneficial owner(s) in the ordinary course of business of the undersigned, (ii) the undersigned have no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iii) the undersigned and each beneficial owner acknowledge and agree that any person who is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (iv) the undersigned and each beneficial owner understand that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by the undersigned in exchange for the Private Notes acquired by the undersigned directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (vi) neither the undersigned nor any beneficial owner is an "affiliate," as defined under Rule 405 under the Securities Act, of the Company. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For purposes of the Exchange Offer, the Company will be deemed to have accepted for exchange, and to have exchanged, validly tendered Private Notes, if, as and when the Company gives oral or written notice thereof to the Exchange Agent. Tenders of Private Notes for exchange may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer -- Withdrawal -- of Tenders" in the Prospectus. Any Private Notes tendered by the undersigned and not accepted for exchange will be returned to the undersigned at the address set forth above unless otherwise indicated in the box above entitled "Special Delivery Instructions" as promptly as practicable after the Expiration Date. The undersigned acknowledges that the Company's acceptance of Private Notes validly tendered for exchange pursuant to any one of the procedures described in the section of the Prospectus entitled "The Exchange Offer" and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated in the box entitled "Special Issuance Instructions," please return any Private Notes not tendered for exchange in the name(s) of the undersigned. Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail any certificates for Private Notes not tendered or exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Issuance Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Private Notes accepted for exchange in the name(s) of, and return any Private Notes not tendered for exchange or not exchanged to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" and "Special Delivery Instructions" to transfer any Private Notes from the name of the holder of Private Note(s) thereof if the Company does not accept for exchange any of the Private Notes so tendered for exchange or if such transfer would not be in compliance with any transfer restrictions applicable to such Private Note(s). IN ORDER TO VALIDLY TENDER PRIVATE NOTES FOR EXCHANGE, HOLDERS OF PRIVATE NOTES MUST COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF TRANSMITTAL. Except as stated in the Prospectus, all authority herein conferred or agreed to be conferred shall survive the death, incapacity, or dissolution of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as otherwise stated in the Prospectus, this tender for exchange of Private Notes is irrevocable. 6 7 ------------------------------------------------------------------------------------------ SIGN HERE SIGNATURE(S) OF OWNER(S) Dated: , 1997 Must be signed by the registered holder(s) of Private Notes exactly as name(s) appear(s) on certificate(s) representing the Private Notes or on a security position listing or by person(s) authorized to become registered Private Note holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information. (See Instruction 6). Name(s): (PLEASE PRINT) Capacity (full title): Address: (INCLUDE ZIP CODE) Principal place of business (if different from address listed above): (INCLUDE ZIP CODE) Area Code and Telephone No.: (____) Tax Identification or Social Security Nos.: PLEASE COMPLETE SUBSTITUTE FORM W-9 GUARANTEE OF SIGNATURE(S) (SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1) Authorized Signature: Dated: Name and Title: (PLEASE PRINT) Name and Title: - ------------------------------------------------------------------------------------------
7 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by an institution which is (1) a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., (2) a commercial bank or trust company having an office or correspondent in the United States, or (3) an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934 which is a member of one of the following recognized Signature Guarantee Programs (an "Eligible Institution"): a. The Securities Transfer Agents Medallion Program (STAMP) b. The New York Stock Exchange Medallion Signature Program (MSP) c. The Stock Exchange Medallion Program (SEMP) Signatures on this Letter of Transmittal need not be guaranteed (i) if this Letter of Transmittal is signed by the registered holder(s) of the Private Notes tendered herewith and such registered holder(s) have not completed the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii) if such Private Notes are tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. 