-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Er5lznhOVUWcDpX/vT4Gaq49qRjiP1tcPNjzX38zjhUIq6hxWBr/pRG6UqW0WS0S wi1mp+N8AD6f4SuF9nitgA== 0000950150-95-000266.txt : 19950428 0000950150-95-000266.hdr.sgml : 19950428 ACCESSION NUMBER: 0000950150-95-000266 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950129 FILED AS OF DATE: 19950427 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RALPHS GROCERY CO CENTRAL INDEX KEY: 0000836023 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 311241926 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-22998 FILM NUMBER: 95532053 BUSINESS ADDRESS: STREET 1: 1100 W ARTESIA BLVD CITY: COMPTON STATE: CA ZIP: 90220 BUSINESS PHONE: 3108844245 MAIL ADDRESS: STREET 1: 1100 W ARTESIA BLVD CITY: 1100 WCOMPTON STATE: CA ZIP: 90220 FORMER COMPANY: FORMER CONFORMED NAME: RALPHS ACQUISITION CO DATE OF NAME CHANGE: 19880817 10-K405 1 FORM 10-K DATED JANUARY 29, 1995 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-K (MARK ONE) /X/ ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: JANUARY 29, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 33-22998 ----------- RALPHS GROCERY COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ----------- DELAWARE 31-1241926 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1100 WEST ARTESIA BOULEVARD, COMPTON, CALIFORNIA, 90220 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
----------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 884-9000 ----------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ----------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ No voting stock of the registrant is held by non-affiliates of the registrant. Number of shares of the registrant's Common Stock, $1.00 per value, outstanding as of January 29, 1995--100. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Registration Statement on Form S-1, Registration No. 33-47634, as amended, portions of Registration Statement on Form S-4, Registration No. 33-61812, portions of Annual Report on Form 10-K dated April 29, 1993, portions of Annual Report on Form 10-K dated May 2, 1994, Current Report on Form 8-K dated September 14, 1994 and portions of the Quarterly Report on Form 10-Q dated September 1, 1992, are incorporated by reference into Part IV. =============================================================================== 2 PART 1 ITEM 1. BUSINESS GENERAL Founded in 1873, Ralphs Grocery Company ("Ralphs", "RGC" or the "Company") is one of the leading supermarket chains in Southern California. Ralphs operates 173 stores supported by its centrally located and efficient warehousing, distribution and manufacturing facilities. Ralphs is a wholly owned subsidiary of Ralphs Supermarkets, Inc. ("Holding Company"), a Delaware Corporation. The common stock of the Holding Company is held by The Edward J. DeBartolo Corporation - 60.34%; Camdev Properties, Inc. - 12.81%; Bank of Montreal - 10.13%; Banque Paribas - 10.13%; and Federated Department Stores, Inc. - 6.59%. THE MERGER 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, which is currently a wholly-owned subsidiary of Holding Company, will merge with and into Holding Company (the "RGC Merger", and together with the RSI Merger, the "Merger"), and Holding Company will change its name to Ralphs Grocery Company (the "New Company"). Prior to the Merger, FFL will merge with and into Holdings, which will be the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging with a newly-formed, wholly-owned subsidiary ("New Holdings"), incorporated in Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL Merger and the Reincorporation Merger the New Company will become a wholly-owned subsidiary of New Holdings. Agreement has been reached with each of the California Attorney General and the Federal Trade Commission for approval of the Merger. Food 4 Less and Ralphs 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 ("Old RGC 9% Notes") due April 1, 2003 of Ralphs and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC ("Old RGC 10 1/4% Notes" and together with the Old RGC 9% Notes, the "Old RGC Notes") (i) to exchange (as so amended and restated, the "Exchange Offers") such Old RGC Notes for New Senior Subordinated Notes due 2005 (the "New Notes") plus a cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC Notes tendered for exchange or (ii) to purchase for cash (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 or purchase. The Offers are subject to the terms and conditions set forth in the Amended and Restated Prospectus and Solicitation Statement filed by Food 4 Less with the Securities and Exchange Commission (the "Prospectus") and which is subject to further changes, including: (1) satisfaction of a minimum tender amount (i.e., at least a majority of the aggregate principal amount of the outstanding Old RGC Notes being validly tendered for exchange for New Notes and not withdrawn pursuant to the Offers prior to the date of expiration); (2) the receipt of the requisite consents to certain amendments to the indentures (the "Indentures") under which the Old RGC Notes were issued (i.e., consents from holders of Old RGC Notes representing at least a majority in aggregate principal amount of each issue of Old RGC Notes held by persons other than Ralphs and its affiliates) on or prior to the date of expiration; (3) the satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the Merger; (4) the prior or contemporaneous consummation of other exchange offers, consent solicitations and public offerings contemplated by the Prospectus; and (5) the prior or contemporaneous consummation of the bank financing and the equity investment described in the Prospectus. As a result of the RSI Merger and the RGC Merger, the New Notes and any outstanding Old RGC Notes not tendered in the Offers will be the obligations of the New Company. Conditions to the consummation of the RSI Merger include the receipt of necessary consents and the completion of financing of the transaction. The purchase price for Holding Company is approximately $1.5 billion, including the assumption or repayment of debt. The consideration payable to the stockholders of Holding Company consist of $375 million in cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be issued to the selling shareholders of Holding Company (the "Seller Debentures") by New Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures"). New Holdings will use the $100 million of cash received from a new equity investment (the "New Equity Investment"), together with the Seller Debentures and the New Discount Debentures, to acquire approximately 48% of the capital stock of Holding Company immediately prior to consummation of the RSI Merger. New Holdings will then contribute the $250 million of purchased shares of Holding Company stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company stock will be acquired for $275 million in cash. Standard & Poor's has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline pursuant to the Indentures. The consummation of the Merger and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline, would constitute a Change of Control Triggering Event under the Indentures. Although RGC does not anticipate that there will be a significant amount of Old RGC Notes outstanding following consummation of the Exchange Offers, upon such a Change of Control Triggering Event, the New Company would be obligated to make the Change of Control Offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Due to the increased size, dual format strategy and integration related costs, after giving effect to or in connection with the Merger, RGC believes that its future operating results will not be directly comparable to the historical operating results of RGC. Upon consummation of the Merger, the operations and activities of Ralphs will be significantly impacted due to conversions of some existing stores to Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. The consolidation may result in a restructuring charge for the merged entity. The amount of the restructuring charge is not determinable due to various factors, including uncertainties inherent in the completion of the Merger, however, the restructuring charge may be material in relation to the stockholders' equity and financial position of Ralphs and the merged entity. Following the consummation of the Merger, the New Company will be highly leveraged. BUSINESS OF THE COMPANY New Stores and Remodeling During the last five fiscal years, Ralphs has opened 46 new stores and remodeled 54 stores at a cost of approximately $277.2 million. A majority of these new and remodeled stores offer expanded produce and European-style seafood departments, service delicatessens, fresh bakeries and a broad selection of general merchandise. With enhanced decor reflecting contemporary interior design, these stores are designed to 1 3 provide a quality shopping experience. At the end of the year ended January 29, 1995 ("Fiscal 1994"), 92% of Ralphs' stores were newly built or remodeled within the past seven years. The history of store openings, closings and remodelings since 1989 is set forth below:
FISCAL YEAR --------------------------------------- 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- Beginning store count . . . . . 142 150 158 159 165 Stores opened . . . . . . . . . 13 9 6 8 10 Stores closed or sold . . . . . 5 1 5 2 2 Ending store count . . . . . . 150 158 159 165 173 Stores remodeled . . . . . . . 13 7 23 6 5
Ralphs selects most new store sites from developers' proposals. The sites, some of which are in high growth areas and others of which are in established areas, are researched and analyzed by Ralphs' personnel. Each site is monitored for population shifts, zoning changes, traffic patterns, nearby new construction and competitors' stores, in an effort to determine sales potential. Ralphs actively participates with developers in order to obtain Ralphs' objectives for the site, including adequate parking and complementary co-tenant mix. Remodeling usually involves enhancing a store's decor through fixture replacement, upgrading of service departments and improvements to lighting systems. In order to minimize the disruptive effect on sales, most stores are kept open during the remodeling period. The primary objectives of remodeling are to improve the attractiveness of stores, increase sales of higher margin product categories and, where feasible, to increase selling area. Since it has operated in Southern California for 122 years, Ralphs has many well-established store locations in highly populated metropolitan areas. Ralphs has pursued a strategy in recent years of acquiring strategic locations in high-growth master-planned communities. In response to the negative impact of the current economic climate on new home sales in Southern California, Ralphs' current new store development program reflects an increased emphasis on attractive development opportunities in more mature, highly populated areas. The Company currently plans to open 5 to 7 new stores and remodel 2 stores in fiscal 1995. Most of the new stores anticipated for fiscal 1995 are expected to open in the Fall. Management believes that operating cash flow, supplemented by capital and operating leases, should be sufficient to meet Ralphs' operating needs and scheduled capital expenditures. Remodelings and openings, among other things, are subject to the availability of developers' financing, agreements with developers and landlords, local zoning regulations, construction schedules and other factors, including costs, often beyond Ralphs' control. Accordingly, there can be no assurance that the schedule will be met. Further, Ralphs expects increasing competition for new store sites, and it is possible that this competition might adversely affect the timing of its new store opening program. Merchandising and Marketing Management operates its stores under a single format which allows it to achieve operating economies. Every store uses the Ralphs name, however, each store is merchandised to appeal to the local community which it serves. Ralphs stocks between 20,000 and 30,000 merchandise items in its stores. Management believes that Ralphs offers a substantial supermarket product selection and that this is a significant aspect of its marketing offering. Ralphs emphasizes name-brand grocery products; quality and freshness in its produce, meat, seafood, delicatessen and bakery products; and broad selection in all departments. Service delicatessen departments are present in 172, on-premises bakery facilities are present in 161, floral departments are present in 173 and European-style seafood departments are present in 157 of Ralphs' stores. Ralphs' marketing strategy is to provide a combination of wide product selection, quality and freshness of perishable products, competitive prices and double coupons supporting Ralphs' advertising theme "Everything You Need. Everytime You Shop". In addition, Ralphs emphasizes store ambiance and cleanliness, fast and friendly service, the convenience of debit and credit card payment (including in-store branch banks) and 24-hour operations. 2 4 In February 1994, Ralphs launched the Ralphs Savings Plan, a new marketing campaign specifically designed to enhance customer value. The Ralphs Savings Plan is comprised of six major components: Guaranteed Low Prices (GLPs), Price Breakers, Big Buys, Multi-Buys, Ralphs Brand Products and Double Coupons. GLPs guarantee low prices on certain high volume items that are surveyed and updated every four weeks. Price Breakers are weekly advertised items that offer significant savings. Big Buys are club size items at prices competitive to club store prices and Multi-Buys offer Ralphs' shoppers the opportunity to purchase club store quantities of regular sized items at prices competitive to club store prices. In conjunction with this new campaign Ralphs private label offering of over 2,800 products provides value to the customer. Private label sales represented 18.5% of sales (excluding meat, service delicatessen and produce items) at fiscal year-end. As part of Ralphs' effort to keep pace with its changing marketplace, customers are invited to comment on Ralphs' operations through "We'd Like to Know" cards available at each store. Several hundred cards are received each month. The cards are analyzed on an individual basis by store and district by senior management, enabling Ralphs to respond promptly to customer observations and suggestions. Information Systems and Technology Ralphs' management utilizes technology and industrial engineering methods to enhance operating efficiency. Every checkout lane in every Ralphs' store has a point of sale terminal. Information from these terminals is utilized to allocate shelf space, select merchandise based on the buying patterns of each store, reduce out-of-stocks and increase efficiency at the checkstand and in the warehouses. Industrial engineering methods are used to schedule labor thereby improving productivity at the store level and in warehousing and distribution operations. Ralphs was the first supermarket chain in the western United States to adopt scanning in all of its stores and has upgraded this equipment through the purchase of IBM 4680 point-of-sale computers. All Ralphs' stores use laser scanning equipment, operating through an integrated computer system, to scan the Universal Product Code, which provides prices and descriptions for most products. 3 5 Ralphs has a Uniform Communications Standard purchase order system that electronically links Ralphs to major suppliers via computer. This system has enabled the automated processing of purchase orders which management believes reduces the lead time required for product purchases. In Fiscal 1993, Ralphs completed installation of an industry standard, direct store delivery receiving system for goods delivered directly by vendors. This system allows the receipt of each order to be recorded electronically, thereby confirming product retail price and purchase authorization. This system has reduced the incidence of billing errors and unauthorized deliveries. Industrial engineering standards have been established for all major work functions in Ralphs' stores, ranging from stocking to checkout. Performance of each major department in each store is measured weekly against these standards. Similar measurements are made in Ralphs' distribution, warehouse and manufacturing operations. Ralphs believes that its application of quantitative methods to the operation of the business has given it a competitive advantage and has better enabled management to run its business efficiently and to control costs. Distribution and Warehouse Operations Ralphs' distribution and warehouse facilities are all located in Southern California. In Fiscal 1994, approximately 82% of goods supplied to Ralphs' stores were provided through its own warehouse and distribution facilities; the remaining 18% were delivered directly by vendors to the stores. In November 1987, Ralphs opened a 17 million cubic foot highrise automated storage and retrieval system ("ASRS") warehouse for non-perishable items, at a cost of approximately $50.0 million. This facility significantly increased capacity and improved the efficiency of Ralphs' warehouse operations. The automated warehouse has a ground floor area of 170,000 square feet and capacity of approximately 50,000 pallets. Guided by computer software, ten-story high cranes move pallets from the receiving dock to programmed locations in the ASRS warehouse, while recording the location and time of storage. Goods are retrieved and delivered by the cranes to conveyors leading to the adjacent grocery "picking" warehouse where individual store orders are filled and shipped. The ASRS facility can hold substantially more inventory and requires fewer employees to operate than a conventional warehouse of equal size. This facility has reduced Ralphs' warehousing costs of non-perishable items markedly, enabling it to take advantage of advance buying opportunities and minimize "out-of-stocks." 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. In mid-1992, Ralphs opened a 5.4 million cubic foot facility designed to process and store all perishable products (the "Perishables Service Center" or "PSC"). This facility cost approximately $35.0 million and has enabled Ralphs to have the ability to deliver perishable products to its stores on a daily basis, thereby improving the freshness and quality of these products. The facility contains an energy efficient refrigeration system and a computer system designed to document the location and anticipated delivery time of all inventory. The PSC has consolidated the operations of three existing facilities and holds more inventory than the facilities it replaced, thereby reducing Ralphs' warehouse distribution costs. All Ralphs' stores are within a three hour drive from the distribution and warehousing facilities. This geographical concentration combined with Ralphs' efficient order system shortens the lead time between the placement of a merchandise order and its receipt. As part of its distribution operations Ralphs operates a modern fleet of 191 tractors and 531 trailers, of which 181 tractors and 226 trailers are leased, with the remainder being owned by Ralphs. Manufacturing Food products manufactured or processed by Ralphs accounted for estimated sales of $322.3 million (11.8% of total sales) during Fiscal 1994. Wholesale sales to third parties of manufactured or processed products were approximately $2.1 million for the same period. By manufacturing or processing certain products, Ralphs is able to improve its merchandising mix, resulting in higher operating margins and enhanced quality control. 4 6 Ralphs' manufacturing operations produce a variety of dairy and other products, including fluid milk, ice cream, yogurt and bottled waters and juices as well as packaged ice, cheese and salad preparations. Ralphs contracts with meat processors to provide a full line of whole and prefabricated cuts. Ralphs ceased operating its bakery operations during the second quarter of Fiscal 1993 at its 102,000 square foot facility in Los Angeles in conjunction with an increased emphasis on in-store bakeries. The Company provided a restructuring charge of approximately $7.1 million and $2.4 million during the year ended January 31, 1993 ("Fiscal 1992") and the year ended January 30, 1994 ("Fiscal 1993"), respectively, to record the costs of closing the bakery operation. The following table sets forth information concerning Ralphs' other manufacturing and processing facilities, all of which are owned:
FACILITY BUILDING SQ. FEET LOCATION ======== ================= ======== Milk processing . . . . 28,000 Compton Ice cream processing . . 9,000 Compton Delicatessen kitchen . . 23,000 Compton
Competition The supermarket business is characterized by high sales volume, high inventory turnover and low gross profit margins. The business is highly competitive in Southern California. Principal competitive factors in the supermarket business include store locations, the combination of price and quality that give the consumer the greatest perceived value, availability and breadth of selection, quality of products and service, store environment, including cleanliness, and promotions. Ralphs' management believes, based on its marketing research, that consumers perceive Ralphs as offering a combination of convenience, competitive prices and a wide variety of quality products and services in a pleasant shopping environment. Ralphs' management believes that its competitive strengths are its desirable store locations and sites in combination with a strong consumer franchise, its commitment and ability to adapt new and existing technology to the supermarket business, its efficient manufacturing, warehousing and distribution facilities, its experienced management team and its well-trained employees. Ralphs competes with several large supermarket chains, including Vons, Lucky Stores, Alpha Beta Markets, Hughes and Stater Brothers, and with other smaller supermarket chains, as well as independent grocery stores and warehouse club/discount merchandisers. Certain of Ralphs' competitors are larger in terms of capital and sales volume and may have greater financial resources and access to capital than does Ralphs. Employees At January 29, 1995, Ralphs had 6,213 full-time and 8,940 part-time employees as follows:
UNION NONUNION TOTAL ====== ======== ====== Hourly . . . . . . . . . . . . 13,854 245 14,099 Salaried . . . . . . . . . . . -- 1,054 1,054 ------ ----- ------ Total employees . . . . . 13,854 1,299 15,153 ====== ===== ======
Of Ralphs' 15,153 total employees at January 29, 1995, 13,854 were covered by union contracts principally with the UFCW. The table below sets forth information regarding Ralphs' union contracts which cover more than 100 employees.
UNION NUMBER OF EMPLOYEES COVERED DATE OF EXPIRATION ------------------------------ ------------------------------ ------------------ UFCW 10,723 clerks and meatcutters October 6, 1996 International Brotherhood of Teamsters 1,675 drivers and warehousemen September 13, 1998 Hotel Employees and Restaurant Employees 977 September 10, 1995 Hospital and Service Employees 328 Los Angeles January 19, 1997 67 San Diego April 20, 1997
5 7 Ralphs believes it has good relations with its employees. Pursuant to its collective bargaining agreements, Ralphs contributes to various union-sponsored, multi-employer pension plans. Government Regulation Ralphs 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. ITEM 2. PROPERTIES Ralphs owns the locations of 45 and leases the locations of 128 of its 173 supermarkets. It owns 11 and leases five of its 16 distribution, warehouse and administrative facilities. Ralphs owns its three manufacturing and processing facilities. Ralphs' properties are located in six Southern California counties (Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego). See Note 6 of the Notes to Consolidated Financial Statements of Ralphs included elsewhere in this Form 10-K. Ralphs believes that its properties are adequately maintained and are adequate for its business needs. 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 completely shutdown on the morning of January 17th. Thirty-four stores reopened within one day and an additional 17 stores reopened within three days. Suffering major structural damage were three stores in the San Fernando Valley area of Los Angeles. 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 from the temporary disruption of business resulting from the earthquake. Ralphs is insured for earthquake losses. The pre-tax financial impact, net of insurance claims, is expected to be approximately $11 million and the Company has reserved for this loss in Fiscal 1993. The number of stores and facilities operated and the square feet of space at January 29, 1995 consisted of:
UNITS GROSS SPACE SELLING SPACE ===== =========== ============= (IN THOUSANDS) Stores . . . . . . . . . . . . . . . . . . . . . . . . 173 7,057.9 5,109.8 Distribution, warehouse and administrative facilities . 16 1,693.0 -- Manufacturing and processing facilities . . . . . . . . 3 60.0 -- --- ------- ------- TOTAL . . . . . . . . . . . . . . . . . . . . . . . 192 8,810.9 5,109.8 === ======= =======
The number of stores by size classification as of January 29, 1995 is as follows:
AVERAGE AVERAGE NO. OF GROSS SELLING STORES GROSS SQUARE FEET SQUARE FEET SQUARE FEET ------ ----------------- ----------- ----------- 3 20,300 -- 25,000 21,867 16,709 15 25,001 -- 30,000 27,926 19,725 31 30,001 -- 35,000 32,958 24,191 32 35,001 -- 40,000 37,254 27,053 61 40,001 -- 45,000 43,237 31,424 18 45,001 -- 50,000 46,271 33,404 13 50,001 -- 84,280 68,400 48,466
6 8 ITEM 3. LEGAL PROCEEDINGS 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. 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. California Settlement Agreement On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement Agreement (the "Settlement Agreement") with the State of California to settle potential antitrust and unfair competition claims the State of California asserted against Ralphs and Food 4 Less relating to the effects of the Merger on supermarket competition in Southern California (the "State Claims"). Without admitting any liability in connection with the State Claims, Food 4 Less and Ralphs agreed in the Settlement Agreement to divest 27 specific stores in Southern California. Under the Settlement Agreement, the New Company must divest 14 stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. The New Company also agreed not to acquire new stores from third parties in the six Southern California areas specified in the Settlement Agreement for five years following the date of the Settlement Agreement. If the New Company fails to divest the required stores by the two dates set forth in the Settlement Agreement, the New Company has agreed not to object to the appointment of a trustee to effect the required sales. The Settlement Agreement also requires the New Company to pay the reasonable fees and costs of attorneys and experts of the State of California associated with its review. 7 9 Environmental Matters In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a subsurface characterization of Ralphs' Atwater property. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where Ralphs' Atwater property is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, because of regional groundwater contamination. On June 18, 1991, the EPA made its own request for information concerning the Atwater property. Since that time, the Regional Board has requested further investigations by Ralphs. Ralphs has conducted the requested investigations and has reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Atwater property. Ralphs is not a party to that Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on Ralphs' property. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. Ralphs has removed 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 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information. There is no established public trading market for the Company's common equity. (b) Holders. The Company is a wholly owned subsidiary of the Holding Company. (c) Dividends. 8 10 In February 1994, the Board of Directors of the Company authorized a dividend of $10.0 million to be paid to the Holding Company and the Board of Directors of the Holding Company authorized distribution of this dividend to its shareholders subject to certain restrictive covenants in the instruments governing certain of Ralphs' indebtedness that impose limitation on the declarations or payment of dividends. Ralphs' credit agreement, entered into in 1992 (the "1992 Credit Agreement") was amended to allow the payment of the dividend to the Holding Company for distribution to the Holding Company's shareholders. The fee for the amendment was approximately $500,000. The dividend was distributed to the shareholders of the Holding Company in the second quarter of 1994. The Holding Company and the stockholders of the Holding Company entered into a Registration Rights and Corporate Governance Agreement (the "Registration Rights Agreement") which provides for certain aspects of corporate governance of the Company and the Holding Company. Pursuant to the terms of the Registration Rights Agreement, Ralphs is obligated to provide the Holding Company, by dividend, pursuant to a services agreement or otherwise, with funds sufficient to enable the Holding Company to perform its duties as the holding company of Ralphs' stock and to perform its obligations set forth in the Registration Rights Agreement. 9 11 ITEM 6. SELECTED FINANCIAL DATA The following table presents historical selected financial data derived from the audited financial statements of the Company for the fiscal years ended February 3, 1991, February 2, 1992, January 31, 1993, January 30, 1994 and January 29, 1995. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Financial Statements and related notes thereto, included elsewhere in this Form 10-K.
YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED FEB. 3, FEB. 2, JAN. 31, JAN. 30, JAN. 29, 1991(A) 1992 1993 1994 1995 ======== ======== ======== ======== ======== (DOLLARS IN MILLIONS) INCOME STATEMENT DATA: Sales . . . . . . . . . . . . . . . . . . . $2,799.1 $2,889.2 $2,843.8 $2,730.2 $2,724.6 Cost of sales . . . . . . . . . . . . . . . 2,225.4 2,275.2 2,217.2 2,093.7 2,101.0 -------- -------- -------- -------- -------- Gross profit . . . . . . . . . . . . . . 573.7 614.0 626.6 636.5 623.6 Selling, general & administrative expenses . . . . . . . . . . . . . . . . . 438.0 459.2 470.0 471.0 467.0 Provision for equity appreciation rights . . . . . . . . . . . . . . . . . . 15.3 18.3 -- -- -- Amortization of excess of cost over net assets acquired . . . . . . . . . . . . . 11.0 11.0 11.0 11.0 11.0 Provision for restructuring(b) . . . . . . -- -- 7.1 2.4 -- Provision for tax indemnification payments to Federated . . . . . . . . . . . . . . . -- 10.0 -- -- -- -------- -------- -------- -------- -------- Operating income(loss) . . . . . . . . . . 109.4 115.5 138.5 152.1 145.6 Other (income) expenses: Interest . . . . . . . . . . . . . . . . 128.5 130.2 125.6 108.8 112.7 (Gain)loss on disposal of assets . . . . 6.4 13.0(c) 2.6 1.9 0.8 Provision for legal settlement . . . . . -- -- 7.5 -- -- Provision for earthquake losses (d) . . . . . . . . . . . . . . . -- -- -- 11.0 -- -------- -------- -------- -------- -------- Earnings(loss) before income taxes, cumulative effect of change in accounting and extraordinary item . . . . . . . . . . (25.5) (27.7) 2.8 30.4 32.1 Income tax expense (benefit) . . . . . . . . 12.8 13.5 8.3 (108.0)(e) -- -------- -------- -------- -------- -------- Earnings(loss) before cumulative effect of change in accounting and extraordinary item . . . . . . . . . . . . . . . . . . . (38.3) (41.2) (5.5) 138.4 32.1 Cumulative effect of change in accounting for postretirement benefits other than pensions . . . . . . . . . . . . . . . . . (13.1) -- -- -- -- -------- -------- -------- -------- -------- Earnings(loss) before extraordinary item . . . . . . . . . . . . . . . . . . . (51.4) (41.2) (5.5) 138.4 32.1 Extraordinary item--debt refinancing, net of tax benefit of $4.2 . . . . . . . . . . -- -- (70.6) -- -- -------- -------- -------- -------- -------- Net earnings (loss) . . . . . . . . . . . . $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 32.1 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges (f) . . . --(g) --(g) 1.02 1.24 1.24 ======== ======== ======== ======== ======== OPERATING AND OTHER DATA: EBITDA (as defined) (h) . . . . . . . . . . $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2 EBITDA margin (i) . . . . . . . . . . . . . 7.4% 7.8% 8.0% 8.4% 8.4% Depreciation and amortization (j) . . . . . $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0 Capital expenditures . . . . . . . . . . . . $ 87.6 $ 50.4 $ 102.7 $ 62.2 $ 64.0 Ratio of EBITDA (as defined) to interest expense . . . . . . . . . . . . . . . . . 1.61 1.73 1.81 2.12 2.04 Ratio of EBITDA (as defined) to cash interest expense(k) . . . . . . . . . . . . 1.76 1.95 2.15 2.48 2.36 Ratio of total debt to EBITDA (as defined) . 4.78 4.18 4.53 4.34 4.42 STORE DATA: Stores open at end of period (l) . . . . . . 150 158 159 165 173 Number of remodels (l) . . . . . . . . . . . 13 7 23 6 5 Sales per selling square foot (l)(m) . . . . $ 649 $ 628 $ 617 $ 567 $ 533 BALANCE SHEET DATA (END OF PERIOD): Total assets . . . . . . . . . . . . . . . . $1,406.4 $1,357.6 $1,388.5 $1,483.7 $1,509.9 Total debt (n) . . . . . . . . . . . . . . . 989.1 944.9 1,029.8 998.9 1,018.5 Stockholder's equity (deficit) . . . . . . . $ (16.0) $ (57.2) $ (133.3) $ 5.1 $ 27.2
10 12 (a) The fiscal year was comprised of 53 weeks as compared to 52 weeks with respect to the other fiscal years presented. (b) Charge for expenses relating to closing of central bakery operations. (c) Includes approximately $12.2 million representing a reserve against losses related to the closing of three stores. (d) Represents reserve for losses, net of insurance claims, resulting from 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 the Notes to Consolidated Financial Statements). (f) For purposes of computing this ratio, earnings consist of 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 deferred debt issuance costs and one-third of rental expense (the portion deemed representative of the interest factor). (g) Earnings before income taxes, cumulative effect of change in accounting, extraordinary item and fixed charges were insufficient to cover fixed charges for fiscal 1990 and 1991 by $25.5 million and $27.7 million, respectively. (h) "EBITDA", as defined and presented historically, represents net earnings before taking into consideration interest expense, income tax expense, depreciation expense, amortization expense, provisions for equity appreciation rights, tax indemnification payments to Federated Department Stores, Inc. (See Item 13. "Certain Relationships and Related Transactions"), postretirement benefits, the LIFO provision, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, reserves for earthquake losses , a one-time charge for Teamsters Union sick pay benefits, transition expense and loss on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Ralphs' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (i) EBITDA (as defined) margin represents EBITDA as a percentage of sales. (j) For fiscal 1990, 1991, 1992, 1993 and 1994 the amount includes amortization of the excess of cost over net assets acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and $11.0 million, respectively. (k) Excludes charges relating to amortization of debt issuance costs, self-insurance discount, lease valuation reserves and other miscellaneous charges which are categorized by Ralphs as non-cash interest expense. (l) Data relating to stores is expressed in actual numbers. (m) Sales per selling square foot are based on total store selling square footage at the end of the fiscal year. (n) Total debt includes long-term debt, current maturities of long-term debt, capital lease obligations, short-term debt and redeemable preferred stock. 11 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW MERGER On September 14, 1994, Food 4 Less Holdings, and FFL, entered into a Merger Agreement with Holding Company and its stockholders. Pursuant to the terms of the Merger Agreement, and the RSI Merger Food 4 Less will be merged with and into Holding Company 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, the RGC Merger will occur and Ralphs, which is currently a wholly-owned subsidiary of Holding Company, will merge with and into Holding Company, and Holding Company will change its name to Ralphs Grocery Company. Prior to the Merger, FFL will merge with and into Holdings, which will be the surviving corporation. Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging with New Holdings, a newly-formed, wholly-owned subsidiary, incorporated in Delaware. As a result of the Merger, the FFL Merger and the Reincorporation Merger the New Company will become a wholly-owned subsidiary of New Holdings. Agreement has been reached with each of the California Attorney General and the Federal Trade Commission for approval of the Merger. Food 4 Less and Ralphs 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. The aggregate purchase price, payable to the stockholders of the Holding Company in connection with the Merger, consists of $375 million in cash, $131.5 million initial principal amount of Seller Debentures due 2007 issued by FFL Holdings and $18.5 million initial accreted value of New Discount Debentures due 2005. 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 Ralphs will be significantly impacted due to conversions of some existing stores to Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. This consolidation may result in a restructuring charge for the merged entity. The amount of the restructuring charge is not determinable due to various factors, including uncertainties inherent in the completion of the Merger, however, the restructuring charge may be material in relationship to the stockholders' equity and financial position of Ralphs and the merged entity. Following the consummation of the Merger, the New Company will be highly weighted. REGIONAL ECONOMIC CONDITIONS In recent periods Ralphs has been affected by the adverse economic conditions that have existed in Southern California since approximately 1991. These conditions were exacerbated by the substantial layoffs in the defense and aerospace industries and by the civil unrest in Los Angeles in April, 1992. In addition, management estimates that approximately eight million square feet of supermarket selling space has been added in Southern California over the past five years. As a result of these factors and general deflationary pressures in certain food product categories, Ralphs has experienced declining comparable store sales in recent periods. Over the last three fiscal years Ralphs' total sales declined by 4.2%. Despite these adverse sales trends, however, the Company has improved its profitability over the same period. In addition, comparable store sales declines have begun to moderate in recent periods, which is consistent with data indicating a mild recovery in the Southern California economy. Management believes that it is well positioned to take advantage of improvements in the regional economy and growing population and to compete effectively in the Southern California marketplace. 12 14 The following discussion of Ralphs' financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K.
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 31, 1993 JANUARY 30, 1994 JANUARY 29, 1995 $(000) % $(000) % $(000) % ======== ===== ======== ===== ======== ===== INCOME STATEMENT DATA: Sales . . . . . . . . . . . . . . . . . . . . . $2,843.8 100.0 $2,730.2 100.0 $2,724.6 100.0 Cost of sales . . . . . . . . . . . . . . . . . 2,217.2 78.0 2,093.7 76.7 2,101.0 77.1 -------- ----- -------- ----- -------- ----- Gross profit . . . . . . . . . . . . . . . 626.6 22.0 636.5 23.3 623.6 22.9 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . 470.0 16.5 471.0 17.2 467.0 17.2 Amortization of excess of cost over net assets acquired . . . . . . . . . . . . . . . 11.0 0.4 11.0 0.4 11.0 0.4 Provision for restructuring (a) . . . . . . . . 7.1 0.2 2.4 0.1 -- -- -------- ----- -------- ----- -------- ----- Operating Income . . . . . . . . . . . . . 138.5 4.9 152.1 5.6 145.6 5.3 Other expenses: Interest . . . . . . . . . . . . . . . . . . 125.6 4.4 108.8 4.0 112.7 4.1 Loss on disposal of assets . . . . . . . . . 2.6 0.1 1.9 0.1 0.8 0.0 Provision for legal settlement . . . . . . . 7.5 0.3 -- -- -- -- Provision for earthquake losses (b) . . . . . -- -- 11.0 0.4 -- -- -------- ----- -------- ----- -------- ----- Earnings(loss) before income taxes, and extraordinary item . . . . . 2.8 0.1 30.4 1.1 32.1 1.2 Income tax expense (benefit) . . . . . . . . . 8.3 0.3 (108.0) (4.0) -- -- -------- ----- -------- ----- -------- ----- Earnings(loss) before extraordinary item . . . (5.5) (0.2) 138.4 5.1 32.1 1.2 Extraordinary item--debt refinancing, net of tax benefit of $4.2 . . . . . . . . . . . . (70.6) (2.5) -- -- -- -- -------- ----- -------- ----- -------- ----- Net earnings(loss) . . . . . . . . . . . . . $ (76.1) (2.7) $ 138.4 5.1 $ 32.1 1.2 ======== ===== ======== ===== ======== ===== OTHER DATA: EBITDA (as defined) (c) . . . . . . . . . . . . $ 227.3 8.0 $ 230.2 8.4 $ 230.2 8.4 Depreciation and amortization(d) . . . . . . . 76.9 2.7 74.5 2.7 76.0 2.8 LIFO charge . . . . . . . . . . . . . . . . . . 1.1 0.0 (2.1) (0.1) 2.1 0.1
(a) Charge for expenses relating to closing of central bakery operation. (b) Represents reserve for losses, net of insurance claims, resulting from January 17, 1994 Southern California earthquake. (c) "EBITDA", as defined and presented historically, represents net earnings before taking into consideration interest expense, income tax expense, depreciation expense, amortization expense, postretirement benefits, the LIFO provision, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, reserves for earthquake losses , a one-time charge for Teamsters Union sick pay benefits, transition expense and loss on disposal of assets. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Ralphs' operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (d) For the fiscal years ended 1992, 1993 and 1994 the amount includes amortization of excess cost over net assets acquired of $11.0 million, $11.0 million and $11.0 million, respectively. 13 15 RESULTS OF OPERATIONS COMPARISON OF RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 29, 1995 WITH RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30, 1994. Sales For the fifty-two weeks ended January 29, 1995, ("Fiscal 1994"), sales were $2,724.6 million, a decrease of $5.6 million or 0.2% from the fifty-two weeks ended January 30, 1994 ("Fiscal 1993"). During Fiscal 1994, Ralphs opened ten new stores (four in Los Angeles County, three in Orange County, one in San Diego County and two in Riverside County), closed two stores (in conjunction with new stores opening in the same areas), and completed five store remodels. Comparable store sales decreased 3.7%, which included an increase of 0.3% for replacement store sales, from $2,707.9 million in Fiscal 1993 to $2,606.4 million in Fiscal 1994. Ralphs sales continued to be adversely affected by the continuing softness of the economy in Southern California, continuing competitive new store and remodeling activity and recent pricing and promotional changes by competitors. Ralphs continued to take steps to mitigate the impact of the weak retailing environment in its markets, which included continuing its own new store and remodeling program and initiating the Ralphs Savings Plan in February 1994, a new marketing campaign specifically designed to enhance customer value. 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' ASRS and PSC facilities along with the ongoing implementation of new computer-controlled programs and labor standards that improved distribution productivity. The ASRS facility can hold substantially more inventory and requires fewer employees to operate than does a conventional warehouse of equal size. This facility has reduced Ralphs' warehousing costs of non-perishable items markedly, enabling it to take advantage of advance buying opportunities and minimize "out-of-stocks." Ralphs engages in forward-buy purchases to take advantage of special prices or to delay the impact of upcoming price increases by purchasing and warehousing larger quantities of merchandise than immediately required. The PSC facility has consolidated the operations of three existing facilities and holds more inventory than the facilities it replaced, thereby reducing Ralphs' warehouse distribution costs. 14 16 Over the last several years, Ralphs has been implementing modifications in its workers compensation and general liability insurance programs. Ralphs believes that these modifications have resulted in a significant reduction in self-insurance costs for Fiscal 1994. Based on a review of the results of these modifications by Ralphs and its actuaries, adjustments to the accruals for self-insurance costs were made during Fiscal 1994 resulting in a reduction of approximately $18.9 million. Of the total $18.9 million reduction in self-insurance costs, $7.5 million is included in cost of sales and $11.4 million is included in selling, general and administrative expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") decreased $4.0 million or 0.8% from $471.0 million in Fiscal 1993 to $467.0 million in Fiscal 1994. As a percentage of sales, SG&A was 17.2% in Fiscal 1993 and 17.2% in Fiscal 1994. The decrease in SG&A was primarily due to a reduction in contributions to the United Food and Commercial Workers Union ("UFCW") health care benefit plans, due to an excess reserve in these plans, a reduction in self-insurance costs, as discussed above, and the results of cost savings programs instituted by Ralphs. Ralphs is continuing its expense reduction program. The decrease in SG&A was partially offset by several factors including increases in union wage rates, a one-time charge for Teamsters Union sick pay benefits, as discussed above, transition expense relating to the Merger ($1.4 million) and increased rent expense resulting from new stores, including fixture and equipment financing. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During Fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans received a 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. 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. 15 17 Net Earnings For Fiscal 1994, Ralphs reported net earnings of $32.1 million compared to net earnings of $138.4 million for Fiscal 1993. The decrease in net earnings is primarily the result of decreased operating income, higher interest expense due to increased interest rates, the recognition of $109.1 million of deferred income tax benefit in Fiscal 1993 partially offset by $11.0 million recorded for earthquake losses in Fiscal 1993. Other In February 1994, the Board of Directors of Ralphs authorized a dividend of $10.0 million to be paid to the Holding Company, and the Board of Directors of the Holding Company 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. The 1992 Credit Agreement was amended to allow for the payment of the dividend to the Holding Company for distribution to the Holding Company'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 the Holding Company in the second quarter of Fiscal 1994. COMPARISON OF RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30, 1994 WITH RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 31, 1993. Sales Sales in Fiscal 1993 were $2,730.2 million, a decrease of $113.6 million or 4.0% compared to the fifty-two weeks ended January 31, 1993 ("Fiscal 1992"). During Fiscal 1993, Ralphs opened eight new stores, four in Los Angeles County, two in Orange County and two in Riverside County, and remodeled six stores. Two of the eight new stores replaced the two stores closed during the fiscal year. Comparable store sales decreased 5.8%, which included an increase of 0.6% for the replacement stores, from $2,823.4 million to $2,659.3 million in Fiscal 1993. Ralphs' sales continued to be adversely affected by the significant recession in Southern California, continuing competitive new store and remodeling activity and pricing and promotion changes by competitors. Cost of Sales Cost of sales decreased $123.5 million or 5.6% from $2,217.2 million in Fiscal 1992 to $2,093.7 million in Fiscal 1993. As a percentage of sales, cost of sales declined to 76.7% in Fiscal 1993 from 78.0% in Fiscal 1992. The decrease in cost of sales as a percentage of sales was the result of savings in warehousing and distribution costs, the pass-through of increased operating costs and increases in relative margins where allowed by competitive conditions. Selling, General and Administrative Expenses SG&A increased $1.0 million or 0.2% from $470.0 million in Fiscal 1992 to $471.0 million in Fiscal 1993. As a percentage of sales, SG&A increased from 16.5% in Fiscal 1992 to 17.2 % in Fiscal 1993. The increase in SG&A as a percentage of sales was the result of several factors including the soft sales environment. Increases in expense were partially offset by cost savings programs instituted by Ralphs. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both Fiscal 1992 and Fiscal 1993 the UFCW multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During Fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans are to receive a prorata share of the excess reserve in these health care benefit plans through a reduction in current maintenance 16 18 payments. Ralphs' share of the excess reserve was approximately $24.5 million of which $11.8 million was recognized in Fiscal 1993 and the remainder will be recognized in the fiscal year ending January 29, 1995. The change in health and welfare plan expenses resulted from the $11.8 million credit associated with the collective bargaining agreement as well as a reduction in the current year plan expense due to the overfunded status of the plan. Since employers are required to make contributions to the benefit funds at whatever level is necessary to maintain plan benefits, there can be no assurance that plan maintenance payments will remain at current levels. Partially offsetting the reductions of health and welfare maintenance payments was a $6.0 million contract ratification bonus paid by Ralphs at the conclusion of contract negotiations with the UFCW in Fiscal 1993. The $6.0 million contract ratification payment was an item separate from either of these plans. Operating Income Operating income in Fiscal 1993 increased to $152.1 million from $138.5 million in Fiscal 1992, a 9.8% increase. Operating margin increased in Fiscal 1993 to 5.6% from 4.9% in Fiscal 1992. This increase was primarily the result of the aforementioned improvements in Ralphs' cost of sales percentage. EBITDA, defined as net earnings before interest expense, income tax expense (benefit), depreciation and amortization expense, postretirement benefits, the LIFO charge, extraordinary item relating to debt refinancing, provision for legal settlement, provision for restructuring, provision for earthquake losses and loss on disposal of assets, improved to $230.2 million or 8.4% of sales in Fiscal 1993 from $227.3 million or 8.0% of sales in Fiscal 1992. Net Interest Expense Net interest expense for Fiscal 1993 was $108.8 million, compared to $125.6 million for Fiscal 1992. The reduction in net interest expense was attributable to the refinancing and defeasance of Ralphs 14% Senior Subordinated Debentures due 2000 (the "14% Debentures") with the proceeds from issuance of the Old Ralphs 9% notes as the final step in a recapitalization plan initiated on July 30, 1992. Cash interest expense during Fiscal 1993 was $92.8 million compared to $105.5 million in Fiscal 1992. Also included in interest expense for Fiscal 1993 was $16.0 million representing certain other charges relating to amortization of debt issuance costs, self-insurance discount, lease valuation reserves and other miscellaneous charges (categorized by Ralphs as non-cash interest expense) as compared to $20.1 million for Fiscal 1992. Investment income which is immaterial, has been offset against interest expense. Earthquake Losses Several Ralphs stores suffered earthquake damage from the January 17, 1994 earthquake in Southern California and 54 stores were completely shutdown on the morning of January 17th. Management believes that there was some negative impact on sales resulting from the temporary disruption of business resulting from the earthquake. Ralphs is partially insured for earthquake losses. The pre-tax financial impact, net of expected insurance recoveries, is expected to be approximately $11.0 million and Ralphs reserved for this loss in Fiscal 1993. The gross earthquake loss is approximately $25.3 million and the expected insurance recovery is approximately $14.3 million. Income Taxes In Fiscal 1993, Ralphs recorded the incremental impact of The Omnibus Budget Reconciliation Act of 1993 on net deductible temporary differences and Ralphs increased its deferred income tax assets by a net amount of $109.1 million. Income tax expense (benefit) for Fiscal 1993 includes recognition of $109.1 million of deferred income tax benefit and $1.1 million current income tax expense for Fiscal 1993. See Note 11 of Notes to Ralphs Consolidated Financial Statements. 