2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders of Private Notes (i) if certificates are to be forwarded herewith or (ii) if tenders are to be made pursuant to the procedures for tender by book-entry transfer or guaranteed delivery set forth in the section of the Prospectus entitled "The Exchange Offer." Certificates for all physically tendered Private Notes or any timely confirmation of a book-entry transfer (a "Book-Entry Confirmation"), as well as a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth on the cover of this Letter of Transmittal prior to 5:00 p.m., New York City time, on the Expiration Date. Holders of Private Notes who elect to tender Private Notes and (i) whose Private Notes are not immediately available or (ii) who cannot deliver the Private Notes, this Letter of Transmittal or other required documents to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date, must tender their Private Notes according to the guaranteed delivery procedures set forth in the Prospectus. Holders may have such tender effected if: (a) such tender is made through an Eligible Institution; (b) prior to 5:00 p.m., New York City time, on the Expiration Date, the Exchange Agent has received from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery, setting forth the name and address of the holder of such Private Notes, the certificate numbers(s) of such Private Notes and the principal amount of Private Notes tendered for exchange, stating that tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal (or a facsimile thereof), together with the certificate(s) representing such Private Notes (or a Book-Entry Confirmation), in proper form for transfer, and any other documents required by this Letter of Transmittal, will be deposited by such Eligible Institution with the Exchange Agent; and (c) a properly executed Letter of Transmittal (or a facsimile hereof), as well as the certificate(s) for all tendered Private Notes in proper form for transfer or a Book-Entry Confirmation, together with any other documents required by this Letter of Transmittal, are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NEITHER THIS LETTER OF TRANSMITTAL NOR ANY PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. No alternative, conditional or contingent tenders will be accepted. All tendering holders of Private Notes, by execution of this Letter of Transmittal (or facsimile hereof, if applicable), waive any right to receive notice of the acceptance of their Private Notes for exchange. 3. INADEQUATE SPACE. If the space provided in the box entitled "Description of Private Notes" above is inadequate, the certificate numbers and principal amounts of the Private Notes being tendered should be listed on a separate signed schedule affixed hereto. 4. WITHDRAWALS. A tender of Private Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of written or facsimile notice of withdrawal to the Exchange Agent at the address set forth on the cover of this Letter of Transmittal. To be effective, a notice of withdrawal of Private Notes must (i) specify the name of the person who tendered the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn (including the certificate number or numbers and aggregate principal amount of such Private Notes), and (iii) be signed by the holder of Private Notes in the same manner as the original signature on the Letter of Transmittal by which such Private Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole discretion, whose determination shall be final and binding on all parties. Any Private Notes so withdrawn will thereafter 8 9 be deemed not validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Private Notes so withdrawn are validly retendered. Properly withdrawn Private Notes may be retendered by following one of the procedures described in the section of the Prospectus entitled "The Exchange Offer -- Procedures for Tendering" at any time prior to 5:00 p.m., New York City time, on the Expiration Date. 5. PARTIAL TENDERS. Tenders of Private Notes will be accepted only in integral multiples of $1,000 principal amount. If a tender for exchange is to be made with respect to less than the entire principal amount of any Private Notes, fill in the principal amount of Private Notes which are tendered for exchange in column (4) of the box entitled "Description of Private Notes," as more fully described in the footnotes thereto. In case of a partial tender for exchange, a new certificate, in fully registered form, for the remainder of the principal amount of the Private Notes, will be sent to the holders of Private Notes unless otherwise indicated in the appropriate box on this Letter of Transmittal as promptly as practicable after the expiration or termination of the Exchange Offer. 6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, ASSIGNMENT AND ENDORSEMENTS. (a) The signature(s) of the holder of Private Notes on this Letter of Transmittal must correspond with the name(s) as written on the face of the Private Notes without alternation, enlargement or any change whatsoever. (b) If tendered Private Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. (c) If any tendered Private Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and any necessary or required documents as there are different registrations or certificates. (d) When this Letter of Transmittal is signed by the holder of the Private Notes listed and transmitted hereby, no endorsements of Private Notes or bond powers are required. If, however, Private Notes not tendered or not accepted, are to be issued or returned in the name of a person other than the holder of Private Notes, then the Private Notes transmitted hereby must be endorsed or accompanied by a properly completed bond power, in a form satisfactory to the Company, in either case signed exactly as the name(s) of the holder of Private Notes appear(s) on the Private Notes. Signatures on such Private Notes or bond powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). (e) If this Letter of Transmittal or Private Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. (f) If this Letter of Transmittal is signed by a person other than the registered holder of Private Notes listed, the Private Notes must be endorsed or accompanied by a properly completed bond power, in either case signed by such registered holder exactly as the name(s) of the registered holder of Private Notes appear(s) on the certificates. Signatures on such Private Notes or bond powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). 