17 19 Net Earnings In Fiscal 1993, Ralphs reported net earnings of $138.4 million compared to a net loss of $76.1 million for Fiscal 1992. This increase in net earnings was primarily the result of Ralphs' recognition of $109.1 million of deferred income tax benefit for Fiscal 1993 and the following items recorded in Fiscal 1992: (1) an extraordinary charge, net of tax benefit, of $70.6 million relating to Ralphs' recapitalization plan, (2) a provision of $7.1 million made for expenses related to the closure of the central bakery operation (an additional charge of $2.4 million was recorded in Fiscal 1993) and (3) a provision of $7.5 million made for the maximum loss under a judgment rendered against Ralphs. LIQUIDITY AND CAPITAL RESOURCES The Merger, which is subject to, among other things, the completion of the financing for the transaction and the receipt of necessary consents, will require the issuance of significant additional equity by New Holdings, the issuance of new debt securities by the merged company and Holdings and the incurrence of additional bank financing by the merged company. The equity issuance would be made to a group of investors led by Apollo Advisors, L.P., which has committed to purchase up to $140 million in New Holdings equity. The issuance of new debt securities would be in the form of senior notes of the merged company up to $295 million and subordinated notes up to $200 million, and a bank financing to be made pursuant to a commitment by Bankers Trust Company to provide up to $1,075 million in such financing. In connection with the receipt of new financing, the merged company and New Holdings will be required to complete certain exchange offers, consent solicitations and/or other transactions with the holders of the currently outstanding debt securities. The transaction will also require the assumption of approximately $160 million of other existing indebtedness of the Food 4 Less and Ralphs. The proceeds of the foregoing financings will be used to acquire the outstanding stock of Ralphs, to repay certain existing indebtedness, and to pay fees and expenses in connection with the Merger and related transactions. The Holding Company purchase price is approximately $1.5 billion, including the assumption or repayment of debt. The consideration payable to the stockholders of Ralphs consists of $375 million in cash, $131.5 million initial principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be issued by Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005. In addition, the merged company will enter into an agreement with a stockholder of Ralphs pursuant to which such stockholder will act as a consultant to the merged company with respect to certain real estate and general commercial matters for a period of five years from the closing of the Merger in exchange for the payment of a consulting fee. Ralphs' total long-term debt (including current maturities) at January 29, 1995 was $967.0 million. All mandatory principal reductions required by the various agreements were satisfied during Fiscal 1994. Management believes that operating cash flow, supplemented by capital and operating leases, should be sufficient to meet Ralphs' operating needs and scheduled capital expenditures and will enable Ralphs to service its debt in accordance with its terms; provided, however, that as more fully described below the Company currently anticipates that at the end of the second quarter of 1995 it may be out of compliance with certain maintenance covenants contained in the 1992 Credit Agreement. The Company intends to seek the necessary waivers from its lenders should these events of non-compliance ultimately occur but there is no assurance that such waivers will be granted, or, if granted, will be on terms acceptable to the Company. Furthermore, it is possible that additional financing may be required and there is no assurance that such financing will be available, or, if available, will be on terms acceptable to the Company. Working capital was a deficit of $119.5 million at January 29, 1995. Supermarket operators typically require small amounts of working capital since inventory is generally sold prior to the time that payments to suppliers are due. Therefore, cash provided from operations is frequently used for non-current purposes such as investing and financing activities. Included in working capital was $84.0 million in current maturities on long-term debt and $51.5 million in short-term debt. Ralphs' primary sources of liquidity during Fiscal 1994 were cash flow from operations and borrowings under the 1992 Credit Agreement. Cash flow provided from operating activities after payment of interest expense and before capital expenditures was $55.4 million for Fiscal 1994. Capital expenditures for Fiscal 1994 were $64.0 million. In Fiscal 1993, the Company recorded the incremental impact of The Omnibus Budget Reconciliation Act of 1993 on deductible temporary differences and increased its deferred income tax assets by a net amount of $109.1 million. In Fiscal 1994, an additional $3.4 million was recorded to reflect deductible temporary differences. The Company believes it is more likely than not that the recorded net deferred tax asset will be realized (see Note 11 of the Notes to Consolidated Financial Statements). 18 20 The 1992 Working Capital Facility is a $120.0 million credit line which is available for working capital requirements and general corporate purposes. Up to $60.0 million of the 1992 Working Capital Facility may be used to support standby letters of credit and up to $10.0 million in the aggregate may be borrowed on same-day notice as swing-line loans. The letters of credit may be used to cover workers' compensation contingencies and for such other purposes as are permitted under the 1992 Credit Agreement. The 1992 Working Capital Facility is a non-amortizing line of credit available through the earlier of June 30, 1998 or the date the 1992 Credit Agreement is paid in full. As of January 29, 1995, $52.4 million of letters of credit and $51.5 million in borrowings were outstanding, with $16.1 million available under the working capital credit line. The 1992 Credit Agreement requires Ralphs to reduce its working capital credit line to zero for 30 consecutive days annually. The current annual period extends from July 1 to June 30. The Company has not yet complied with this annual covenant. The Company intends to either satisfy this covenant by June 30, 1995 or seek to obtain the necessary waiver from its lenders, if such event of non-compliance ultimately occurs but there is no assurance that such waiver will be granted, or, if granted, will be on terms acceptable to the Company. At January 29, 1995, Ralphs is in compliance with all its 1992 Credit Agreement restrictive covenants. The Company currently anticipates that it may be out of compliance with certain other maintenance covenants at the end of the second quarter of 1995. The Company intends to seek the necessary waivers from its lenders should these events of non-compliance ultimately occur, but there is no assurance that such waivers will be granted, or, if granted, will be on terms acceptable to the Company. The Company anticipates that its fiscal 1995 working capital and capital expenditure requirements will be fulfilled through either existing credit agreements or through obtaining additional working capital or permanent financing. However, if the Merger is not consummated there is no assurance that such financing will be available, or, if available, will be on terms acceptable to the Company. During Fiscal 1994 cash used in investing activities was $50.8 million. This amount reflects increased capital expenditures related to store remodels and new store openings (including store acquisitions) and, to a lesser extent, expansion of other warehousing, distribution and manufacturing facilities and equipment, including data processing and computer systems. Cash used in financing activities was approximately $24.6 million for Fiscal 1994. Reductions of capital lease obligations of $12.2 million and the payment of a $10.0 million dividend reduced cash flow. During Fiscal 1994 cash provided from operating activities of $55.4 million, cash used in investing activities of $50.8 million and cash used in financing activities of $24.6 million, resulted in a net decrease in cash and cash equivalents of $20.0 million at January 29, 1995 as compared to January 30, 1994. In recent years, Ralphs has utilized capital leases and off-balance sheet financing to fund a portion of its capital expenditures. Cash used in investing activities was $45.5 million for Fiscal 1993 and $102.5 million for Fiscal 1992. Cash provided from operating activities amounted to $104.0 million for Fiscal 1993 and $53.7 million for Fiscal 1992. Annual principal payments and maturities are as follows (in thousands):
FISCAL FISCAL FISCAL FISCAL FISCAL THERE- 1995 1996 1997 1998 1999 AFTER ======== ======== ======== ======== ======== ======== 1992 Credit Agreement . . . . . . . . . $ 65,000 $ 70,000 $ 70,000 $ 40,000 $ 0 $ 0 Mortgage Notes . . . . . . . . . . . . 2,075 2,353 2,421 2,415 167,370 0 9% Senior Subrodinated Notes . . . . . 0 0 0 0 0 150,000 10 1/4% Senior Subordinated Notes . . . 0 0 0 0 0 300,000 Capitalized leases . . . . . . . . . . 13,151 11,911 12,350 11,190 8,030 32,452 Other senior debt . . . . . . . . . . . 3,763 2,528 0 0 0 0 -------- -------- -------- -------- -------- -------- Total . . . . . . . . . . . . . . . . $ 83,989 $ 86,792 $ 84,771 $ 53,605 $175,400 $482,452 ======== ======== ======== ======== ======== ========
EFFECT OF INFLATION Inflation has not had a major impact on the operations of Ralphs during the past three years. As is typical of the supermarket industry, Ralphs 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. 19 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Information called for by this item is set forth in the Company's financial statements and supplementary data contained in this report. Specific financial statements and supplementary data can be found at the pages listed in the following index. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets at January 30, 1994 and January 29, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Years ended January 31, 1993, January 30, 1994 and January 29, 1995: Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with the Company's accountants on accounting and financial disclosure during the applicable periods. 20 22 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following information is provided with respect to the directors and executive officers of Ralphs as of May 1, 1995.
YEARS OF RALPHS SERVICE =============================== NAME AGE POSITION MANAGERIAL POSITIONS TOTAL ============================== === ============================ ==================== ===== Byron E. Allumbaugh 63 Chairman, Chief Executive 36 36 Officer and Director Alfred A. Marasca 53 President, Chief Operating 30 38 Officer and Director Terry Peets 50 Executive Vice President 18 18 Edmund Kevin Davis 41 Senior Vice President, Marketing 14 20 R. Alexander Detrick 53 Senior Vice President, 20 20 Corporate Strategy and Development Alan G. Gray 58 Senior Vice President, 34 44 Administration Jan Charles Gray 47 Senior Vice President, 20 31 General Counsel and Secretary Lee R. Mueller 54 Senior Vice President, 33 39 Store Operations Alan J. Reed 48 Senior Vice President & Chief 22 22 Financial Officer Jane Rice 53 Senior Vice President & Chief 11 11 Information Officer Mary Louise Wakefield 53 Senior Vice President, Human 20 35 Resources and EEO Officer James A. Warren 60 Senior Vice President, 33 39 Distribution & Manufacturing Lynn Davenport 54 Director Edward J. DeBartolo, Jr. 48 Director Anthony W. Liberati 62 Director G.William Miller 70 Director Edward W. Muransky 35 Director David M. Petrone 50 Director Richard S. Sokolov 45 Director Marie Denise DeBartolo York 44 Director
The Board of Directors is classified into three classes, each class to have as equal a number of directors as possible. The Class A directors, Messrs. DeBartolo, Jr., Liberati, Sokolov and Mrs. DeBartolo York have been elected for a term that expires at the annual meeting of stockholders in 1995, the Class B directors, Messrs. Miller and Petrone, have been elected for a term that expires at the annual meeting of stockholders in 1996, and the Class C directors, Messrs. Allumbaugh, Davenport, Marasca and Muransky have been elected for a term that expires at the annual meeting of stockholders in 1997. At each annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term. 21 23 Composition of the Board of Directors of Ralphs and the Holding Company is identical at the present time, as are the officers of the two companies. Officers are elected annually and are subject to removal at any time, with or without cause, by the Board of Directors of the Holding Company or Ralphs, as the case may be. Mr. Allumbaugh has been Chairman and Chief Executive Officer since 1976 and a Director since 1988. He also is a Director of the H.F. Ahmanson Company, El Paso Natural Gas Company and Ultramar, Inc. Mr. Marasca has been President, Chief Operating Officer and a Director since February 1994. He was President from February 1993 to February 1994, Executive Vice President, Retail from 1991 until 1993 and Executive Vice President, Marketing from 1985 to 1991. Mr. Peets has been Executive Vice President since February 1994. He was Senior Vice President, Marketing from 1991 to February 1994, Senior Vice President, Merchandising from 1990 to 1991, Group Vice President, Merchandising from 1988 to 1990 and Group Vice President, Store Operations from 1987 to 1988. Mr. Davis has been Senior Vice President, Marketing since September 1994. He was Senior Vice President, Sales and Merchandising from February 1994 to September 1994, Group Vice President, Sales and Merchandising from 1992 to February 1994 and Vice President of Sales and Advertising from 1988 to 1992. Mr. Detrick has been Senior Vice President, Corporate Strategy and Development, since 1982. Mr. Alan G. Gray has been Senior Vice President, Administration since 1993. He was Group Vice President, Store Operations from 1985 to 1992 and Group Vice President, Administration from 1992 to 1993. Mr. Jan Charles Gray has been Senior Vice President, General Counsel and Secretary since 1988. He was Senior Vice President and General Counsel from 1985 to 1988 and Vice President and General Counsel from 1978 to 1985. Mr. Mueller has been Senior Vice President, Store Operations since 1993. He was Group Vice President, Store Operations from 1985 to 1993. Mr. Reed has been Senior Vice President and Chief Financial Officer since 1988. He was Senior Vice President, Finance from 1985 to 1988 and Vice President, Finance from 1983 to 1985. Ms. Rice has been Senior Vice President and Chief Information Officer since February 1994. She was Group Vice President, Management Information Systems from 1993 to February 1994, Vice President, Management Information Services from 1992 to 1993 and Vice President, Information Services from 1988 to 1992. Ms. Wakefield has been Senior Vice President, Human Resources and EEO Officer since August 1994. She was Group Vice President, Human Resources and EEO Officer from February 1994 to August 1994 and Vice President, Human Resources from 1987 to 1994. Mr. Warren has been Senior Vice President, Distribution and Manufacturing since 1993. He was Group Vice President, Distribution from 1986 to 1993. Mr. Davenport has been a Director since June 1994. Since January 1995 he has been a Director and since 1994 has been Senior Vice President and Chief Financial Officer of The Edward J. DeBartolo Corporation. Mr. Davenport serves as a Director of J.W. O'Connor & Co., Inc. Mr. DeBartolo, Jr., has been a Director since 1992. Since April 1994 he has been Chairman of the Board and a Director of the DeBartolo Realty Corporation. Since 1994 he has been President and Chief Executive Officer, from 1979 to 1994 he was President and Chief Administrative Officer and since 1973 he has been a Director of The Edward J. DeBartolo Corporation. Mr. Liberati has been a Director since 1992. Since April 1994 he has been a Director of the DeBartolo Realty Corporation. Since December 1994 he has been the Executive Vice President, Chief Operating Officer, from 1982 to 1994 he was the Executive Vice President, Corporate Planning/Finance and since 1982 he has been a Director of The Edward J. DeBartolo Corporation. Mr. Liberati serves as a Director of Pennsylvania Capital Bank. 22 24 Mr. Miller has been a Director since 1990. Since 1983 he has been Chairman of G. William Miller & Co., Inc., a merchant banking firm. He is a former Secretary of the U.S. Treasury and a former Chairman of the Federal Reserve Board, and has served as Chairman and Chief Executive Officer of Federated Stores, Inc. from January 1990 to February 1992. Mr. Miller serves as a Director of the DeBartolo Realty Corporation, Federated Department Stores, Inc., Klienwort Benson Australian Income Fund, Inc., Repligen Corporation, Georgetown Industries, Inc. and Waccamaw Corporation. Mr. Muransky has been a Director since June 1994. Mr. Muransky is the Chief Executive Officer and Chairman of Gallagher Pipino, Inc. Mr. Petrone has been a Director since 1992. Mr. Petrone served as Vice Chairman of Wells Fargo & Co. from October 1986 to March 1992. Since March 1993, Mr. Petrone has been a principal in Petrone, Petri & Company, a firm engaged in real estate finance and investments. Mr. Petrone serves as a Director of Health Science Properties and Jacobs Engineering Group, Inc. Mr. Sokolov has been a Director since 1992. Since April 1994 he has been President and Chief Executive Officer and a Director of the DeBartolo Realty Corporation. From 1986 to March 1994 he was Senior Vice President and General Counsel of The Edward J. DeBartolo Corporation. In connection with the proceeding brought by the Securities and Exchange Commission in the United States District Court for the District of Columbia entitled SEC v. Paul A. Bilzerian et al., Mr. Sokolov, without admitting or denying any allegations, consented to the entry of a permanent injunction on June 29, 1989 enjoining him from engaging in any transactions or courses of business which would constitute or would aid and abet violations of certain specified federal securities laws and rules. Mrs. DeBartolo York has been a Director since February 1994. Since December 1994 she has been the Chairman of the Board and a Director of The Edward J. DeBartolo Corporation. Since December 1994 she has been a Director of the DeBartolo Realty Corporation. The Board of Directors of Ralphs has an Executive Committee, and Audit Committee and a Compensation Committee. The current members of the Executive Committee are Messrs. Allumbaugh, Liberati and Marasca. The current members of the Audit Committee are Messrs. Liberati, Miller and Petrone. The current members of the Compensation Committee are Messrs. DeBartolo, Jr., Miller and Petrone. The Certificate of Incorporation, as amended, of Ralphs (the "Certificate") provides that the Directors of Ralphs are protected to the fullest extent permitted by Delaware law against monetary damages for breach of the directors' fiduciary duty of care to Ralphs and its stockholder, the Holding Company. This provision in the Certificate does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunction, rescission or other forms of non-monetary relief would remain available under Delaware law. In addition, each Director will continue to be subject to liability for breach of the director's duty of loyalty to the Holding Company, for acts or omissions not taken or made in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other laws, such as federal securities laws. Ralphs is insured for certain losses incurred in connection with Ralphs' indemnifying its directors and officers. 23 25 ITEM 11. EXECUTIVE COMPENSATION The following table summarizes the compensation for services rendered during the prior three fiscal years paid to the CEO and the four most highly compensated executive officers other than the CEO of Ralphs.
LONG TERM COMPENSATION ================================== AWARDS PAYOUTS ANNUAL COMPENSATION ======================= ======= ================================== RESTRICTED OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER NAME AND SALARY BONUSES COMPENSATION AWARDS SARS PAYOUTS COMPENSATION PRINCIPAL POSITION YEAR ($) ($) (1) ($) ($) (#) ($) ($) (2) ============================= ==== ====== ======= ============ ========== ======== ======= ============ Byron E. Allumbaugh, Chairman & Chief Executive Officer . . . . 1994 650,000 0 N/A N/A N/A N/A 25,580 1993 645,000 387,000 N/A N/A N/A N/A 20,075 1992 620,000 372,000 N/A N/A 587,753 N/A 21,897 Alfred A. Marasca, President and Chief Operating Officer . . 1994 400,000 0 N/A N/A N/A N/A 10,580 1993 340,000 204,000 N/A N/A N/A N/A 7,187 1992 296,260 148,125 N/A N/A 308,812 N/A 8,206 Alan J. Reed, Senior Vice President, Finance and Chief Financial Officer . . . . . . . 1994 225,000 0 N/A N/A N/A N/A 6,248 1993 222,500 111,250 N/A N/A N/A N/A 8,879 1992 211,250 105,625 N/A N/A 154,406 N/A 6,125 Terry Peets, Executive Vice President . . . . . . . . . . . 1994 215,000 0 N/A N/A N/A N/A 7,562 1993 192,500 96,250 N/A N/A N/A N/A 6,127 1992 182,500 91,250 N/A N/A 154,406 N/A 6,027 Jan Charles Gray, Senior Vice President, General Counsel and Secretary . . . . . . . . . 1994 213,750 0 N/A N/A N/A N/A 9,047 1993 207,500 103,750 N/A N/A N/A N/A 9,084 1992 196,250 98,125 N/A N/A 154,406 N/A 6,605
(1) Bonuses for services performed in Fiscal Year 1994 were paid in Fiscal Year 1995. Bonus amounts for Messrs. Allumbaugh, Marasca, Reed, Peets and J. Gray were $390,000, $240,000, $112,500, $107,500 and $106,875 respectively. (2) Represents (i) insurance premiums and the dollar value of the remainder of premiums paid under the Senior Executive Supplemental Benefit Plan, and (ii) Ralphs' contributions under the Ralphs Thrift Incentive Plan. The respective amount paid for Messrs. Allumbaugh, Marasca, Reed, Peets and Gray are as follows: (A) Insurance premiums; $18,500, $6,600, $4,025, $5,460 and $4,500 (B) dollar value of remainder of premiums; $5,232, $2,702, $0, $0, and $2,699; (C) incentive plan contributions; $1,848, $1,278, $2,223, $2,102 and $1,848. OPTION/SAR GRANTS IN LAST FISCAL YEAR There were no grants of stock options or SARs in Fiscal 1994. 24 26 AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT VALUE FY-END (#) FY-END ($) SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE (#)(1) ($) UNEXERCISABLE(2) UNEXERCISABLE(3) ============================ ================== ========= ================ ================ Byron E. Allumbaugh . . . . . . . 70,000 1,961,646 352,652/ 0/ 375,101 3,923,290 Alfred A. Marasca . . . . . . . . 13,500 378,317 108,084/ 0/ 259,228 1,639,375 Alan J. Reed . . . . . . . . . . 10,500 294,247 54,042/ 0/ 145,864 1,275,069 Terry Peets . . . . . . . . . . 7,500 210,176 54,042/ 0/ 132,864 910,764 Jan Charles Gray . . . . . . . . 0 0 54,042/ 0/ 132,864 1,120,940
(1) Represents SARs exercised under the Ralphs 1988 Equity Appreciation Rights Plan. (2) Each number represents the aggregate number of Options and SARs outstanding, as currently exercisable/Unexercisable. Options and SARs were granted under different plans, not in tandem. All SARs are free standing. (3) Represents value of SARs, based on a value of $28.0235 per SAR at the time of exercise. Outstanding options are not currently in-the-money, based on current estimates of the fair market value of the Common Stock. EXECUTIVE EMPLOYMENT CONTRACTS Ralphs has entered into employment contracts with Messrs. Allumbaugh, Marasca, Reed, Peets and J. Gray currently providing for their employment at annual base salaries of $650,000, $400,000, $225,000, $215,000 and $215,000 respectively. These employment contracts expire on April 30, 1996. Ralphs has also entered into employment contracts providing for aggregate base salaries of $748,500 with Messrs. Detrick, A. Gray, Mueller and Warren. Each contract provides that the employee's employment and remuneration may be terminated by Ralphs (i) for cause based upon the employee's gross misconduct, felony conviction (other than a traffic or moving violation), serious breach of Ralphs policy or similar transgression; (ii) for failure to render services for a continuous period of 12 months due to disability; or (iii) for a material breach of the contract. An employee's remuneration under an employment contract will also be terminated upon the employee's voluntary resignation or retirement. Ralphs can advise an employee in writing that his services will no longer be required, which will be treated as a suspension of services. If a suspension of service occurs, the employee continues to be treated as an employee for all purposes for the term of the agreement. The employee is entitled to continued compensation until termination of the contract, subject to an offset equal to 50% of any compensation received from another business (except from businesses or investments previously owned by the employee before the date the suspension of services or termination for which there will be no deduction) or 100% if such business is a competing business (as defined in the employment contract). RETIREMENT PLANS Retirement Plan. The Ralphs Grocery Company Retirement Plan (the "Retirement Plan") is a defined benefit pension plan for salaried and hourly nonunion employees with at least one year of credited service (1,000 hours). Ralphs makes annual contributions to the Retirement Plan in such amounts as are actuarially required to fund the benefits payable to participants in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). 25 27 Supplemental Executive Retirement Plan. To allow Ralphs' retirement program to provide benefits based upon a participant's total compensation and without regard to other ERISA or tax code pension plan limitations, eligible executive employees of Ralphs participate in the Ralphs Grocery Company Supplemental Executive Retirement Plan and after December 31, 1993, the Ralphs Grocery Company Retirement Supplemental Plan (collectively, the "Supplemental Plan"). The Supplemental Plan also modifies the benefit formula under the Retirement Plan in other respects. Benefits provided under the Supplemental Plan were improved effective April 9, 1994. The following table sets forth the combined estimated annual benefits payable in the form of a (single) life annuity under both the Retirement Plan and the Supplemental Plan (unreduced by the cash surrender value of any life insurance policies) to a participant in both plans who is retiring at a normal retirement date of January 1, 1995 for the specified final average salaries and years of credited service.
YEARS OF CREDIT SERVICE =========================================================== FINAL AVERAGE SALARY 15 20 25 30 35 ==================== ======== ======== ======== ======== ======== $ 100,000 $ 19,484 $ 25,978 $ 32,473 $ 38,967 $ 45,462 200,000 41,984 55,978 69,973 83,967 97,962 300,000 90,000 120,000 150,000 180,000 180,000 400,000 120,000 160,000 200,000 240,000 240,000 600,000 180,000 240,000 300,000 360,000 360,000 800,000 240,000 320,000 400,000 480,000 480,000 1,000,000 300,000 400,000 500,000 600,000 600,000 1,200,000 360,000 480,000 600,000 720,000 720,000
Messrs. Allumbaugh, Marasca, Reed, Peets and J. Gray have completed 36, 38, 22, 18 and 31 years of credited service, respectively. Compensation covered by the Supplemental Plan includes both salary and bonus. The calculation of retirement benefits generally is based on average compensation for the highest three years of the ten years preceding retirement. The benefits earned by a participant under the Supplemental Plan are reduced by any benefits which the participant has earned under the Retirement Plan and may be offset under certain circumstances by the cash surrender value of life insurance policies maintained by Ralphs pursuant to the Split Dollar Life Insurance Agreements entered into by Ralphs and the executive. Benefits are not subject to any deduction for social security offset. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following persons served as members of the Compensation Committee of the Board during Fiscal 1994: Edward J. DeBartolo, Jr., G. William Miller, Peter J. Solomon and David M. Petrone, who replaced Mr. Solomon on the Committee in June 1994. Edward J. DeBartolo, Jr. is the President and a director of EJDC. In connection with the acquisition of a majority of the Holding Company's Common Stock on February 3, 1992, EJDC agreed to the EJDC Guaranty. See Item 13. "Certain Relationships and Related Transactions". The foregoing summaries of the various benefit plans and agreements described above are qualified by reference to such plans and agreements, copies of which have been filed as exhibits to this Annual Report on Form 10-K. DIRECTOR COMPENSATION Directors who are not employees of the Holding Company or of Ralphs are paid a fee of $15,000 per year for serving on the Board of Directors and $2,500 for each Board meeting attended. All directors are also reimbursed for their out-of-pocket travel and related expenses incurred in attending all Board and committee meetings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT a) Security Ownership of Certain Beneficial Owners 26 28 As of the date hereof, 100% of the outstanding capital stock of the Company is owned by the Holding Company and approximately 60.3% of the outstanding shares of Common Stock of the Holding Company (the "EJDC Holding Company Common Stock") are owned beneficially by EJDC. Consequently, EJDC will have the ability to exercise control over the business and affairs of the Holding Company by virtue of its continuing ability to elect a majority of the Holding Company's Board of Directors and its voting power with respect to actions requiring stockholder approval. By virtue of its ownership of the Common Stock of the Holding Company, EJDC will have the ability to exercise similar control over the business and affairs of Ralphs. EJDC, a corporation controlled by Mr. Edward J. DeBartolo, Jr. and Mrs. Marie Denise DeBartolo York, is primarily engaged in shopping mall and other real estate development activities. 27 29 The following table sets forth certain information regarding the beneficial ownership of the Holding Company Common Stock as of the date hereof. By virtue of their ownership of the Holding Company Common Stock, the following entities may be deemed to own a corresponding percentage of the Common Stock.
SHARES BENEFICIALLY OWNED (1) NAME ADDRESS NUMBER PERCENT =================================================================================== ========== ======= The Edward J. DeBartolo Corporation (2)(3) . . . . . . . . . . . . . . . . . . . . 15,440,600 60.34 7620 Market Street Youngstown, Ohio 44512 Camdev Properties Inc. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,276,681 12.81 400 King Street West Suite 5800 Toronto, Ontario M5H 3Y8 Bank of Montreal (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,591,815 10.13 700 Louisiana, Suite 4400 Houston, Texas 77002 Banque Paribas (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,591,815 10.13 757 Seventh Avenue New York, New York 10019 Federated Department Stores, Inc. (2) . . . . . . . . . . . . . . . . . . . . . . . 1,686,369 6.59 7 West Seventh Street Cincinnati, Ohio 45202
(1) Unless otherwise indicated in the footnotes to this table, each of the stockholders named in this table has sole voting and investment owner with respect to the shares shown as beneficially owned by it. (2) The principal stockholders have certain registration rights pursuant to the Registration Rights Agreement. (3) All shares indicated are owned of record by EJDC, which is indirectly controlled by Edward J. DeBartolo, Jr. and Marie Denise DeBartolo York, who would be deemed to beneficially own the shares of Common Stock owned by EJDC. b) Security Ownership of Management As of the date hereof, no officer or director of the Company beneficially owns any equity securities of the Company. c) Changes in Control None. 28 30 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS EJDC guarantees Ralphs' obligations as a self-insurer of worker's compensation liabilities in the State of California (the "EJDC Guaranty"). In connection with the EJDC Guaranty, Ralphs unconditionally agreed to reimburse EJDC for any payments made under the EJDC Guaranty and for the cost of insurance up to $200,000 to cover liabilities incurred pursuant to the EJDC Guaranty. Further, Ralphs agreed to pay EJDC a guarantee fee of $33,500 for each month the EJDC Guaranty is in effect ($402,000 was paid in Fiscal 1994). In connection with the bankruptcy reorganization of Federated Department Stores, Inc. and its affiliates, Federated Department Stores, Inc. ("Federated") agreed to pay certain potential tax liabilities relating to Ralphs previously being a member of the affiliated group of companies comprising Federated and its subsidiaries. In consideration thereof, the Holding Company and Ralphs agreed to pay Federated Department Stores, Inc. a total of $10.0 million, payable $1.0 million on each of February 3, 1992, 1993, 1994, 1995 and 1996 and $5.0 million on February 3, 1997. The five $1.0 million installments are to be paid by Ralphs and the $5.0 million payments is the joint obligation of the Holding Company and Ralphs. In the event Federated Department Stores, Inc. is required to pay certain tax liabilities, the Holding Company and Ralphs have agreed to reimburse Federated Department Stores, Inc. up to an additional $10.0 million, subject to certain adjustments. This additional obligation, if any, is the joint and several obligation of the Holding Company and Ralphs. The $5.0 million payment and the potential $10.0 million payment will be paid in cash or stock of the Holding Company. See Note 1 of the Notes to Financial Statements. In addition, EJDC and the other current holders of Common Stock are parties to an agreement providing for various aspects of corporate governance (the "Registration Rights Agreement") relating to the Holding Company and Ralphs. Pursuant to the Registration Rights Agreement, Ralphs is obligated to provide the Holding Company, by dividend, pursuant to a services agreement or otherwise, with funds sufficient to enable the Holding Company to perform its duties as the holding company of Ralphs' stock and to perform its obligations set forth in the Registration Rights Agreement. Moreover, pursuant to a service agreement, dated February 3, 1992 (the "Service Agreement"), between Ralphs and the Holding Company, the Holding Company agreed to perform certain accounting, advisory, capital raising and other services for Ralphs and Ralphs agreed to pay to the Holding Company an amount equal to the Holding Company's direct and indirect costs of performing such services. Management believes that amounts to be paid under the Service Agreement will not be material to the business or financial condition of Ralphs. 29 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K. (A) Documents filed as part of this report: (1) Financial Statements. See Financial Statements Index included in Item 8 of Part II of this form 10-K. (2) Financial Statement Schedules:
LOCATION IN THIS REPORT =========== Schedule VIII-Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
(3) Exhibits See Index to Exhibits following signature page. A copy of the exhibits listed herein can be obtained by writing: Jan Charles Gray Senior Vice President, General Counsel & Secretary Ralphs Grocery Company P.O. Box 54143 Los Angeles, CA 90054 (B) Reports on Form 8-K Not applicable. 30 32 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Date: April 27, 1995 RALPHS GROCERY COMPANY BY: /S/ JAN CHARLES GRAY ------------------------------- Jan Charles Gray Senior Vice President, General Counsel and Secretary PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE ========== ===== ==== /s/ BYRON E. ALLUMBAUGH Chairman of the Board April 27, 1995 - ------------------------------------------ Chief Executive Officer Byron E. Allumbaugh and Director (Principal Executive Officer) /s/ ALFRED A. MARASCA President, Chief Operating April 27, 1995 - ------------------------------------------ Officer and Director Alfred A. Marasca /s/ JAN CHARLES GRAY Senior Vice President and April 27, 1995 - ------------------------------------------ General Counsel and Jan Charles Gray Secretary /s/ ALAN J. REED Senior Vice President April 27, 1995 - --------------------------------------------- and Chief Financial Officer Alan J. Reed (Principal Financial Officer) /s/ ROBERT W. GOSSMAN Group Vice President and April 27, 1995 - ------------------------------------------ Controller (Principal Robert W. Gossman Accounting Officer
31 33
SIGNATURES TITLE DATE ========== ===== ==== /s/ LYNN DAVENPORT Director April 27, 1995 - --------------------------------------------- Lynn Davenport /s/ EDWARD J. DEBARTOLO JR. Director April 27, 1995 - --------------------------------------------- Edward J. DeBartolo Jr. /s/ ANTHONY W. LIBERATI Director April 27, 1995 - ----------------------------------------------- Anthony W. Liberati /s/ G. WILLIAM MILLER Director April 27, 1995 - ----------------------------------------------- G. William Miller /s/ EDWARD W. MURANSKY Director April 27, 1995 - ---------------------------------------------- Edward W. Muransky /s/ DAVID M. PETRONE Director April 27, 1995 - -------------------------------------------------- David M. Petrone /s/ RICHARD S. SOKOLOV Director April 27, 1995 -------------------------------------------- Richard S. Sokolov /s/ MARIE DENISE DEBARTOLO YORK Director April 27, 1995 - ---------------------------------------- Marie Denise DeBartolo York
32 34 RALPHS GROCERY COMPANY INDEX TO EXHIBITS
The following exhibits are filed as a separate section of the report: SEQUENTIALLY EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE =========== ============================================= ============= 10.29 Amendment No. 1, dated as of January 12, 1995 to the Agreement and Plan of Merger dated as of September 14, 1994 10.30 Amendment No. 2, dated as of February 24, 1995 to the Agreement and Plan of Merger dated as of September 14, 1994 10.31 Amendment No. 3, dated as of April 26, 1995 to the Amendment and Plan of Merger dated as of September 14, 1994 The following exhibits are incorporated herein by reference: EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE TO =========== ============================================= ============ 3.1 Restated Certificate of Incorporation Exhibit 3.1 to Registration State- ment No. 33-47634 on Form S-1. 3.2 By-Laws Exhibit 3.2 to Registration State- ment No. 33-47634 on Form S-1. 10.1 Ralphs Grocery Company Retirement Plan Exhibit 10.1 to Plan, as amended Registration State- ment No. 33-47634 on Form S-1. 10.2 Ralphs Grocery Company Supplemental Exhibit 10.2 to Retirement Plan, as amended Registration State- ment No. 33-47634 on Form S-1. 10.3 Outline of Benefits under the Ralphs Exhibit 10.3 to Grocery Company Senior Executive Registration State- Medical Plan ment No. 33-47634 on Form S-1. 10.4 Guidelines for the Ralphs Grocery Exhibit 10.4 to Company Management Incentive Plan Registration State- ment No. 33-47634 on Form S-1. 10.5 Ralphs Grocery Company Savings Plan Exhibit 10.5 to Plus Primary Registration State- ment No. 33-47634 on Form S-1. 10.6 Ralphs Grocery Company Savings Plan Exhibit 10.6 to Plus Basic Registration State- ment No. 33-47634 on Form S-1.
33 35
EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE TO =========== ============================================= ============ 10.7 Tax Indemnification Agreement Exhibit 10.7 to Registration State- ment No. 33-47634 on Form S-1. 10.8 Comprehensive Settlement Agreement Exhibit 10.8 to Registration State- ment No. 33-47634 on Form S-1. 10.9 Tax Election Agreement Exhibit 10.9 to Registration State- ment No. 33-47634 on Form S-1. 10.10 Indenture between Ralphs Grocery Company Exhibit 10.10 to and United States Trust Company, as Registration State- Trustee, dated as of August 26, 1988, ment No. 33-47634 including form of 14% Senior on Form S-1. Subordinated Debentures due 2000 attached as Exhibit A thereto, with respect to the 14% Senior Subordinated Debentures due 2000 10.11 Supplemental Indenture between Ralphs Exhibit 4.2 to Grocery Company and United States Registrant's Quart- Trust Company of New York, as Trustee, erly Report on Form dated as of May 29, 1992, with respect 10-Q dated September to the 14% Senior Subordinated 1, 1992 and filed on Debentures due 2000 September 2, 1992 10.12 Amended and Restated Ralphs Grocery Company Exhibit 10.11 to 1988 Equity Appreciation Rights Plan Registration State- and Equity Appreciation Rights ment No. 33-47634 Agreement on Form S-1. 10.13 Ralphs Supermarkets, Inc. Non-qualified Exhibit 10.12 to Stock Option Plan Registration State- ment No. 33-47634 on Form S-1. 10.14 Registration Rights and Corporate Exhibit 10.13 to Governance Agreement, as amended Registration State- ment No. 33-47634 on Form S-1. 10.15 Agreement of Assumption and Guarantee Exhibit 10.14 to of Workers' Compensation Liabilities Registration State- ment No. 33-47634 on Form S-1.
34 36
EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE TO =========== ============================================= ============ 10.16 Reimbursement Agreement Exhibit 10.15 to Registration State- ment No. 33-47634 on Form S-1. 10.17 Ralphs Grocery Company 1988 Credit Exhibit 10.16 to Agreement Registration State- ment No. 33-47634 on Form S-1. 10.18 Commitment Letter relating to 1992 Exhibit 10.17 to Credit Agreement Registration State- ment No. 33-47634 on Form S-1. 10.19 Credit Agreement, dated as of July 22, Exhibit 10.19 to 1992 (the "1992 Credit Agreement"), Registrant's Annual among Ralphs Grocery Company, Bankers Report on Form 10-K Trust Company and the Lenders named filed on April 29,1993 therein 10.20 First Amendment and Limited Waiver, Exhibit 10.20 to dated as of March 19, 1993, to the Registrant's Annual 1992 Credit Agreement Report on Form 10-K filed on April 29,1993 10.21 Ralphs Grocery Company Promissory Notes, Exhibit 10.18 to Deeds of Trust and Security Agreements Registration State- with Metropolitan Life Insurance ment No. 33-47634 Company, as amended on or prior to on Form S-1. May 1, 1992 10.22 Amendments dated as of July 30, 1992 and Exhibit 10.22 to March 30, 1993, to Ralphs Grocery Company Registrant's Annual Promissory Notes, Deeds of Trust and Report on Form 10-K Security Agreements with Metropolitan filed on April 29,1993 Life Insurance Company, as amended 10.23 Employment Agreements between Ralphs Exhibit 10.19 to Grocery Company and each of Byron Registration State- Allumbaugh, Patrick Collins, Alfred ment No. 33-47634 Marasca and Ralph Liebman on Form S-1. 10.23(a) Employment Agreement between Ralphs Exhibit 10.23(a) to Grocery Company and Alan Reed, as Registrant's Annual amended Report on Form 10-K filed on April 29,1993
35 37
EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE TO =========== ============================================= ============ 10.24 Indenture between Ralphs Grocery Exhibit 4.3 to Grocery Company and United States Trust Registrant's Quarterly Company, as Trustee, dated as of July Report on Form 10-Q 29, 1992, with respect to the 10 1/4% dated September 1, Senior Subordinated Notes due 2002 1992 and filed on September 2, 1992 10.25 Indenture between Ralphs Grocery Company Exhibit 4.1 to and United States Trust Company, as Registration Statement Trustee dated as of March 30, 1993 No. 33-61812 on (the "1993 Indenture") with respect to Form S-4 the Initial Notes and the Exchange Notes 10.26 Supplemental Indenture dated as of Exhibit 4.2 to June 23, 1993, to the 1993 Indenture Registration Statement No. 33-61812 on Form S-4 10.27 Employment Agreements between Exhibit 10.27 to Ralphs Grocery Company and each of Registrant's Annual Jan Charles Gray and Terry Peets Report on Form 10-K filed on May 2, 1994 10.28 Agreement and Plan of Merger, dated as Exhibit 99.1 to of September 14, 1994, by and among Registrant's Current Food 4 Less, Inc., Food 4 Less Holdings, Report on Form 8-K, Inc., Food 4 Less Supermarkets, Inc., dated September 14, Ralphs Supermarkets, Inc. and the 1994 stockholders of Ralphs Supermarkets, Inc.