7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company will pay all transfer taxes, if any, applicable to the exchange of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Private Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemptions therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. 8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to be issued, or if any Private Notes not tendered for exchange are to be issued or sent to someone other than the holder of Private Notes or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Holders of Private Notes tendering Private Notes by book-entry transfer may request that Private Notes not accepted be credited to such account maintained at DTC as such holder of Private Notes may designate. 9. IRREGULARITIES. All questions as to the validity, form, eligibility (including time of receipt), compliance with conditions, acceptance and withdrawal of tendered Private Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Private Notes not properly tendered or any Private Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Private Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Private Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Private Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Private Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Private Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive, amend or modify certain of the specified conditions as described under "The Exchange Offer -- Conditions" in the Prospectus in the case of any Private Notes tendered (except as otherwise provided in the Prospectus). 9 10 11. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES. Any tendering Holder whose Private Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address listed below for further instructions: UNITED STATES TRUST COMPANY OF NEW YORK P.O. BOX 843 COOPER STATION NEW YORK, NEW YORK 10276 ATTENTION: CORPORATE TRUST SERVICES 12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information or for additional copies of the Prospectus and this Letter of Transmittal may be directed to the Exchange Agent at the address or telephone number set forth on the cover of this Letter of Transmittal. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under current federal income tax law, a holder of Private Notes whose tendered Private Notes are accepted for exchange may be subject to backup withholding unless the holder provides the Company (as payor), through the Exchange Agent, with either (i) such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder of Private Notes is awaiting a TIN) and that (A) the holder of Private Notes has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of a failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder of Private Notes that he or she is no longer subject to backup withholding; or (ii) an adequate basis for exemption from backup withholding. If such holder of Private Notes is an individual, the TIN is such holder's social security number. If the Exchange Agent is not provided with the correct taxpayer identification number, the holder of Private Notes may be subject to certain penalties imposed by the Internal Revenue Service. Certain holders of Private Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. Exempt holders of Private Notes should indicate their exempt status on Substitute Form W-9. A foreign individual may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed Internal Revenue Service Form W-8 (which the Exchange Agent will provide upon request) signed under penalty of perjury, attesting to the holder's exempt status. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for additional instructions. If backup withholding applies, the Company is required to withhold 31% of any payment made to the holder of Private Notes or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income 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 from the Internal Revenue Service. The holder of Private Notes is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the record owner of the Private Notes. If the Private Notes are held in more than one name or are not held in the name of the actual owner, consult the enclosed Guidelines for additional guidance regarding which number to report. INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER OF 11% SENIOR SUBORDINATED NOTES DUE 2005 OF RALPHS GROCERY COMPANY The undersigned hereby acknowledges receipt of the Prospectus dated , 1997 (the "Prospectus") of Ralphs Grocery Company, a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder, as to the action to be taken by you relating to the Exchange Offer with respect to the 11% Senior Subordinated Notes due 2005 (the "Private Notes") held by you for the account of the undersigned. The aggregate face amount of the Private Notes held by you for the account of the undersigned is (fill in amount): $ ----------------- of the Private Notes. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [ ] To TENDER the following Private Notes held by you for the account of the undersigned (insert principal amount of Private Notes to be tendered, if any): $ ----------------- of the Private Notes. [ ] NOT to TENDER any Private Notes held by you for the account of the undersigned. 10 11 If the undersigned instructs you to tender the Private Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner of the Private Notes, including but not limited to the representations that (i) the undersigned's principal residence is in the state of (fill in state) - ------------------, (ii) the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned, (iii) the undersigned has no arrangement or understanding with any person to participate in the distribution of Exchange Notes, (iv) the undersigned acknowledges that any person who is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission set forth in certain no-action letters (See the section of the Prospectus entitled "The Exchange Offer -- Resale of the Exchange Notes"), (v) the undersigned understands that a secondary resale transaction described in clause (iv) above and any resales of Exchange Notes obtained by the undersigned in exchange for the Private Notes acquired by the undersigned directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, if applicable, of Regulation S-K of the Commission, (vi) the undersigned is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company, and (vii) if the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of Private Notes. The purchaser status of the undersigned is (check the box that applies): [ ] A "Qualified Institutional Buyer" (as defined in Rule 144A under the Securities Act) [ ] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) [ ] A non "U.S. person" (as defined in Regulation S of the Securities Act) that purchased the Private Notes outside the United States in accordance with Rule 904 of the Securities Act [ ] Other (describe) SIGN HERE Name of Beneficial Owner(s): Signature(s): Name(s) (please print): Address: Principal place of business (if different from address listed above): Telephone Number(s): Taxpayer Identification or Social Security Number(s): Date: 11 12 - -------------------------------------------------------------------------------- PAYER'S NAME: ================================================================================ PART II -- CERTIFICATIONS -- Under penalties of perjury, I certify that: - -------------------------------------------------------------------------------- SUBSTITUTE Social Security Number FORM W-9 ---------------------- DEPARTMENT OF THE TREASURY PART I -- PLEASE OR INTERNAL REVENUE SERVICE PROVIDE YOUR TIN IN THE BOX AT PAYER'S REQUEST FOR TAXPAYER RIGHT AND CERTIFY Employer Identification Number IDENTIFICATION NUMBER (TIN) BY SIGNING AND DATING BELOW. ---------------------- ================================================================================ PART II -- CERTIFICATIONS -- Under penalties of perjury, I certify that: (1) The number shown on this form is my current taxpayer identification number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (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) in Part 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 are subject to backup withholding you receive another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). PART III -- Awaiting TIN [ ] - -------------------------------------------------------------------------------- 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 PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 - -------------------------------------------------------------------------------- PAYOR'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that 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 such an application in the near future. I understand that if I do not provide a Taxpayer Identification Number with sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide such a number. SIGNATURE ------------------------------------------------------------------------------- DATE ------------------------------- 12 EX-99.2 13 NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY WITH RESPECT TO 11% SENIOR SUBORDINATED NOTES DUE 2005 THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY HOLDER OF 11% SENIOR SUBORDINATED NOTES DUE 2005 (THE "PRIVATE NOTES") OF RALPHS GROCERY COMPANY, A DELAWARE CORPORATION (THE "COMPANY"), WHO WISHES TO TENDER PRIVATE NOTES PURSUANT TO THE COMPANY'S EXCHANGE OFFER, AS DEFINED IN THE PROSPECTUS DATED , 1997 (THE "PROSPECTUS") AND (I) WHOSE PRIVATE NOTES ARE NOT IMMEDIATELY AVAILABLE OR (II) WHO CANNOT DELIVER SUCH PRIVATE NOTES OR ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE (AS DEFINED IN THE PROSPECTUS) OR (III) WHO CANNOT COMPLY WITH THE BOOK-ENTRY TRANSFER PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE OFFER -- GUARANTEED DELIVERY PROCEDURES" IN THE PROSPECTUS. RALPHS GROCERY COMPANY NOTICE OF GUARANTEED DELIVERY TO: UNITED STATES TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT By Registered or Certified Mail: In Person: United States Trust Company of New York United States Trust Company of New York P.O. Box 843 111 Broadway Cooper Station New York, New York 10006 New York, New York 10276 Attention: Lower Level Corporate Trust Window Attention: Corporate Trust Services By Hand or Overnight Courier: By Facsimile (for Eligible Institutions only): United States Trust Company of New York (212) 420-6152 770 Broadway, 13th Floor New York, New York 10003 Confirm Receipt of Notice of Attention: Corporate Trust Unit Guaranteed Delivery by Telephone: 1-800-548-6565