36 38 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report . . . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets at January 30, 1994 and January 29, 1995 . . . . . . . . . . . . . . . . . . . F-3 Years ended January 31, 1993, January 30, 1994 and January 29, 1995: Consolidated Statements of Operations . . . . . . . . . . F-4 Consolidated Statements of Cash Flows . . . . . . . . . . F-5 Consolidated Statements of Stockholder's Equity . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . F-7 Financial Statement Schedules Schedule VIII - Valuation and Qualifying Accounts . . . . S-1
F-1 39 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Ralphs Grocery Company: We have audited the consolidated financial statements of Ralphs Grocery Company and subsidiary as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ralphs Grocery Company and subsidiary as of January 30, 1994 and January 29, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended January 29, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Los Angeles, California March 9, 1995 F-2 40 RALPHS GROCERY COMPANY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY 30, JANUARY 29, 1994 1995 ========== ========== ASSETS Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . $ 55,080 $ 35,125 Accounts receivable . . . . . . . . . . . . . . . . . 30,420 43,597 Inventories . . . . . . . . . . . . . . . . . . . . . 202,354 221,388 Prepaid expenses and other current assets . . . . . . 18,111 19,793 ---------- ---------- Total current assets . . . . . . . . . . . . . . . . 305,965 319,903 Property, plant and equipment, net . . . . . . . . . . 601,897 624,724 Excess of cost over net assets acquired, net . . . . . 376,414 365,418 Beneficial lease rights, net . . . . . . . . . . . . . 55,553 49,164 Deferred debt issuance costs, net . . . . . . . . . . 26,583 23,011 Deferred income taxes . . . . . . . . . . . . . . . . 109,125 112,491 Other assets . . . . . . . . . . . . . . . . . . . . . 8,113 15,203 ---------- ---------- Total assets . . . . . . . . . . . . . . . . . . . . $1,483,650 $1,509,914 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Current maturities of long-term debt . . . . . . . . . $ 70,975 $ 83,989 Short-term debt . . . . . . . . . . . . . . . . . . . -- 51,500 Bank overdrafts . . . . . . . . . . . . . . . . . . . 37,716 45,669 Accounts payable . . . . . . . . . . . . . . . . . . . 138,554 130,889 Accrued expenses . . . . . . . . . . . . . . . . . . . 101,543 99,804 Current portion of self-insurance reserves . . . . . . 30,138 27,552 ---------- ---------- Total current liabilities . . . . . . . . . . . . . 378,926 439,403 Long-term debt . . . . . . . . . . . . . . . . . . . . 927,909 883,020 Self-insurance reserves . . . . . . . . . . . . . . . 49,872 44,954 Lease valuation reserve . . . . . . . . . . . . . . . 32,575 28,957 Other non-current liabilities . . . . . . . . . . . . 89,299 86,393 ---------- ---------- Total liabilities . . . . . . . . . . . . . . . . . 1,478,581 1,482,727 Stockholder's equity: Common stock, $1 par value per share Authorized 1,000 shares; issued and outstanding, 100 shares at January 30, 1994 and January 29, 1995 . . . . . . . . . . . . . . . . . . -- -- Additional paid-in capital . . . . . . . . . . . . . . 175,548 175,548 Accumulated deficit . . . . . . . . . . . . . . . . . (170,479) (148,361) ---------- ---------- Total stockholder's equity . . . . . . . . . . . . . 5,069 27,187 ---------- ---------- Commitments and contingencies (See Notes 2 and 8) Total liabilities and stockholder's equity . . . . $1,483,650 $1,509,914 ========== ==========
See accompanying notes to consolidated financial statements. F-3 41 RALPHS GROCERY COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands)
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 31, 1993 JANUARY 30, 1994 JANUARY 29, 1995 =================== ================== ===================== Sales . . . . . . . . . . . . . . . . . . . . $2,843,816 100.0% $2,730,157 100.0% $2,724,604 100.0% Cost of sales . . . . . . . . . . . . . . . . 2,217,197 78.0 2,093,727 76.7 2,101,033 77.1 Gross profit . . . . . . . . . . . . . . . 626,619 22.0 636,430 23.3 623,571 22.9 Selling, general and administrative expenses 470,012 16.5 471,000 17.2 467,022 17.2 Amortization of excess of cost over net assets acquired . . . . . . . . . . . . . . . . . . 10,997 0.4 10,996 0.4 10,996 0.4 Provision for restructuring . . . . . . . . . 7,100 0.2 2,374 0.1 -- -- ---------- ----- ---------- ----- ---------- ----- Operating income . . . . . . . . . . . . . 138,510 4.9 152,060 5.6 145,553 5.3 Other expenses: Interest . . . . . . . . . . . . . . . . . 125,611 4.4 108,755 4.0 112,651 4.1 Loss on disposal of assets . . . . . . . . 2,607 0.1 1,940 0.1 784 0.0 Provision for legal settlement . . . . . . 7,500 0.3 -- -- -- -- Provision for earthquake losses . . . . . . -- -- 11,048 0.4 -- -- ---------- ----- ---------- ----- ---------- ----- Earnings before income taxes and extraordinary item . . . . . . . . . . . . . 2,792 0.1 30,317 1.1 32,118 1.2 Income tax expense (benefit) . . . . . . . . 8,346 0.3 (108,049) (4.0) -- -- ---------- ----- ---------- ----- ---------- ----- Earnings (loss) before extraordinary item . . (5,554) (0.2) 138,366 5.1 32,118 1.2 Extraordinary item-debt refinancing, net of tax benefit of $4,173 . . . . . . . . . . . . . . (70,538) (2.5) -- -- -- -- ---------- ----- ---------- ----- ---------- ----- Net earnings (loss) . . . . . . . . . . . . . $(76,092) (2.7)% $138,366 5.1% $ 32,118 1.2% ========== ===== ========== ===== ========== =====
See accompanying notes to consolidated financial statements. F-4 42 RALPHS GROCERY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ========== ========== ========== Cash flows from operating activities: Net earnings (loss) . . . . . . . . . . . . . . . $ (76,092) $ 138,366 $32,118 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . 76,873 74,452 76,043 Amortization of discounts and deferred debt issuance costs . . . . . . . . . . . . . . . . . 20,978 9,768 9,032 LIFO charge (credit) . . . . . . . . . . . . . . 1,115 (2,054) 2,085 Loss on sale of assets . . . . . . . . . . . . . 6,841 4,314 784 Provision for postretirement benefits . . . . . . 3,275 3,370 2,555 Provision for legal settlement . . . . . . . . . 7,500 -- -- Other changes in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . 6,376 326 (13,177) Inventories at replacement cost . . . . . . . . . (13,682) 6,724 (21,120) Prepaid expenses and other current assets . . . . 3,703 (1,658) (1,682) Other assets . . . . . . . . . . . . . . . . . . (616) 4,449 (7,287) Interest payable . . . . . . . . . . . . . . . . (13,393) (4,822) (2,419) Accounts payable and accrued liabilities . . . . 23,054 (1,622) (1,047) Income taxes payable . . . . . . . . . . . . . . (527) (1,480) (2,906) Deferred tax asset . . . . . . . . . . . . . . . -- (109,125) (3,366) Business interruption credit . . . . . . . . . . -- (581) -- Earthquake losses . . . . . . . . . . . . . . . . -- (11,048) -- Self insurance reserves . . . . . . . . . . . . . 8,456 7,031 (7,503) Other liabilities . . . . . . . . . . . . . . . . (170) (12,407) (6,692) ----- --------- ------- Cash provided by operating activities . . . . . . . . . . . . . . . . . . . 53,691 104,003 55,418 ------- -------- ------ Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . (102,697) (62,181) (64,018) Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . 219 16,700 13,257 -------- ------ ------ Cash used in investing activities . . . . . . . . (102,478) (45,481) (50,761) --------- -------- -------- Cash flows from financing activities: Net borrowings under lines of credit . . . . . . 2,100 (31,100) 51,500 Redemption of preferred stock . . . . . . . . . . (3,000) -- -- Capitalized financing and acquisition costs . . . (22,426) (5,108) (2,496) Increase (decrease) in bank overdrafts . . . . . (8,865) 655 7,952 Proceeds from issuance of long-term debt . . . . 668,269 150,000 -- Dividends paid . . . . . . . . . . . . . . . . . -- -- (10,000) Principal payments on long-term debt . . . . . . . (577,902) (164,081) (71,568) --------- --------- -------- Cash provided by (used in) financing activities . . . . . . . . . . . . . . 58,176 (49,634) (24,612) ------ --------- -------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . 9,389 8,888 (19,955) Cash and cash equivalents at beginning of period . 36,803 46,192 55,080 -------- -------- ------ Cash and cash equivalents at end of period . . . . $ 46,192 $ 55,080 $35,125 ======== ======== =======
See accompanying notes to consolidated financial statements. F-5 43 RALPHS GROCERY COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS)
COMMON STOCK ========================== ADDITIONAL OUTSTANDING PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL =========== ========= =========== =========== ========== Balances at February 2, 1992 . . . . 100 $ -- $175,548 $(232,753) $ (57,205) Net Loss . . . . . . . . . . . . . . -- -- -- (76,092) (76,092) --- ------- -------- ---------- --------- Balances at January 31, 1993 . . . . 100 -- 175,548 (308,845) (133,297) Net Earnings . . . . . . . . . . . . -- -- -- 138,366 138,366 --- ------- -------- --------- --------- Balances at January 30, 1994 . . . . 100 -- 175,548 (170,479) 5,069 Net Earnings . . . . . . . . . . . . -- -- -- 32,118 32,118 Dividends paid . . . . . . . . . . . -- -- -- (10,000) (10,000) --- ------- -------- ---------- ---------- Balances at January 29, 1995 . . . . 100 $ -- $175,548 $(148,361) $ 27,187 === ======= ======== ========== =========
See accompanying notes to consolidated financial statements. F-6 44 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION At February 2, 1992, Ralphs Grocery Company, ("Ralphs") was an indirect wholly owned subsidiary of Federated Stores, Inc. ("Federated"). Two wholly owned subsidiaries of Federated, Federated Holdings III, Inc. ("Holdings III") and Allied Stores Corporation ("Allied") directly owned the common stock of Ralphs, approximately 84% and 16% respectively. In January 1990 Holdings III and Allied, and certain other subsidiaries of Federated, each filed petitions for relief under Chapter 11, Title 11 of the United States Code ("Chapter 11"). In March 1990, Federated filed a petition for relief under Chapter 11. Pursuant to the plans of reorganization for Federated and certain of its subsidiaries, Ralphs Supermarkets Inc. (the "Holding Company") was formed to hold the outstanding shares of common stock of Ralphs. On February 3, 1992, Holdings III and Allied contributed their shares of Ralphs to the Holding Company in exchange for the issuance by the Holding Company of Holding Company shares in the same proportion in Ralphs shares were owned ("Internal Reorganization"). For financial reporting purposes, this transition was recorded at predecessor cost. For Federal tax purposes, a new basis was established at the Holding Company as more fully described in Note 11. Under the plans of reorganization for Federated, Holdings III and certain other subsidiaries of Federated (the "FSI Plan"), all Holding Company shares of common stock held by Holdings III were to be distributed to certain creditors of Federated and Holdings III, including The Edward J. DeBartolo Corporation ("EJDC"), Bank of Montreal ("BMO"), Banque Paribas ("BP") and Camdev Properties Inc. ("Camdev"), and Federated. The FSI Plan was confirmed by the Bankruptcy Court in January 1992 and was consummated on February 3, 1992. Under the plan of reorganization of Allied and certain affiliates including Federated Department Stores, Inc. (the "Allied-Federated Plan"), a portion of Allied's Holding Company shares were to be distributed to BMO and BP. The Allied-Federated Plan was confirmed by the Bankruptcy Court in January 1992 and was consummated shortly after the FSI Plan. Thus, following consummation of both the FSI Plan and the Allied-Federated Plan and the transfer on July 19, 1993 of the shares of common stock in Holding Company held by Federated Stores, Inc. to Camdev, Ralphs is a wholly owned subsidiary of the Holding Company which in turn is owned by the following entities:
APPROXIMATE PERCENT OWNERSHIP OF HOLDING COMPANY COMMON STOCK AS OF JULY 19, 1993 =================== EJDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.4% BMO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1% BP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1% Camdev . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.8% Federated Department Stores, Inc (as successor by merger to Allied) . . . 6.6%
Pursuant to certain agreements entered into contemporaneously with the effectiveness of the FSI Plan and the Allied-Federated Plan, certain income tax liabilities of Ralphs, Federated, Allied, Federated Department Stores, Inc. and other affiliates have been settled with the Internal Revenue Service. In addition, Ralphs and certain affiliates including Federated Department Stores, Inc., Allied and Federated (the "Affiliated Group") entered into an agreement (the "Tax Indemnity Agreement") pursuant to which Federated Department Stores, Inc. agreed to pay certain tax liabilities, if any, relating to Ralphs being a member of the Affiliated Group. The Tax Indemnity Agreement provides a formula to determine the amount of additional tax liabilities through February 3, 1992 that Ralphs would be obligated to pay the Affiliated Group. However, such additional liability, if any, is limited to $10 million subject to certain adjustments. F-7 45 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) Under the Tax Indemnity agreement, the Holding Company and Ralphs have agreed to pay Federated Department Stores, Inc. $1.0 million each year for five years starting on February 3, 1992, and an additional $5.0 million on February 3, 1997. The total payments of $10.0 have been recorded in Ralphs' financial statements at February 2, 1992. The five $1.0 million installments are to be paid by Ralphs and the $5.0 million is the joint obligation of the Holding Company and Ralphs. Also, in the event Federated Department Stores, Inc. is required to pay certain tax liabilities on behalf of Ralphs, the Holding Company and Ralphs have agreed to reimburse Federated Department Stores, Inc. up to an additional $10.0 million, subject to certain adjustments. This additional obligation is the joint and several obligation of the Holding Company and Ralphs. The $5.0 million payment and the potential $10.0 million payment may be paid, at the option of the Holding Company and Ralphs, in cash or newly issued Holding Company Common Stock. In connection with the consummation of the FSI Plan and the Allied-Federated Plan, Ralphs and certain parties entered into an agreement (the "Comprehensive Settlement Agreement") pursuant to which the parties thereto, among other things, agreed to deliver releases to the various parties to the Comprehensive Settlement Agreement as well as certain additional parties. Under the Comprehensive Settlement Agreement, Ralphs received general releases from Allied, Federated, Federated Department Stores, Inc. and certain other affiliates which released it from any and all claims which could have been asserted by the parties thereto prior to the effective dates of FSI Plan and the Allied-Federated Plan other than for claims arising under the Comprehensive Settlement Agreement, the FSI Plan, the Allied-Federated Plan and the Tax Indemnity Agreement. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Reporting Period Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal year-ends are as follows: January 31, 1993 (Fiscal 1992) January 30, 1994 (Fiscal 1993) January 29, 1995 (Fiscal 1994) (b) 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. (c) Inventories Inventories are stated at the lower cost or market. Cost is determined primarily using the last-in, first-out (LIFO) method. The replacement cost of inventories exceeded the LIFO inventory cost by $15.5 million and $17.6 million at January 30, 1994 and January 29, 1995, respectively. F-8 46 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) (d) Property, Plant and Equipment Property, plant and equipment are stated at cost. Property and equipment held under capital leases are stated at the present value of the minimum lease payments at the inception of the lease. Depreciation of plant and equipment is calculated using the straight-line method over the estimated useful lives of assets. Plant and equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Useful lives range from 10 to 40 years for buildings and improvements and 3 to 20 years for fixtures and equipment. Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. Interest cost capitalized during fiscal 1992, 1993 and 1994 was $1.074 million, $.740 million, and $.324 million, respectively. (e) 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. (f) 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. (g) 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. (h) Excess of Cost Over Net Assets Acquired The excess of cost over net assets acquired, resulting from the May 3, 1988 acquisition of Ralphs is being amortized using the straight- line method over 40 years. Ralphs assesses the recoverability of this intangible asset by determining whether the amortization of the asset balance over its remaining life can be recovered through projected undiscounted operating income (including interest, depreciation and all amortization expense except amortization of excess of cost over net assets acquired) over the remaining amortization period of the excess of cost over net assets acquired. The amount of excess of cost over net assets acquired impairment, if any, is measured based on projected discounted future results using a discount rate reflecting Ralphs' average cost of funds. Accumulated amortization aggregated $63.4 million and $74.4 million at January 30, 1994 and January 29, 1995, respectively. (i) 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. F-9 47 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) (j) 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. (k) Income Taxes Through February 2, 1992, Ralphs operated under a tax-sharing agreement with Federated and was included in the consolidated Federal tax returns of Federated. Through January 28, 1990, Ralphs was included in the combined state tax returns of Federated; however, Ralphs filed separate state tax returns subsequent to January 28, 1990. Under the tax-sharing agreement, tax-sharing payments were made to Federated based on the amount that Ralphs would be liable for had Ralphs filed separate tax returns, taking into account applicable carryback and carryforward provision of the tax laws. Subsequent to February 2, 1992, the Holding Company is responsible for filing tax returns with the Internal Revenue Service and state taxing authorities. Ralphs is included in the tax filings of the Holding Company. Prior to February 3, 1992 Ralphs paid alternative minimum tax to Federated under its tax sharing agreement. As a result of the Internal Reorganization, Ralphs will not be entitled to offset its future Federal regular tax liability with the payments made to Federated. Effective for the fiscal year ended February 2, 1992, Ralphs adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." At the date of adoption such change had no impact on the consolidated financial results. (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 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. (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 $17.5 million, $16.4 million and $18.2 million in fiscal 1992, 1993 and 1994, respectively. F-10 48 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) (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) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is summarized as follows:
JANUARY 30, JANUARY 29, 1994 1995 ========== ========== (DOLLARS IN THOUSANDS) Land . . . . . . . . . . . . . . . . . . . . . . . $ 159,904 $ 161,725 Buildings and improvements . . . . . . . . . . . . 191,179 199,133 Leasehold improvements . . . . . . . . . . . . . . 161,341 170,430 Fixtures and equipment . . . . . . . . . . . . . . 354,626 372,077 Capital leases . . . . . . . . . . . . . . . . . . 86,964 124,861 --------- ---------- 954,014 1,028,226 Less: Accumulated depreciation . . . . . . . . . . (312,746 ) (354,539) Less: Accumulated capital lease amortization . . . (39,371) (48,963) ---------- ----------- Property, plant and equipment, net . . . . . . . . $ 601,897 $ 624,724 ========= ==========
(4) ACCRUED EXPENSES Accrued expenses are summarized as follows:
JANUARY 30, JANUARY 29, 1994 1995 ========== ========== (DOLLARS IN THOUSANDS) Accrued wages, vacation and sick leave . . . . . . $ 34,763 $ 43,766 Taxes other than income tax . . . . . . . . . . . 11,084 10,055 Interest . . . . . . . . . . . . . . . . . . . . . 11,090 8,670 Other . . . . . . . . . . . . . . . . . . . . . . 44,606 37,313 --------- --------- $ 101,543 $ 99,804 ========== =========
F-11 49 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) 5) LONG-TERM DEBT Long-term debt is summarized as follows:
JANUARY 30, JANUARY 29, 1994 1995 ========== ========== (DOLLARS IN THOUSANDS) First mortgage notes payable in monthly installments, commencing June 1, 1994 of $1.6 million including interest at an effective rate of 9.651%; interest only payable monthly prior to June 1, 1994. Final payment due June 1, 1999. Secured by land and buildings with a net book value of $188.8 million . . . . . . . . . . . . . . . . $178,013 $176,634 Notes payable in varying monthly installments including interest ranging from 11.5% to 18.96%. Final payment due through November 30, 1996. Secured by equipment with a net book value of $28.5 million . . . . . . . . . . . 9,721 6,291 Capitalized lease obligations at interest rates ranging from 7.25% to 14.0% maturing at various dates through 2019 (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . 61,150 89,084 Note payable to bank . . . . . . . . . . . . . . . . . . . . . 300,000 245,000 Initial Notes and Exchange Notes, 9.0%, due 2003 . . . . . . . 150,000 150,000 Senior Subordinated Debentures, 10 1/4%, due 2002 . . . . . . 300,000 300,000 -------- -------- Total long-term debt . . . . . . . . . . . . . . . . . . . . . 998,884 967,009 Less current maturities . . . . . . . . . . . . . . . . . . . (70,975) (83,989) -------- -------- Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . $927,909 $883,020 ======== ========
During the third quarter of 1992, the Company implemented a recapitalization plan (the "Recapitalization Plan") which was completed during the first quarter of 1993 by the Company's offering of $150.0 million aggregate principal amount of its 9% Senior Subordinated notes due 2003 (the "Initial Notes") in private placement under the Securities Act of 1933, as amended (the "Securities Act"). The proceeds of the Initial Notes were used to (i) purchase for cancellation of $60.0 million aggregate principal amount of the Company's 14% Senior Subordinated Debentures due 2000 (the "14% Subordinated Debentures") from a noteholder who had made an unsolicited offer to sell such 14% Subordinated Debentures, (ii) defease the remaining $38.1 million aggregate principal amount of the 14% Subordinated Debentures, (iii) prepay $36.1 million of borrowings under the Company's $350.0 million 1992 term loan facility entered into as part of the Recapitalization Plan and (iv) pay fees and expenses associated with such transactions and for other purposes. As part of a registration rights agreement entered into with the initial purchasers of the Initial Notes, the Company agreed to offer to exchange up to $150.0 million aggregate principal amount of the Exchange Notes for all of the outstanding Initial Notes (the "Exchange Offer"). The terms of the Exchange Notes are substantially identical (including principal amount, interest rate and maturity) in all respects to the terms of the Initial Notes except that the Exchange Notes are freely transferable by the holders thereof (with certain exceptions) and are not subject to any covenant upon the Company regarding registration under the Securities Act. On June 24, 1993, the Company completed the Exchange Offer exchanging $149.7 million aggregate principal amount of Exchange Notes for Initial Notes ($.3 million of Initial Notes remain outstanding). F-12 50 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) The note payable to bank and working capital line, under the 1992 Credit Agreement, are secured by first priority liens on Ralphs' inventory and receivables, servicemarks and registered trademarks, equipment (other than equipment located at facilities subject to existing liens in favor of equipment financiers) and after-acquired real property interests and all existing real property interests (other than those that are subject to prior encumbrances) and bears interest at the rates, as selected by Ralphs as follows: (i) 1 3/4% over the prime rate, or (ii) 2 3/4% over the Eurodollar Rate. Interest calculated pursuant to (i) above is payable quarterly, otherwise interest is payable quarterly or at the selected borrowings option maturity. During the 52 weeks ended January 29, 1995, interest rates under these borrowings ranged from 5.9375% to 10.25%. Ralphs is required to pay an annual administrative fee of $300,000 pursuant to the 1992 Credit Agreement as well as a commitment fee of 0.5% on the average daily amounts available for borrowing under the $120.0 million working capital credit line. The 1992 Credit Agreement, which includes a $350.0 million term loan and $120.0 million working capital credit line, also supports up to $60.0 million of letters of credit which reduce the available borrowings on the credit line. The 1992 Credit Agreement is subject to quarterly principal payment requirements, which commenced on March 31, 1993, with payment in full on June 30, 1998. As of January 29, 1995, $52.4 million of letters of credit and $51.5 million in borrowings were outstanding, with $16.1 million available under the working capital credit line. In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate cap agreement with an effective date of November 6, 1992 and a three year maturity. The interest rate cap agreement hedges the interest rate in excess of 6.5% LIBOR on $ 105.0 million principal amount against increases in short-term rates. This agreement satisfies interest rate protection requirements under the 1992 Credit Agreement. In addition to the interest rate cap agreement, Ralphs entered into an interest rate swap agreement on $ 150.0 million notional principal amount. Under the interest rate swap agreement, Ralphs is required to pay interest based on LIBOR at the end of each six month calculation period and Ralphs will receive interest payments based on LIBOR at the beginning of each six month calculation period. This interest rate swap agreement has a three-year term expiring November 6, 1995. Ralphs is exposed to credit loss in the event of nonperformance by the other party to the interest rate swap agreement. However, Ralphs does not anticipate nonperformance by the counterpart. The following details the impact of the hedging activity on the weighted average interest rate for each of the last three fiscal years.
With hedge Without hedge ---------- ------------- 1992 . . . . . . . . . . . . . . . . . . . 10.52% 10.22% 1993 . . . . . . . . . . . . . . . . . . . 8.96% 8.96% 1994 . . . . . . . . . . . . . . . . . . . 9.37% 9.18%
The Initial Notes and Exchange Notes are unsecured obligations of Ralphs subordinated in right of payment to amounts due on the aforementioned senior debt. Interest at 9% is payable each April 1 and October 1 through April 1, 2003, when the notes mature. The 10 1/4% Senior Subordinated Debentures are unsecured obligations of Ralphs subordinated in right of payment to amounts due on the senior debt. Interest at 10 1/4% is payable each January 15 and July 15 through July 15, 2002, when the debentures mature. The aforementioned debt agreements contain various restrictive covenants pertaining to net worth levels, limitations on additional indebtedness and capital expenditures, financial ratios and dividends. The 1992 Credit Agreement requires Ralphs to reduce its working capital credit line to zero for 30 consecutive days annually. The current annual period extends from July 1 to June 30. The Company has not yet complied with this annual covenant. The Company intends to either satisfy this covenant by June 30, 1995 or seek to obtain the necessary waiver from its lenders, if such event of non-compliance ultimately occurs but there is no assurance that such waiver will be granted, or, if granted, will be on terms acceptable to the Company. At January 29, 1995, Ralphs is in compliance with all its 1992 Credit Agreement restrictive covenants. The Company currently anticipates that it may be out of compliance with certain other maintenance covenants at the end of the second quarter of 1995. The Company intends to seek the necessary waivers from its lenders should these events of non-compliance ultimately occur, but there is no assurance that such waivers will be granted or, if granted, will be on terms acceptable to the Company. F-13 51 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) The aggregate maturities on long-term debt for each of the five years subsequent to fiscal 1994 as follows:
(DOLLARS IN THOUSANDS) 1995 . . . . . . . . . . . . . . . . . . . . $ 83,989 1996 . . . . . . . . . . . . . . . . . . . . 86,792 1997 . . . . . . . . . . . . . . . . . . . . 84,771 1998 . . . . . . . . . . . . . . . . . . . . 53,605 1999 . . . . . . . . . . . . . . . . . . . . 175,400 2000 and thereafter . . . . . . . . . . . . 482,452 -------- $967,009 ========
The unaudited fair value of each class of financial instruments (where practical), all held for non-trading purposes, is as follows in (000's): Long-term debt . . . . . . . . . . . . . . . . . . . . . $953,883 Interest rate swap agreement . . . . . . . . . . . . . . $ 1,252 Interest rate cap agreement . . . . . . . . . . . . . . $ (366)
(6) LEASES Ralphs has leases for retail store facilities, warehouses and manufacturing plants for periods up to 30 years. Generally, the lease agreements include renewal options for five years each. Under most leases, Ralphs is responsible for property taxes, insurance, maintenance and expense related to the lease property. Certain store leases require excess rentals based on a percentage of sales at that location. Certain equipment is leased by Ralphs under agreements ranging from 3 to 15 years. The agreements usually do not include renewal option provisions. Minimum rental payments due under capital leases and operating leases subsequent to fiscal 1994 are as follows:
CAPITAL OPERATING LEASES LEASES TOTAL ======== ========= ======== (DOLLARS IN THOUSANDS) 1995 . . . . . . . . . . . . . . . . . . . . . . . . $ 21,640 $ 61,324 $ 82,964 1996 . . . . . . . . . . . . . . . . . . . . . . . . 19,093 60,847 79,940 1997 . . . . . . . . . . . . . . . . . . . . . . . . 18,288 58,182 76,470 1998 . . . . . . . . . . . . . . . . . . . . . . . . 15,901 53,321 69,222 1999 . . . . . . . . . . . . . . . . . . . . . . . . 11,784 52,839 64,623 2000 and thereafter . . . . . . . . . . . . . . . . 53,959 373,021 426,980 ------- -------- -------- Total minimum lease payments . . . . . . . . . . . . $140,665 $659,534 $800,199 ======== ======== Less amounts representing interest . . . . . . . . . (51,581) --------- Present value of net minimum lease payments . . . . 89,084 Less current portion of lease obligations . . . . . (13,151) --------- Long-term capital lease obligations . . . . . . . . $ 75,933 ========
F-14 52 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) Total rent expense is summarized as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ========== ========== ========== (DOLLARS IN THOUSANDS) Capital Leases Contingent rental . . . . . . . . . . . . . $ 2,443 $ 2,241 $ 2,256 Rentals from subleases . . . . . . . . . . . (2,144) (2,048) (1,734) Operating Leases Minimum rentals . . . . . . . . . . . . . . 49,001 54,965 55,906 Contingent rentals . . . . . . . . . . . . . 5,058 3,645 3,763 Rentals from subleases . . . . . . . . . . . (1,123) (1,150) (1,791) ------- ------- ------- $53,235 $57,653 $58,400 ======= ======= =======
(7) SELF-INSURANCE Ralphs is a qualified self-insurer in the State of California for worker's compensation and for automobile liability. For fiscal 1992, 1993 and 1994 self insurance loss provisions amounted to (in thousands) $25,950, $30,323 and $14,003, respectively. Ralphs discounts self-insurance liabilities using an 8% discount rate for all years presented. Management believes that this rate approximates the time value of money over the anticipated payout period (approximately 8 years) for essentially risk free investments. Based on a review of modifications in its workers compensation and general liability insurance programs, Ralphs adjusted its self- insurance costs during Fiscal 1994, resulting in a reduction in the loss provision in fiscal 1994 of approximately $18.9 million. Ralphs' historical self-insurance liability for the previous two fiscal years is as follows:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ========== ========== (DOLLARS IN THOUSANDS) Self Insurance liability . . . . . . . . . . . . . . . . . . . . . . $ 97,864 $ 87,830 Less : Discount . . . . . . . . . . . . . . . . . . . . . . . . . . (17,854) (15,324) --------- -------- Net Self Insurance Liability . . . . . . . . . . . . . . . . . . . . $ 80,010 $ 72,506 ========= ========
The Company expects that cash payments for claims over the next 5 years will aggregate approximately $28 million (unaudited) in fiscal year 1995, $19 million (unaudited) in fiscal year 1996, $13 million (unaudited) in fiscal year 1997, $8 million (unaudited) in fiscal year 1998 and $7 million (unaudited) in fiscal year 1999. (8) COMMITMENTS AND CONTINGENCIES In December 1992, three California state antitrust class action suits were commenced in Los Angeles Superior Court against Ralphs and other major supermarket chains located in Southern California, alleging that they conspired to refrain from competing in the retail market for fluid milk and to fix the retail price of fluid milk above competitive prices. Specifically, class F-15 53 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) 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, In. ("Koteen Associates") commenced an action in San Diego Superior Court alleging that Ralphs breached an alleged utility rate consulting agreement. In December 1992, a jury returned a verdict of approximately $4.9 million in favor of Koteen Associates and in March 1993, attorney's fees and certain other costs were awarded to the plaintiff. Ralphs has appealed the judgment and fully reserved in Fiscal 1992 against an adverse ruling by the appellate courts. In April 1994, Ralphs was served with a complaint filed by over 240 former employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery Plaintiffs"). The action was commenced in the United States District Court for the Central District of California, and, among other claims, the Bakery Plaintiffs alleged that Ralphs breached its collective bargaining agreement and violated the Workers Adjustment Retraining Notification Act (the "WARN Act") when it downsized and subsequently closed the bakery. In their complaint, the Bakery Plaintiffs are seeking damages for lost wages and benefits as well as punitive damages. The Bakery Plaintiffs also named Ralphs and two of its management employees in fraud, conspiracy and emotional distress causes of action. In addition, the Bakery Plaintiffs sued their union local for breach of its duty of fair representation and other alleged misconduct, including fraud and conspiracy. The defendants have answered the complaint and discovery is ongoing. Trial is set for February, 1996, and Ralphs is vigorously defending this suit. Management believes, based on its assessment of the facts, that the resolution of this case will not have a material effect on the Company's financial position or results of operations. In addition, Ralphs is a defendant in a number of other cases currently in litigation or potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on Ralphs' financial position or results of operations. Environmental Matters In January 1991, the California Regional Water Quality Control Board for the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a subsurface characterization of Ralphs' Atwater property. This request was part of an ongoing effort by the Regional Board, in connection with the U.S. Environmental Protection Agency (the "EPA"), to identify contributors to groundwater contamination in the San Fernando Valley. Significant parts of the San Fernando Valley, including the area where Ralphs' Atwater property is located, have been designated federal Superfund sites requiring response actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, because of regional groundwater contamination. On June 18, 1991, the EPA made its own request for information concerning the Atwater property. Since that time, the Regional Board has requested further investigation by Ralphs. Ralphs has conducted the requested investigations and has reported the results to the Regional Board. Approximately 25 companies have entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate and design a remediation system for contaminated groundwater beneath an area which includes the Atwater property. Ralphs is not a party to the Consent Order, but is cooperating with requests of the subject companies to allow installation of monitoring or recovery wells on Ralphs' property. Based upon available information, management does not believe this matter will have a material adverse effect on the Company's financial condition or results of operations. Ralphs has removed underground storage tanks and remediated soil contamination at the Atwater property. In some instances the removals and the contamination were associated with grocery business 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. F-16 54 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) Apart from the Atwater property, the Company has recently had environmental assessments performed on a significant portion of its facilities, including warehouse and distribution facilities. The Company believes that any responsive actions required at the examined properties as a result of such assessments will not have a material adverse effect on its financial condition or results of operations Ralphs has incurred approximately $4.5 million in non-recurring capital expenditures for conversion of refrigerants during 1994. Other than these expenditures, Ralphs has not incurred material capital expenditures for environmental controls during the previous three years, nor does management anticipate incurring such expenditures during the current fiscal year or the succeeding fiscal year. Ralphs is subject to a variety of environmental laws, rules, regulations and investigative or enforcement activities, as are other companies in the same or similar business. The Company believes it is in substantial compliance with such laws, rules and regulations. These laws, rules, regulations and agency activities change from time to time, and such changes may affect the ongoing business and operations of the Company. (9) REDEEMABLE PREFERRED STOCK Ralphs' non-voting preferred stock consisted of 10,000,000 shares of authorized $.01 par value preferred stock. At February 3, 1991 and February 2, 19892, 170,000 shares of Class A Preferred Stock and 130,000 shares of Class B Preferred Stock were issued and outstanding. All of the outstanding shares of preferred stock were redeemed by Ralphs during February 1992 at their initial issuance price of $3.0 million. (10) EQUITY APPRECIATION RIGHTS PLANS Effective August 26, 1988, Ralphs adopted an Equity Appreciation Plan ("1988 Plan"), whereby certain officers received equity rights representing, in aggregate, the right to receive 15% of the increase in the appraised value (as defined in the 1988 Plan) of the Ralphs' equity over an initial value of $120.0 million. The 1988 Plan was amended in January 1992 by agreement among Ralphs and the Equity Rights holders ("Amended Plan"). Ralphs accrued for the increase in equity appreciation rights over the contractually defined vesting period (fully accrued in fiscal 1991), based upon the maximum allowable contractual amount which approximated ending appraised value. Under the Amended Plan, all outstanding Equity Rights vested in full are no longer subject to forfeiture by the holders, except in the event a holder's employment is terminated for cause within the meaning of the Amended Plan. The appraised value of Ralphs' equity is to be determined as of May 1 each year by an investment banking company engaged for this purpose utilizing the methodology specified in the Amended Plan (which is unchanged from that specified in the 1988 Plan); however, under the Amended Plan the appraised value of Ralphs' equity for purposes of the plan may not be less than $400.0 million nor exceed $517.0 million. The amount of equity rights redeemable at any given time is defined in each holders' separate agreement. On exercise of an equity right, the holder will be entitled to receive a pro rata percentage of any such increase in appraised value. In addition, the Amended Plan provides for the possible additional further payment to the holder of each exercised Equity Right of an amount equal to the "Deferred Value" of such Equity Right as defined in the Amended Plan. Ralphs did not incur any expense under the Equity Appreciation Rights Plan in fiscal 1992, fiscal 1993 and fiscal 1994. 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-17 55 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) (11) INCOME TAXES Income tax expense (benefit) consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ========== ========== ========== (DOLLARS IN THOUSANDS) Current Federal . . . . . . . . . . . . . . . . . . $ 4,173 $ (2,424) $ 713 State . . . . . . . . . . . . . . . . . . . -- 3,500 2,653 ------- ---------- -------- $ 4,173 $ 1,076 $ 3,366 ------- ---------- -------- Deferred Federal . . . . . . . . . . . . . . . . . . $ -- $ (109,125) $ (3,366) State . . . . . . . . . . . . . . . . . . . -- -- -- ------- ---------- -------- $ -- $ (109,125) $ (3,366) ------- ----------- --------- Total income tax expense (benefit) . . . . . $ 4,173 $ (108,049) $ -- ======= =========== ========
Income tax expense (benefit) has been classified in the accompanying statements of operations as follows:
1993 1994 1995 ========= ========== ========= Earnings before extraordinary items . . . . . . . . $ 8,346 $ (108,049) $ -- Extraordinary item . . . . . . . . . . . . . . . . (4,173) -- -- --------- ---------- -------- Net tax expense (benefit) . . . . . . . . . . . . . $ 4,173 $ (108,049) $ -- ======== =========== ========
F-18 56 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) The differences between income tax expense and income taxes computed using the top marginal U.S. Federal income tax rate of 34% for Fiscal 1992 and, of 35% for Fiscal 1993 and Fiscal 1994 applied to earnings (loss) before income taxes (including, in Fiscal 1992, the extraordinary loss of $74.8 million) were as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ========== ========== ========== (DOLLARS IN THOUSANDS) Amount of expected expense (benefit) computed using the statutory Federal rate . . . . . . $(24,450) $ 10,611 $ 11,241 Utilization of financial operating loss . . -- (10,611) (11,241) Amortization of excess cost over net assets acquired . . . . . . . . . . . . . . . . . 3,356 -- -- State income taxes, net of Federal income tax benefit . . . . . . . . . . . . . . . . -- 3,500 2,653 Accounting limitation (recognition) of deferred tax benefit . . . . . . . . . . . . . . . . 20,041 (109,125) (3,366) Alternative minimum tax . . . . . . . . . . 4,173 625 -- Other, net . . . . . . . . . . . . . . . . . 1,053 (3,049) 713 -------- ----------- -------- Total income tax expense (benefit) . . . $ 4,173 $ (108,049) $ -- ======== =========== ========
Ralphs' deferred tax assets, recorded under SFAS 109, were comprised of the following:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ========== ========== (DOLLARS IN THOUSANDS) Deductible intangible assets . . . . . . . . . . . . . . . . . . . . . $ 56,000 $ 43,000 Net operating loss carryforward and tax credit . . . . . . . . . . . . 40,125 55,000 Self insurance accrual . . . . . . . . . . . . . . . . . . . . . . . . 43,000 25,000 Software basis difference and amortization . . . . . . . . . . . . . . -- -- Fees collected in advance . . . . . . . . . . . . . . . . . . . . . . -- 2,600 Property, plant and equipment basis difference and depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 16,000 Equity appreciation rights . . . . . . . . . . . . . . . . . . . . . . 16,000 11,000 Favorable lease basis differences . . . . . . . . . . . . . . . . . . 16,000 16,000 State deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 19,000 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 51,103 --------- --------- 249,125 238,703 Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . (140,000) (126,212) ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,125 $ 112,491 ========= =========
On October 15, 1992, Ralphs filed an election with the Internal Revenue Service under Section 338(h)(10). Under this Section, Ralphs is required to restate, for Federal tax purposes, its assets and liabilities to fair market value as of February 3, 1992. The effect of this transaction is to record a new Federal tax basis to reflect a change of control for Federal tax purposes resulting from the Internal Reorganization. No change of control for financial reporting purposes was affected. F-19 57 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) 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 and financial statement basis of excess of cost over net assets acquired aggregated $123.0 million at January 29, 1995. During the year ended January 30, 1994, Ralphs recorded the incremental impact of the Act on deductible temporary differences and increased its deferred income tax assets by a net amount of $109.1 million. The decision to reduce the valuation allowance was based upon several factors. Specific among them, was the Company's completion of its restructuring plan which effectively reduced estimated interest expense by approximately $9.0 as compared to the year ended January 31, 1993. In addition, the January 31, 1993 operating results were negatively effected by several charges including provisions for restructuring, legal settlements and a loss on retirement of debt all aggregating approximately $90 million on a pre-tax basis. Although there can be no assurance as to future taxable income, the Company believes that, based upon the above mentioned events, as well as the Company's expectation of future taxable income, it is more likely than not that the recorded deferred tax asset will be realized. In order to realize the net deferred tax asset currently recorded, Ralphs will need to generate sufficient future taxable income, assuming current tax rates, of approximately $320.0 million. At January 29, 1995, the Company has Federal net operating loss (NOL) carryforwards of approximately $162.0 million and Federal and state Alternative Minimum Tax Credit carryforwards of approximately $2.1 million which can be used to offset Federal taxable income and regular taxes payable, respectively. The NOL carryforwards begin expiring in 2008. During the past three fiscal years, the Company has generated Federal taxable losses of approximately $162.0 million versus financial pre-tax earnings of approximately $65.2 million for the same periods. These differences result principally from excess tax versus financial amortization on certain intangible assets (excess of cost over net assets acquired), as well as several other originating temporary differences. (12) EMPLOYEE BENEFIT PLANS Ralphs has a defined benefit pension plan covering substantially all employees not already covered by collective bargaining agreements with at least one year of credited service (defined at 1,000 hours). Ralphs' policy is to fund pension costs at or above the minimum annual requirement. On February 23, 1990, the Company adopted a Supplemental Executive Retirement Plan covering certain key officers of Ralphs. The Company has purchased split dollar life insurance policies for participants under this plan. Under certain circumstances, the cash surrender value of certain split dollar life insurance policies will offset Ralphs obligations under the Supplemental Executive Retirement Plan. During the second quarter of 1994, the Company approved and adopted a new non-qualified retirement plan, the Ralphs Grocery Company Retirement Supplemental Plan ("Retirement Supplement Plan") effective January 1, 1994 and amended the existing Supplemental Executive Retirement Plan effective April 9, 1994. These changes to the retirement plans were made pursuant to the enactment of the 1993 Omnibus Budget Reconciliation Act. F-20 58 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) At January 29, 1995, the Company recorded a $4.0 million additional minimum liability in offsetting intangible asset to reflect the changes in the new and amended plans. Under the provisions of the Retirement Supplement Plan, participants are entitled to receive benefits based on earnings over the indexed amount of $150,000. The following actuarially determined components were included in the net pension expense:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ========== ========== ========== (DOLLARS IN THOUSANDS) Service cost . . . . . . . . . . . . . . . . . $ 2,076 $ 2,228 $ 2,901 Interest cost on projected benefit obligation 2,471 2,838 3,821 Actual return on assets . . . . . . . . . . . (2,794) (2,695) (1,447) Net amortization and deferral . . . . . . . . 237 (46) (1,100) ------- ------ - ------- Net pension expense . . . . . . . . . . . . $ 1,990 $ 2,325 $ 4,175 ======= ======= =======
The funded status of Ralphs, pension plan, (based on December 31, 1993 and 1994 asset values), is as follows:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ========== ========== (DOLLARS IN THOUSANDS) Assets Exceed Accumulated Benefits: Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . $29,659 $31,621 Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . 29,950 31,856 Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . 42,690 45,246 Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . 32,968 38,179 ------- ------- Projected benefit obligation in excess of Plan Assets . . . . . . . . . . . (9,722) (7,067) Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,567 3,611 Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . (1,778) (1,659) Unrecognized net asset . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- ------- ------- Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . $(6,933) $(5,115) ======= =======
F-21 59 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED)
JANUARY 29, 1995 =========== (000'S) Accumulated Benefits Exceed Assets: Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . . . . . . . $ 2,982 Accumulated benefit obligation . . . . . . . . . . . . . 2,982 Projected benefit obligation . . . . . . . . . . . . . . 7,102 Plan assets at fair value . . . . . . . . . . . . . . . . -- ------- Projected benefit obligation in excess of Plan Assets . . . (7,102) Unrecognized net gain . . . . . . . . . . . . . . . . . . . (229) Unrecognized prior service cost . . . . . . . . . . . . . . 8,354 Unrecognized net asset . . . . . . . . . . . . . . . . . . (4,005) ------- Accrued pension cost . . . . . . . . . . . . . . . . . . $(2,982) =======
The accrued pension cost for accumulated benefits that exceeded assets at January 30, 1994 was immaterial to the consolidated financial statements. Service costs for fiscal 1992 and 1993 were calculated using a discount rate of 8.5% and a rate of increase in future compensation levels of 6.0%. 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 9.0% was used for fiscal 1992, 1993 and 1994. The pension plan assets consist primarily of common stocks, bonds, debt securities, and a money market fund. Plan benefits are based primarily on years of service and on average compensation during the last years of employment. Ralphs participates in multi-employer pension plans and health and welfare plans administered by various trustees for substantially all union employees. Contributions to these plans are based upon negotiated contractual rates. In both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to be overfunded based upon the collective bargaining agreement then currently in force. During Fiscal 1993 the agreement called for pension benefits which resulted in additional required expense. The UFCW health and welfare benefit plans were overfunded and those employers who contributed to these plans received a prorata share of excess reserve in these health care benefit plans through a reduction in current maintenance payments. Ralphs' share of the excess reserve was approximately $24.5 million of which $11.8 million was recognized in Fiscal 1993 and the remainder, $12.7 million, was recognized in Fiscal 1994. Since employers are required to make contributions to the benefit funds at whatever level is necessary to maintain plan benefits, there can be no assurance that plan maintenance payments will remain at current levels. F-22 60 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) The expense related to these plans is summarized as follows:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ========== ========== ========== (DOLLARS IN THOUSANDS) Multi-employer pension plans . . . . . . . . . . . $ 7,973 $17,687 $ 8,897 ======= ======= ======= Multi-employer health and welfare . . . . . . . . . $71,183 $45,235 $66,351 ======= ======= =======
Ralphs maintains the Ralphs Grocery Company Savings Plan Plus--Prime and the Ralphs Grocery Savings Plan Plus - Basic (collectively referred to as the"401(k) Plan") covering substantially all employees who are not covered by collective bargaining agreements and who have at least one year of credited service (defined at 1,000 hours). The 401(k) Plan provided for both pre-tax and after-tax contributions by participating employees. With certain limitations, participants may elect to contribute from 1% to 12% of their annual compensation on a pre-tax basis to the Plan. Ralphs has committed to match a minimum of 20% of an employee's contribution to the 401(k) Plan that do not exceed 5% of the employee's compensation. Expenses under the 401(k) Plan for fiscal 1992, 1993 and 1994 were $407,961, $431,774 and $446,826, respectively. Ralphs has an executive incentive compensation plan which covers approximately 39 key employees. Benefits to participants are earned based on a percentage of base compensation upon attainment of a targeted formula of earnings. Expense under this plan for fiscal 1992, 1993 and 1994 was $2.5 million, $2.6 million and $2.4 million, respectively. Ralphs has also adopted an incentive plan for certain members of management. Benefits to participants are earned based on a percentage of base compensation upon attainment of a targeted formula of earnings. Expense under this plan for fiscal 1992, 1993 and 1994 was $2.8 million, $3.0 million and $3.1 million, respectively. 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-23 61 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) The net periodic cost of the Postretirement Medical Plan includes the following components:
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ========== ========== ========== (DOLLARS IN THOUSANDS) Service cost . . . . . . . . . . . . . . . . . . . $1,908 $1,767 $1,396 Interest cost . . . . . . . . . . . . . . . . . . . 1,367 1,603 1,387 Return on plan assets . . . . . . . . . . . . . . . -- -- -- Net amortization and deferral . . . . . . . . . . . -- -- (228) ------ ------ ------- Net postretirement benefit cost . . . . . . . . . $3,275 $3,370 $2,555 ====== ====== ======
The funded status of the postretirement benefit plan is as follows:
52 WEEKS 52 WEEKS ENDED ENDED JANUARY 30, JANUARY 29, 1994 1995 ========== ========== (DOLLARS IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,237 $ 1,303 Fully eligible plan participants . . . . . . . . . . . . . . . . . . . . . 357 1,499 Other active plan participants . . . . . . . . . . . . . . . . . . . . . . 16,062 10,289 Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -------- -------- Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,656) (13,091) Plan assets in excess of projected obligations . . . . . . . . . . . . . . -- -- Unrecognized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . 6,302 13,676 Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . -- (358) -------- --------- Accrued postretirement benefit obligation . . . . . . . . . . . . . . . . . $(23,958) $(26,409) ========= =========
Service cost was calculated using a medical cost trend of 10.5% for fiscal 1992. Service cost was calculated using a medical cost trend of 10.5% and a decreasing medical cost trend rate of 14% - 8% for 1993 and 1994 respectively. The discount rate for 1993 was 8.5% and was reduced to 7.75% in 1994 to reflect the decline in interest rates in 1994. In 1995, the discount rate will increase to 8.25% in order to reflect the increase in the current long-term interest rate. The long term rate of return of plan assets is not applicable as the plan is not funded. The effect of a one-percent increase in the medical cost trend would increase the fiscal 1994 service and interest cost to 18%. The accumulated postretirement benefit obligation at January 29, 1995 would also increase by 27%. F-24 62 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) (13) QUARTERLY RESULTS (UNAUDITED) Quarterly results for fiscal 1993 and 1994 are as follows:
GROSS OPERATING INCOME NET SALES PROFIT INCOME TAXES EARNINGS ===== ====== ====== ===== ======== (DOLLARS IN MILLIONS) FY 1993 Quarters 12 weeks ended 04/25/93 . . . . . . . . . . . $ 632.4 $142.4 $ 31.4 $ 1.0 $ 3.9 12 weeks ended 07/18/93 . . . . . . . . . . . 629.0 145.2 36.8 (1.0) 12.9 12 weeks ended 10/10/93 . . . . . . . . . . . 612.8 141.5 31.7 -- 7.0 16 weeks ended 01/30/94 . . . . . . . . . . . 856.0 207.4 52.2 (108.0) 114.6 -------- ------ ------ -------- ------ Total . . . . . . . . . . . . . . . . . $2,730.2 $636.5 $152.1 $(108.0) $138.4 ======== ====== ====== ======== ====== FY 1994 Quarters 12 weeks ended 04/24/94 . . . . . . . . . . . $ 616.0 $141.7 $ 34.1 $ -- $ 8.4 12 weeks ended 07/17/94 . . . . . . . . . . . 625.0 142.9 32.9 -- 7.2 12 weeks ended 10/09/94 . . . . . . . . . . . 615.4 138.8 30.8 -- 4.3 16 weeks ended 01/29/95 . . . . . . . . . . . 868.2 200.2 47.8 -- 12.2 -------- ------ ------ ------ ------ Total . . . . . . . . . . . . . . . . . $2,724.6 $623.6 $145.6 $ -- $ 32.1 ======== ====== ====== ====== ======
(14) SUPPLEMENTAL CASH FLOW INFORMATION
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1993 1994 1995 ========== ========== ========== (DOLLARS IN THOUSANDS) Supplemental cash flow disclosures: Interest paid, net of amounts capitalized . . . . $ 118,391 $ 93,738 $ 99,067 Income taxes paid . . . . . . . . . . . . . . . . $ 7,169 $ 2,423 $ 6,270 Capital lease assets and obligations assumed . . $ -- $ 15,395 $ 41,131
F-25 63 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) (15) STOCK OPTION PLAN On February 3, 1992, 3,162,235 options for Common Stock of the Holding Company were granted under the Ralphs Nonqualified 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. Options Outstanding at January 31, 1993: Beginning of year -- -- Granted 3,162,235 $20.21 Exercised -- -- Cancelled -- -- Expired -- -- --------- ------ End of year 3,162,235 $20.21 --------- ------ Exercisable at end of year 405,880 -- --------- ------ Available for grant at end of year -- -- --------- ------ 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 -- -- --------- ------
The option price for outstanding options at January 29, 1995 assumes a grant date fair market value of Common Stock of the Holding Company equal to $20.21 per share, which represents the high end of a range of estimated values of the Common Stock of the Holding Company on February 3, 1992, the date of the grant. F-26 64 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) (16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value is discussed in Note 2. The unaudited fair value of each class of financial instruments (where practical), all held for non-trading purposes, is as follows in (000's):
JANUARY 30, 1994 JANUARY 29, 1995 CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------ ---------- ------ ---------- Long term debt . . . . . . . . . . . $ 998,884 $ 1,014,634 $967,009 $953,883 Interest rate swap agreements . . . n/a 1,153 n/a 1,252 Interest rate cap agreements . . . . n/a (19) n/a (366)
In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate cap agreement with an effective date of November 6, 1992 and a three year maturity. The interest rate cap agreement hedges the interest rate in excess of 6.5% LIBOR on $ 105.0 million principal amount against increases in short-term rates. This agreement satisfies interest rate protection requirements under the 1992 Credit Agreement. In addition to the interest rate cap agreement, Ralphs entered into an interest rate swap agreement on $ 150.0 million notional principal amount. Under the interest rate swap agreement, Ralphs is required to pay interest based on LIBOR at the end of each six month calculation period and Ralphs will receive interest payments based on LIBOR at the beginning of each six month calculation period. This interest rate swap agreement has a three-year term expiring November 6, 1995. Ralphs is exposed to credit loss in the event of nonperformance by the other party to the interest rate swap agreement. However, Ralphs does not anticipate nonperformance by the counterpart. The following details the impact of the hedging activity on the weighted average interest rate for each of the last three fiscal years.