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY LADIES AND GENTLEMEN: The undersigned hereby tenders to the Company upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Private Notes specified below pursuant to the guaranteed delivery procedures set forth under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. By so tendering, the undersigned does hereby make, at and as of the date hereof, the representations and warranties of a tendering Holder of Private Notes set forth in the Letter or Transmittal. The undersigned hereby tenders the Private Notes listed below: - -------------------------------------------------------------------------------- CERTIFICATE NUMBERS (IF AVAILABLE) PRINCIPAL AMOUNT TENDERED - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 13 2 All authority herein conferred or agreed to be conferred shall survive the death, incapacity, or dissolution of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. If Private Notes will be tendered by book-entry SIGN HERE transfer: ------------------------------------------------ Name of Tendering Institution: SIGNATURE(S) - ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ The Depository Trust Company Account No.: NAME(S) (PLEASE PRINT) - ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ADDRESS ------------------------------------------------ ZIP CODE ------------------------------------------------ AREA CODE AND TELEPHONE NO. ------------------------------------------------ DATE: ------------------------------------------------
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in a Recognized Signature Guarantee Medallion Program, guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), together with the Private Notes tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of such Private Notes into the Exchange Agent's account at the Depository Trust Company, pursuant to the procedure for book-entry transfer set forth in the Prospectus, and any other required documents, all by 5:00 p.m., New York City time, on the fifth New York Stock Exchange trading day following the Expiration Date (as defined in the Prospectus). SIGN HERE ------------------------------------- NAME OF FIRM ------------------------------------- AUTHORIZED SIGNATURE ------------------------------------- NAME (PLEASE PRINT) ------------------------------------- ADDRESS ------------------------------------- ZIP CODE ------------------------------------- AREA CODE AND TELEPHONE NO. DATE: DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. ACTUAL SURRENDER OF CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL. INSTRUCTIONS 1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at one of its addresses set forth on the cover hereof prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and all other required documents to the Exchange Agent is at the election and risk of the Holder but, except as otherwise provided below, the delivery will be deemed made only when actually received by the Exchange Agent. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service, properly insured. If such delivery is by mail, it is recommended that the Holder use properly insured, registered 14 3 mail with return receipt requested. For a full description of the guaranteed delivery procedures, see the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." In all cases, sufficient time should be allowed to assure timely delivery. No Notice of Guaranteed Delivery should be sent to the Company. 2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered Holder(s) of the Private Notes referred to herein, then the signature must correspond with the name(s) as written on the face of the Private Notes without alteration, enlargement or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a person other than the registered Holder(s) of any Private Notes listed, this Notice of Guaranteed Delivery must be accompanied by a properly completed bond power signed as the name of the registered Holder(s) appear(s) on the face of the Private Notes without alteration, enlargement or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and, unless waived by the Company, evidence satisfactory to the Company of their authority so to act must be submitted with this Notice of Guaranteed Delivery. 3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the Exchange Offer or the procedure for consenting and tendering as well as requests for assistance or for additional copies of the Prospectus, the Letter of Transmittal and this Notice of Guaranteed Delivery, may be directed to the Exchange Agent at the address set forth on the cover hereof or to your broker, dealer, commercial bank or trust company. 15 EX-99.3 14 GUIDELINES FOR CERT. OF TAXPAYER ID/FORM W-9 1 EXHIBIT 99.3 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 -- ========================================================= GIVE THE NAME AND FOR THIS TYPE OF ACCOUNT: EMPLOYER IDENTIFICATION 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) 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-----