With hedge Without hedge ---------- ------------- 1992 . . . . . . . . . . . . . . 10.52% 10.22% 1993 . . . . . . . . . . . . . . 8.96% 8.96% 1994 . . . . . . . . . . . . . . 9.37% 9.18%
(17) THE MERGER (UNAUDITED) On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food 4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4 Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (as amended from time to time, the "Merger Agreement") with Ralphs Supermarkets, Inc. (the "Holding Company") and its stockholders. Pursuant to the terms of the Merger Agreement, Food 4 Less will be merged with and into Holding Company (the "RSI Merger") and Holding Company will continue as the surviving corporation. Food 4 Less is a multiple format supermarket operator that operates in three geographic areas: Southern California, Northern California and certain areas of the Midwest. Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which is currently a wholly-owned subsidiary of Holding Company, will merge with and into Holding Company (the "RGC Merger", and together with the RSI Merger, the "Merger"), and Holding Company will change its name to Ralphs Grocery Company (the "New Company"). Prior to the Merger, FFL will merge with and into Holdings, which will be the surviving corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings will change its jurisdiction of incorporation by merging with a newly-formed, wholly-owned subsidiary ("New Holdings"), incorporated in Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL Merger and the Reincorporation Merger, the New Company will become a wholly-owned subsidiary of New Holdings. Agreement has been reached with each of the California Attorney General and the Federal Trade Commission for approval of the Merger. Food 4 Less and Ralphs have agreed in a settlement agreement with the Attorney General to divest 27 specific stores in Southern California. Under the agreement, the Company must divest 14 stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. F-27 65 RALPHS GROCERY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED) In order to consummate the Merger, Food 4 Less has made an Offer to Exchange and Offer to Purchase and Solicit Consents with respect to the holders of the 9% Senior Subordinated Notes (the "Old RGC 9% Notes") due April 1, 2003 of Ralphs and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the "Old RGC 10 1/4% Notes" and together with the Old RGC 9% Notes, the "Old RGC Notes") (i) to exchange (as so amended and restated, the "Exchange Offers") such Old RGC Notes for New Senior Subordinated Notes due 2005 (the "New Notes") plus a cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC Notes tendered for exchange or (ii) to purchase (the "Cash Offers", and together with the Exchange Offers, the "Offers") Old RGC Notes, for $1,010 in cash per $1,000 principal amount of Old RGC Notes accepted for purchase, in each case, plus accrued and unpaid interest to the date of exchange or purchase. The Offers are subject to the terms and conditions set forth in an Amended and Restated Prospectus and Solicitation Statement filed by Food 4 Less with the Securities and Exchange Commission (the "Prospectus") and which is subject to further changes, including: (1) satisfaction of a minimum tender amount (i.e., at least a majority of the aggregate principal amount of the outstanding Old RGC Notes being validly tendered for exchange for New Notes and not withdrawn pursuant to the Offers prior to the date of expiration); (2) the receipt of the requisite consents to certain amendments to the indentures (the "Indentures") under which the Old RGC Notes were issued (i.e., consents from holders of Old RGC Notes representing at least a majority in aggregate principal amount of each issue of Old RGC Notes held by persons other than Ralphs and its affiliates) on or prior to the date of expiration; (3) the satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions precedent to the Merger; (4) the prior or contemporaneous consummation of other exchange offers, consent solicitations and public offerings contemplated by the Prospectus; and (5) the prior or contemporaneous consummation of the bank financing and the equity investment described in the Prospectus. As a result of the RSI Merger and the RGC Merger, the New Notes and any outstanding Old RGC Notes not tendered in the Offers will be the obligations of the New Company. Conditions to the consummation of the RSI Merger include the receipt of necessary consents and the completion of financing of the transaction. The purchase price for Holding Company is approximately $1.5 billion, including the assumption or repayment of debt. The consideration payable to the stockholders of Holding Company consist of $375 million in cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be issued to the selling shareholders of Holding Company (the "Seller Debentures") by New Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures"). New Holdings will use $100 million of cash received from a new equity investment (the "New Equity Investment"), together with the Seller Debentures and the New Discount Debentures, to acquire approximately 48% of the capital stock of Holding Company immediately prior to consummation of the RSI Merger. New Holdings will then contribute the $250 million of purchased shares of Holding Company stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company stock will be acquired for $275 million in cash. Standard & Poor's has publicly announced that, upon consummation of the Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating assignment, if implemented, would constitute a Rating Decline pursuant to the Indentures. The consummation of the Merger and the resulting change in composition of the Board of Directors of RGC, together with the anticipated Rating Decline, would constitute a Change of Control Triggering Event under the Indentures. Although RGC does not anticipate that there will be a significant amount of Old RGC Notes outstanding following consummation of the Exchange Offers, upon such a Change of Control Triggering Event, the New Company would be obligated to make the Change of Control Offer following the Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Due to the increased size, dual format strategy and integration related costs, after giving effect to or in connection with the Merger, RGC believes that its future operating results will not be directly comparable to the historical operating results of RGC. Upon consummation of the Merger, the operations and activities of RGC will be significantly impacted due to conversions of some existing stores to Food 4 Less warehouse stores as well as the consolidation of various operating functions and departments. The consolidation may result in a restructuring charge for the New Company. The amount of the restructuring charge is not determinable due to various factors, including uncertainties inherent in the completion of the Merger, however, the restructuring charge may be material in relation to the stockholders' equity and financial position of RGC and the New Company. Following the consummation of the Merger, the New Company will be highly leveraged. F-28 66 RALPHS GROCERY COMPANY SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) (PAYMENTS) OF PERIOD ========================= ========= ========== =========== ========== ========= January 29, 1995: Self-Insurance Reserves (1) . . . . . . . . $80,010 $18,149 $ 2,530 $(27,483) $73,206 Store Closure Reserves . . . $ 9,514 $ -- $ -- $ (764) $ 8,750 January 30, 1994: Self-Insurance Reserves (1) . . . . . . . . $72,979 $30,323 $ 5,953 $(29,245) $80,010 Store Closure Reserves . . . $10,277 $ -- $ -- $ (763) $ 9,514 January 31, 1993: Self-Insurance Reserves (1) . . . . . . . . $64,523 $25,950 $ 10,902 $(28,396) $72,979 Store Closure Reserves . . . $14,244 $ 1,838 $ -- $ (5,805) $10,277
(1) Includes short term portion. (2) Amortization of discount on self-insurance reserves to interest expense. S-1 EX-10.29 2 AGREEMENT AND PLAN OF MERGER, AMENDMENT NO.1 1 EXHIBIT 10.29 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER This Amendment No. 1 (this "Amendment"), dated as of January 12, 1995, to the Agreement and Plan of Merger, dated as of September 14, 1994 (the "Merger Agreement"), is by and among Food 4 Less, Inc., a Delaware corporation ("F4L"), Food 4 Less Holdings, Inc., a California corporation ("F4L Holdings"), Food 4 Less Holdings, Inc., a Delaware corporation ("F4L Holdings Delaware"), Food 4 Less Supermarkets, Inc., a Delaware corporation ("F4L Supermarkets"), Ralphs Supermarkets, Inc., a Delaware corporation ("Ralphs Supermarkets"), and The Edward J. DeBartolo Corporation ("EJDC") and the other stockholders of Ralphs Supermarkets (each a "Selling Stockholder"). Capitalized terms not otherwise defined herein have the meanings given to them in the Merger Agreement. WHEREAS, F4L, F4L Holdings, F4L Supermarkets, Ralphs Supermarkets and the Selling Stockholders previously have entered into the Merger Agreement, by which the parties agreed to merge F4L Supermarkets with and into Ralphs Supermarkets (the "Merger") in accordance with the terms and conditions of the Merger Agreement and Section 251 of the General Corporation Law of the State of Delaware (the "GCL"); WHEREAS, the parties desire to amend certain provisions of the Merger Agreement as more fully set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: 1. Mergers of F4L into F4L Holdings and F4L Holdings into F4L Holdings Delaware. Notwithstanding anything to the contrary contained in the Merger Agreement, the parties acknowledge that on or prior to the Closing Date, (a) F4L will be merged with and into F4L Holdings, the separate existence of F4L (except as may be continued by operation of law) shall cease, and F4L Holdings shall be the surviving corporation in such merger; and (b) F4L Holdings thereupon will be merged with and into F4L Holdings Delaware, the separate existence of F4L Holdings (except as may be continued by operation of law) shall cease, and F4L Holdings Delaware shall continue as the surviving corporation following such merger. F4L, F4L Holdings and F4L Supermarkets represent and warrant that F4L Holdings Delaware is a wholly-owned subsidiary of F4L Holdings having no assets and liabilities, and that the sole purpose of the merger of F4L Holdings into F4L Holdings Delaware is to change the jurisdiction of incorporation of F4L Holdings from California to Delaware. By operation of the foregoing mergers, F4L Holdings Delaware shall assume all liabilities and obligations of F4L and F4L Holdings under the Merger Agreement, the Indenture and the Registration Rights Agreement, including without limitation the obligation to issue the Debentures and to file with the SEC the Shelf Registration Statement. From and after the merger of F4L Holdings into F4L Holdings Delaware, all references in the Merger Agreement to "F4L Holdings" shall be deemed to be references to F4L Holdings Delaware, and all representations, warranties and covenants of F4L Holdings shall be representations, warranties and covenants of F4L Holdings Delaware, as fully as if they originally had been made by F4L Holdings Delaware. 2 2. Additional Defined Terms. (a) The definition of "Closing Date" in Section 1.1 of the Merger Agreement is hereby amended to read as follows: "Closing Date" shall mean March 15, 1995 or such other date as promptly thereafter as of which all of the conditions set forth in Articles VIII and IX shall have been satisfied or duly waived or, if F4L and Ralphs Supermarkets shall mutually agree upon a different date, the date upon which they, with the consent of EJDC, shall have mutually agreed upon in writing. (b) Section 1.2 of the Merger Agreement is hereby amended to include the following terms defined in the amended Sections set forth opposite such term:
Term Section ---- ------- Accrued Interest Amounts 2.6(e) Acquisition Consideration 2.6(a) Constituent Corporations 2.3 EAR 2.7 EAR Plan 2.7 Effective Date 2.4 Fractional Amounts 2.1(b) Merger Consideration 2.6(a) Option 2.7 Purchase Consideration 2.1(a) Share Purchase 2.1(a) Surviving Corporation 2.2
(c) All references in Articles III through XII of the Merger Agreement to the "Merger Consideration" are hereby amended to read "Acquisition Consideration." (d) All references in the Merger Agreement to the "Merger" are hereby deemed to incorporate by reference the "Share Purchase" except where the context otherwise requires. (e) All references in the Merger Agreement to the "Agreement" and all references in this Amendment to the "Merger Agreement" are hereby deemed to incorporate by reference this Amendment. 3. Amendment of Article II. Article II of the Merger Agreement is hereby amended to read in full as follows: "ARTICLE II The Share Purchase and Merger Section 2.1 The Share Purchase. On the Closing Date, immediately prior to the filing of the certificate of merger with the Delaware Secretary of State in accordance with Section 2.4 below: 2 3 (a) F4L Holdings Delaware will purchase 12,184,418.99116 Shares (the "Share Purchase"), pro rata from the Selling Stockholders in proportion to their respective holdings, for per Share consideration consisting of $12.31060748 in cash and $8.2074 principal amount of Debentures (or the pro rata portion of such cash and Debentures, in the case of fractional shares) (collectively, and together with the cash amounts referred to in Section 2.1(b) below, the "Purchase Consideration"). The Purchase Consideration payable to each Selling Stockholder, and the number of shares to be sold by each of them in the Share Purchase, is set forth in Schedule 2.1. (b) Debentures will be issued only in denominations of $1000 and integral multiples of $1000. A Selling Stockholder will not be entitled to receive Debentures in principal amounts less than $1000, or in principal amounts in excess of $1000 (or an integral multiple thereof) but less than the next highest integral multiple ("Fractional Amounts"), but instead will be entitled to receive cash in lieu of any such Fractional Amount. (c) F4L Holdings Delaware will immediately contribute the 12,184,418.99116 Shares acquired in the Share Purchase to the capital of F4L Supermarkets. Section 2.2 The Merger. At the Effective Date, immediately following the Share Purchase and in accordance with this Agreement and the GCL (and subject to the provisions of Section 2.10 hereof), F4L Supermarkets shall be merged with and into Ralphs Supermarkets, the separate existence of F4L Supermarkets (except as may be continued by operation of law) shall cease, and Ralphs Supermarkets shall continue as the surviving corporation. As constituted from and after the Effective Date, Ralphs Supermarkets hereinafter sometimes is referred to as the "Surviving Corporation." Section 2.3 Effect of the Merger. When the Merger has been effected, the Surviving Corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises, of a public as well as of a private nature, of F4L Supermarkets and Ralphs Supermarkets (the "Constituent Corporations"); all property, real, personal and mixed, and all debts due on whatever account and all choses in action, and all and every other interest, of or belonging to or due each of the Constituent Corporations shall be vested in the Surviving Corporation without further act or deed; and the title to any real estate, or any interest therein, vested in F4L Supermarkets, Ralphs Supermarkets or the Surviving Corporation shall not revert or be in any way impaired by reason of the Merger. The Surviving Corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the Constituent Corporations so merged; any claim existing or action or proceeding pending by or against any of the Constituent Corporations may be prosecuted as if the Merger had not taken place, or the Surviving Corporation may be substituted in its place. The Surviving Corporation shall have all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under the GCL, and neither the rights of creditors nor any liens upon the respective properties of the Constituent Corporations and the Surviving Corporation shall be impaired by the Merger; all with the effect set forth in the GCL. Section 2.4 Consummation of the Merger. As soon as is practicable after the satisfaction or waiver of the conditions hereinafter set forth, the parties hereto will cause the Merger to be consummated by filing with the Secretary of State of Delaware a certificate of merger in such form as required by, and executed in accordance with, the relevant provisions of the GCL (the time of such filing being the "Effective Date"). Section 2.5 Restated Certificate of Incorporation; Bylaws; Directors and Officers. The Restated Certificate of Incorporation and Bylaws of the Surviving Corporation shall be the Certificate 3 4 of Incorporation and Bylaws of Ralphs Supermarkets, as in effect immediately prior to the Effective Date, until thereafter amended as provided therein and under the GCL, except that the Restated Certificate of Incorporation of the Surviving Corporation shall provide for the authorized capitalization and for the number of directors set forth in the certificate of merger filed with the Delaware Secretary of State. Section 2.6 Conversion of Securities. At the Effective Date, by virtue of the Merger and without any action on the part of F4L Supermarkets, Ralphs Supermarkets, the Surviving Corporation or the holder of any of the following securities: (a) Each Share (or fractional Share) issued and outstanding immediately prior to the Effective Date, except for the Shares held by F4L Supermarkets, shall be cancelled and extinguished and be converted into and become a right to receive $20.51800748 in cash (or the pro rata portion of such cash, in the case of fractional Shares) (collectively, the "Merger Consideration," and together with the Purchase Consideration and the Accrued Interest Amounts (as defined in Section 2.6(e) below), the "Acquisition Consideration"). Each Selling Stockholder hereby waives all dissenters', appraisal and other rights arising under Section 262 of the GCL (or comparable provisions of any applicable laws of other jurisdictions) with respect to its Shares in the Merger. The Merger Consideration payable to each Selling Stockholder is set forth in Schedule 2.1. At the Effective Date, each Share (or fractional Share) held by F4L Supermarkets shall be cancelled and extinguished without payment of consideration. (b) Each share of Common Stock, par value $0.01 per share, of F4L Supermarkets issued and outstanding immediately prior to the Effective Date shall be converted into and become one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation. Each share of Preferred Stock, par value $0.01 per share, of F4L Supermarkets issued and outstanding immediately prior to the Effective Date shall be cancelled and extinguished without payment of consideration. (c) All notes and other debt instruments of the Constituent Corporations which are outstanding at the Effective Date shall continue to be outstanding subsequent to the Effective Date as debt instruments of the Surviving Corporation, if permitted by their respective terms and provisions. (d) There shall be withheld from the cash consideration set forth in Sections 2.1(a) and 2.6(a) any amounts lawfully required to be withheld and paid over to any taxing authority with respect to any Selling Stockholder (whether by reason of receipt of the Acquisition Consideration or any other consideration received in, or in connection with, the transactions contemplated by the Merger Agreement); it being agreed, however, that except as otherwise required as a result of a change after the date hereof in law (including court decisions), regulations or administrative interpretation thereof: (i) if the Company provides a FIRPTA certificate as set forth in Section 7.1(h) hereof (and F4L Supermarkets has no reason to believe that such certificate is not true and complete), no portion of the cash consideration shall be withheld pursuant to sections 897 and 1445 of the Code, and (ii) if such Selling Stockholder provides an opinion of counsel in form and substance reasonably satisfactory to F4L Supermarkets and to F4L Supermarkets' counsel to the effect that no portion of the Acquisition Consideration to be received by such Selling Stockholder is subject to withholding under sections 1441 or 1442 of the Code, no amount of the cash consideration shall be withheld pursuant to sections 1441 or 1442 of the Code. (e) If the Closing shall occur on or after March 16, 1995, the Acquisition Consideration payable to each Selling Stockholder shall include an additional cash amount equal to the amount of simple interest accrued on the Purchase Consideration (including the principal amount of Seller 4 5 Debentures) and the Merger Consideration payable to such Selling Stockholder, calculated on the basis of the number of full days elapsed from 8:00 a.m. (New York time) March 16, 1995 to the Closing and prorated based on a 360-day year (collectively, the "Accrued Interest Amounts"). The rate of interest applicable to the Accrued Interest Amounts shall be (i) the rate announced from time to time by Bankers Trust Company as then being its prime rate of interest plus (ii) 1%. Section 2.7 Ralphs Supermarkets Stock Options and Related Matters. At or immediately prior to the Effective Date, each then outstanding stock option (an "Option") to purchase Shares, heretofore granted under the Ralphs Holding Company Nonqualified Stock Option Plan dated February 3, 1992 (whether or not such Option is then exercisable) shall be cancelled, exercised or surrendered by the holder thereof, without payment of consideration for such cancellation or surrender (or payment of Acquisition Consideration with respect to any Shares acquired upon exercise thereof) in excess of $880,000 (including the principal amount of any Debentures issued as Acquisition Consideration with respect to Shares acquired upon exercise thereof). At or immediately prior to the Effective Date, each then outstanding equity appreciation right (an "EAR") heretofore granted pursuant to the Company's Equity Appreciation Plan, as amended through the date hereof (the "EAR Plan"), will be paid in accordance with its terms. In the event that F4L (or any of its subsidiaries) and the holders of such options or EARs enter into any agreement to modify or cancel a portion of the options or EARs held by such person in connection with the consummation of the Merger, the Company will execute such documentation as may be reasonably requested by F4L (or any of its subsidiaries) to reflect such modification or cancellation. Section 2.8 Closing. The Closing shall take place on the Closing Date at 10:00 A.M., Los Angeles time, at the offices of Latham & Watkins, 633 West Fifth Street, Los Angeles, California 90071, or at such other time and place as shall be agreed upon by the parties. At the Closing (a) the Selling Stockholders and Ralphs Supermarkets, as applicable, will deliver to F4L Supermarkets (i) certificates representing 100% of the issued and outstanding Shares, in accordance with the provisions of Section 2.9, (ii) corporate minute books, stock transfer books and Bylaws of Ralphs Supermarkets, (iii) certificates of each Selling Stockholder and of Ralphs Supermarkets (signed on behalf of such Selling Stockholder or Ralphs Supermarkets, as applicable, by the Chairman, the President or a Vice President of each of them) to the effect that the conditions set forth in Article VIII hereof (but only insofar as such conditions relate to such Selling Stockholder or Ralphs Supermarkets, as applicable) have been satisfied (except as waived by F4L Supermarkets), (iv) an opinion of Willkie Farr & Gallagher, counsel to Ralphs Supermarkets and EJDC, who may rely, as to matters of California and Ohio law, on an opinion of Troy & Gould, counsel to Ralphs Supermarkets and an opinion of Squire, Sanders & Dempsey, counsel to EJDC, and an opinion of Milbank, Tweed, Hadley & McCloy, special tax counsel to Ralphs Supermarkets, relating to the matters set forth in Exhibit B, and opinions of counsel to each Selling Stockholder other than EJDC, relating to the matters set forth in Exhibit C, (v) the certificate of incorporation of Ralphs Supermarkets certified by the Secretary of State of Delaware and certificates of good standing of Ralphs Supermarkets in Delaware and California, (vi) incumbency certificates with respect to the officers of Ralphs Supermarkets and of each Selling Stockholder, (vii) the resignation of such members of the Board of Directors of Ralphs Supermarkets and Ralphs Grocery as shall be specified by F4L Supermarkets in writing at least ten days prior to the Closing Date and (viii) such other certificates, instruments or other documents as F4L Supermarkets may reasonably request, in each case in form and substance reasonably satisfactory to F4L Supermarkets; and (b) F4L Holdings Delaware and F4L Supermarkets, as applicable, will cause to be delivered to each Selling Stockholder (i) the cash portion of the Acquisition Consideration due to it by wire transfer in immediately available funds to an account specified by such Selling Stockholder, (ii) the Debenture portion of the Acquisition Consideration due to it by delivery of one or more Debentures in appropriate principal amount, (iii) certificates of F4L 5 6 Holdings Delaware and F4L Supermarkets (signed on behalf of each of them by the President or a Vice President of each of them) to the effect that the conditions set forth in Article IX hereof have been satisfied (except as waived by Ralphs Supermarkets and the Selling Stockholders), (iv) an opinion of Latham & Watkins, counsel to F4L Holdings Delaware and F4L Supermarkets relating to the matters set forth in Exhibit D, (v) the certificates of incorporation of F4L Holdings Delaware and F4L Supermarkets certified by the Secretary of State of Delaware and certificates of good standing of F4L Holdings Delaware in Delaware and F4L Supermarkets in Delaware and California, (vi) incumbency certificates with respect to the officers of F4L Holdings Delaware and F4L Supermarkets, (vii) the solvency opinion referred to in Section 9.8, and (viii) such other certificates, instruments or other documents as Ralphs Supermarkets or any Selling Stockholder may reasonably request, in each case in form and substance reasonably satisfactory to Ralphs Supermarkets or such Selling Stockholder. Section 2.9 Exchange of Certificates. (a) From and after the Effective Date, each holder of a certificate or certificates representing Shares shall surrender such certificate or certificates to the Surviving Corporation, duly endorsed without recourse except as provided herein, as the Surviving Corporation may require, and shall receive in exchange therefor the Acquisition Consideration. At the Effective Date, the holder of a certificate or certificates representing Shares shall have no rights with respect to such Shares other than to surrender such certificate or certificates pursuant to this Section 2.9. No interest shall accrue on the Acquisition Consideration. If the Acquisition Consideration (or any portion thereof) is to be delivered to any person other than the person in whose name the certificate or certificates representing Shares surrendered in exchange therefor is registered, it shall be a condition to such exchange that the person requesting such exchange shall pay to the Surviving Corporation any transfer or other taxes required by reason of the payment of the Acquisition Consideration to a person other than the registered holder of the certificate or certificates so surrendered, or shall establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Notwithstanding the foregoing, neither the Surviving Corporation nor any other party hereto shall be liable to a holder of Shares for any Acquisition Consideration delivered to a public official pursuant to applicable abandoned property, escheat and similar laws. (b) After the Effective Date, there shall be no transfers of any Shares on the stock transfer books of the Surviving Corporation. If, after the Effective Date, certificates formerly representing Shares are presented to the Surviving Corporation, they shall be cancelled and exchanged for the Acquisition Consideration in accordance with this Section 2.9. Section 2.10 Alternative Transaction Structure. At the election of F4L, the transactions contemplated by this Agreement may be effected through a merger of a newly-formed shell subsidiary of F4L Supermarkets with and into Ralphs Supermarkets in lieu of the Merger of F4L Supermarkets with and into Ralphs Supermarkets, or through such other form of transaction as F4L may determine to be appropriate, provided that such merger or other form does not result in any consequences to any Selling Stockholder which are less favorable to such Selling Stockholder than the consequences which would have resulted from the Merger, and appropriate conforming changes to this Agreement satisfactory to the Selling Stockholders are made." 4. Amendment of Section 6.14. Section 6.14 of the Merger Agreement is hereby amended by deleting the last sentence of the first paragraph hereof and inserting the following two sentences: "F4L Holdings agrees that it will, or that it will cause F4L Supermarkets or another Affiliate to, effective as of the Closing Date, execute a guarantee of the obligations of Ralphs Supermarkets and 6 7 its subsidiaries in favor of the DIR, which guarantee shall be similar to the EJDC Guarantee and shall cover the period from and after the Closing Date. EJDC agrees that it will, immediately prior to the Closing Date, notify the DIR that the EJDC Guarantee will be terminated as of the Closing Date with respect to periods on or after the Closing Date, and F4L Holdings agrees that it will, or that it will cause F4L Supermarkets or another Affiliate to, execute on or prior to the Closing Date such documents as are reasonably necessary to effectuate such termination, all in accordance with DIR procedures." 5. Amendment of Article IX. Article IX of the Merger Agreement is hereby amended to add the following new Section 9.13 at the end thereof: "Section 9.13 Ralphs Grocery Merger. The Selling Stockholders shall have received evidence reasonably satisfactory to them that all of the conditions precedent to the consummation of the merger of Ralphs Grocery with and into the Surviving Corporation have been satisfied or waived and that such merger will be consummated immediately following the effectiveness of the Merger on the Closing Date." 6. Amendment of Section 11.1(b). Section 11.1(b) of the Merger Agreement is hereby amended (i) to delete the date "January 16, 1995" appearing in the second line thereof and to substitute in its place the date "March 31, 1995" and (ii) to delete the date "March 31, 1995" appearing in the third line thereof and to substitute in its place the date "April 30, 1995." 7. Schedules. Schedule 2.5(a) of the Merger Agreement is hereby deleted and the attached Schedule 2.1 is hereby substituted in its place and incorporated herein by reference. 8. Exhibit A. Exhibit A (Form of Indenture) of the Merger Agreement is hereby deleted and the attached Exhibit A (Form of Indenture) is hereby substituted in its place and incorporated herein by reference. 9. Exhibit G. Exhibit G (Form of Registration Rights Agreement) of the Merger Agreement is hereby amended as more fully described below. (a) The following sentence is hereby added at the end of Section 2 of the Registration Rights Agreement: "It is understood that a pledge to an institution or to an agent for one or more institutions made at any time while the Shelf Registration Statement is effective shall be deemed to be a pledge pursuant to an effective Registration Statement." (b) Section 7(l) is hereby amended to read as follows: "(l) cause all Registrable Securities covered by the Shelf Registration Statement to be listed on each securities exchange on which similar securities issued by the Company or any of its subsidiaries are then listed;" 10. Terms and Conditions. Except as specifically modified herein, all other terms and conditions of the Merger Agreement shall remain in full force and effect. 7 8 IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the parties as of the day first above written. "F4L": FOOD 4 LESS, INC. By: _________________________ Name: Title: "F4L HOLDINGS": FOOD 4 LESS HOLDINGS, INC. By: _________________________ Name: Title: "F4L HOLDINGS DELAWARE": FOOD 4 LESS HOLDINGS, INC. By: _________________________ Name: Title: "F4L SUPERMARKETS": FOOD 4 LESS SUPERMARKETS, INC. By: _________________________ Name: Title: "RALPHS SUPERMARKETS": RALPHS SUPERMARKETS, INC. By: _________________________ Name: Title: "SELLING STOCKHOLDERS": THE EDWARD J. DEBARTOLO CORPORATION By: _________________________ Name: Title: S-1 9 CAMDEV PROPERTIES INC. By: _________________________ Name: Title: BANK OF MONTREAL By: _________________________ Name: Title: BANQUE PARIBAS By: _________________________ Name: Title: FEDERATED DEPARTMENT STORES, INC. By: _________________________ Name: Title: S-2 10 SCHEDULE 2.1 CONSIDERATION TO RSI SHAREHOLDERS
# shares purchased # shares convt'd mrgr cash purch price debentures # RSI shares owned (Section 2.1) (Section 2.6) (Section 2.1(a)) (Section 2.1(a)) ------------------ ------------------ --------------------- ----------------- -------------- EJDC 15,440,600.00000 7,352,666.66429 8,087,933.33571 $ 90,515,793.24 $ 60,346,000 Camdev Properties, Inc. 3,276,681.37923 1,560,324.46579 1,716,356.91344 $ 19,208,542.04 $ 12,806,000 Bank of Montreal 2,591,815.11029 1,234,197.67117 1,357,617.43912 $ 15,193,723.08 $ 10,129,000 Banque Paribas 2,591,815.11029 1,234,197.67117 1,357,617.43912 $ 15,193,723.08 $ 10,129,000 Federated Department Stores, Inc. 1,686,368.28990 803,032.51874 883,335.77116 $ 9,885,818.13 $ 6,590,000 ---------------- ---------------- ---------------- --------------- ------------ Total 25,587,279.88971 12,184,418.99116 13,402,860.89855 $149,997,599.57 $100,000,000
cash in lieu of fract tot cash purch price cash payable in merger cash total (Section 2.1(b)) (Section 2.1) (Section 2.6) (purch + mrgr) --------------------- -------------------- ---------------------- --------------- EJDC $ 276.38 $ 90,516,069.62 $165,948,276.68 $256,464,346.30 Camdev Properties, Inc. $ 207.02 $ 19,208,749.06 $ 35,216,223.99 $ 54,424,973.05 Bank of Montreal $ 553.97 $ 15,194,277.05 $ 27,855,604.77 $ 43,049,881.82 Banque Paribas $ 553.97 $ 15,194,277.05 $ 27,855,604.77 $ 43,049,881.82 Federated Department Stores, Inc. $ 809.09 $ 9,886,627.23 $ 18,124,289.96 $ 28,010,917.19 --------- --------------- --------------- --------------- Total $2,400.43 $150,000,000.00 $275,000,000.17 $425,000,000.17
Per share amounts Purchase price (Section 2.1) -------------- cash $12.3106074800 debentures $ 8.2074000000 --------------- -------------- Total $20.5180074800 Merger consideration (Section 2.6) -------------------- cash $20.5180074800
11 SCHEDULE 2.1 CONSIDERATION TO RSI SHAREHOLDERS cash purch $150,000,000.00 deb purch $100,000,000.00
12 EXHIBIT A - ------------------------------------------------------------------------------- FOOD 4 LESS HOLDINGS, INC. AND NORWEST BANK MINNESOTA, N.A. AS TRUSTEE ________ INDENTURE Dated as of ___________ __, 1995 ________ $100,000,000 13% Senior Subordinated Pay-in-Kind Debentures due 2007 - ------------------------------------------------------------------------------- 13 CROSS-REFERENCE TABLE
TIA INDENTURE Section Section - ------- --------- 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10; 13.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 13.2 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10; 13.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 13.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 - -----------------------
N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 14 TABLE OF CONTENTS
PAGE ---- ARTICLE I - DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2. Incorporation by Reference of TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE II - THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.4. Paying Agent To Hold Assets in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 2.13. CUSIP Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE III - REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.2. Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE IV - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.3. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.4. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.5. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.6. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 4.7. Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
i 15
Page ---- Section 4.8. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.9. SEC Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.10. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.12. Limitation on Incurrences of Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 4.13. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.14. Limitation on Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.15. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 4.16. Limitation on Senior Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.17. Limitation on Preferred Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . 38 ARTICLE V - SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 5.1. When Holdings May Merge, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE VI - DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.7. Rights of Holders To Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE VII - TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.6. Reports By Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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Page ---- Section 7.9. Successor Trustee by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.11. Preferential Collection of Claims Against Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE VIII - LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 8.6. Repayment to Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 ARTICLE IX - AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 9.3. Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 9.5. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.6. Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE X - MEETINGS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.1. Purposes for Which Meetings May Be Called . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.2. Manner of Calling Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.3. Call of Meetings by Holdings or Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.4. Who May Attend and Vote at Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment . . . . . . . . 59 Section 10.6. Voting at the Meeting and Record To Be Kept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting . . . . . . 60 ARTICLE XI - SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.1. Securities Subordinated to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.2. No Payment on Securities in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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Page ---- Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . 63 Section 11.5. Obligations of Holdings Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . . . . . 64 Section 11.7. Application by Trustee of Assets Deposited with It. . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities . . . . . . . . . . . . . . . . . 66 Section 11.10. Right of Trustee to Hold Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.11. Article Eleven Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . 66 ARTICLE XII - SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.1. Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.2. Conditions to Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . 67 ARTICLE XIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.3. Communications by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.6. Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.9. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
iv 18 INDENTURE dated as of ________ __, 1995, between FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"), and Norwest Bank Minnesota, N.A., a National Banking Association, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the 13% Senior Subordinated Pay-in-Kind Debentures due 2007: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "Acquired Indebtedness" means Indebtedness of a person or any of its subsidiaries existing at the time such person becomes a Subsidiary or assumed in connection with the acquisition of assets from such person and not incurred by such person in connection with, or in anticipation or contemplation of, such person becoming a Subsidiary or such acquisition. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of this Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of Holdings or any of its Subsidiaries. "Affiliate Obligation" means any contractual obligation (not constituting Indebtedness) between Holdings and any Affiliate, other than obligations relating to the purchase or sale of goods in the ordinary course of business made in compliance with Section 4.11 hereof. "Affiliate Transaction" shall have the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or co-Registrar. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise), made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than Holdings or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other 1 19 disposition, or series of related sales, transfers or other dispositions, (i) involving only Excluded Assets, (ii) resulting in Net Proceeds to Holdings or any Subsidiary of $500,000 or less or (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of Holdings or any Subsidiary with a Lien on such assets, which Lien is permitted under this Indenture, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law. "Average Life" means, as of any date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payments of such debt security multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any person, the Board of Directors of such person or any committee of the Board of Directors of such person duly authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such person. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person, including Preferred Stock. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii) and (v) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two 2 20 highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means (I) the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of Holdings such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of Holdings (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of Holdings' Board of Directors or (II) Holdings ceasing to own 100% of the outstanding voting securities entitled to vote on a regular basis to elect a majority of the Board of Directors of the Company. "Change of Control Date" shall have the meaning provided in Section 4.14. "Change of Control Offer" shall have the meaning provided in Section 4.14. "Change of Control Payment Date" shall have the meaning provided in Section 4.14. "Company" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, Ralphs Supermarkets (to be renamed Ralphs Grocery Company) following the Merger. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received by, such person or a subsidiary of such person not subject to any Payment Restriction, provided, however, that with respect to the net income of Holdings, the net income of the Company and its subsidiaries shall not be so excluded, notwithstanding the existence of any such Payment 3 21 Restriction, so long as the terms of any such consensual Payment Restriction limiting the payment of dividends are not materially more restrictive at the time of determination of Consolidated Net Income than the most restrictive Payment Restriction limiting the payment of dividends in effect on the Issue Date; and (c)(i) the net income (or loss) of any other person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of such person or any of its subsidiaries and any gains on pension reversions received by such person or any of its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any of its subsidiaries of any securities of such person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C) any other restructuring reserves or charges (provided, however, that any cash payments actually made with respect to the liabilities for which such restructuring reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case, incurred by Holdings or any of its Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by Holdings and its Subsidiaries resulting from earthquakes and (ix) with respect to Holdings and its Subsidiaries, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Covenant Defeasance" shall have the meaning provided in Section 8.3. "Credit Agent" means, at any time, the then-acting Administrative Agent as defined in and under the Credit Agreement, which initially shall be ____________________. Holdings shall promptly notify the Trustee of any change in the Credit Agent. "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among the Company, certain of its subsidiaries, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness incurred to refund or refinance the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or such agreement. Holdings shall promptly notify the Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. 4 22 "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Capital Stock" means, (i) with respect to any person, any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security into which it is convertible, puttable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (a) redeemable or repurchasable solely at the option of such person or (b) issued to employees of Holdings or its Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated; and (ii) with respect to any Subsidiary of Holdings, any Preferred Stock issued by a Subsidiary of Holdings other than Preferred Stock issued to Holdings. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credit) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring reserve or charge referred to in clause (v) above (and was not otherwise deducted in the computation of Consolidated Net Income of such person for such period). "Event of Default" shall have the meaning provided in Section 6.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Excluded Assets" means assets of Holdings or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. 5 23 "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of Holdings, any original issue discount on the Senior Discount Notes and the Securities but excluding amortization of debt issuance costs and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period, but excluding the amortization of debt issuance costs) and (ii) dividend requirements on Capital Stock of such person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock)) paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) and excluding items eliminated in consolidation. For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such person (as evidenced by a Board Resolution) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as Holdings may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "Forward Period" shall have the meaning set forth in the definition of Operating Coverage Ratio contained in this Section 1.1. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the date of this Indenture. "Holder" means the person in whose name a Security is registered on the Registrar's books. 6 24 "Holdings" means the party named as such above, until a successor replaces it in accordance with the terms of this Indenture, and thereafter means such successor. "incur" shall have the meaning set forth in Section 4.12. "Indebtedness" means with respect to any person, without duplication, (i) all liabilities, contingent or otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person or, if there is no such maximum fixed repurchase price, the liquidation preference of such Disqualified Capital Stock, plus accrued but unpaid dividends; (iii) reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes hereof, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of Holdings, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any 7 25 Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or a nationally recognized investment banking firm that is, in the reasonable judgment of the Board of Directors of Holdings, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to Holdings and its Affiliates. "Initial Public Offering" means an underwritten primary public offering of common stock of Holdings at a time when Holdings has not previously issued or sold any equity securities in an underwritten transaction pursuant to a registration statement filed pursuant to the Securities Act. "Initial Public Offering Consummation Date" means the first date on which Holdings or the Company receives any proceeds from an Initial Public Offering. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by a purchase of assets, in any transaction or series of related transactions, individually or in the aggregate, in an amount greater than $5 million, share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances, or to permit the purchase of Qualified Capital Stock of Holdings or any Subsidiary and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of first issuance of the Securities under this Indenture. "Legal Defeasance" shall have the meaning provided in Section 8.2. 8 26 "Legal Holiday" shall have the meaning provided in Section 13.7. "Letter of Credit Obligations" means Indebtedness of Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of Section 4.12, the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien hereunder. "Loan Documents" means the Credit Agreement and all promissory notes, guarantees, security agreements, pledge agreements, deeds of trust, mortgages, letters of credit and other instruments, agreements and documents executed pursuant thereto or in connection therewith, including all amendments, supplements, extensions, renewals, restatements, replacements or refinancings thereof, or other modifications (in whole or in part, and without limitation as to amount, terms, conditions, covenants or other provisions) thereof from time to time. "Maturity Date" means ________ __, 2007. "Merger" means (i) the merger of the Company into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of RGC into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated as of September 14, 1994, by and among Food 4 Less, Inc., a Delaware corporation, Holdings, Food 4 Less Holdings, Inc., a California corporation, Ralphs Supermarkets, the Company and the stockholders of Ralphs Supermarkets, as such agreement is in effect on the Issue Date. "Net Cash Proceeds" means Net Proceeds of (i) the sale of Qualified Capital Stock of Holdings or (ii) any Asset Sale, in each case, in the form of cash or Cash Equivalents. "Net Proceeds" means (a) in the case of any Asset Sale or any issuance and sale by any person of Qualified Capital Stock, the aggregate net proceeds received by such person 9 27 after payment of expenses, taxes, commissions and the like incurred in connection therewith, (and, in the case of any Asset Sale, net of the amount of cash applied to repay Indebtedness secured by the asset involved in such Asset Sale) whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt as determined with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution) and (b) in the case of any conversion or exchange of any outstanding Indebtedness or Disqualified Capital Stock of such person for or into shares of Qualified Capital Stock of Holdings, the sum of (i) the fair market value of the proceeds received by Holdings in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the holder to Holdings upon such conversion or exchange. "New F4L Senior Notes" means the ___% Senior Notes due 2004 of the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New F4L Subordinated Notes" means the 13.75% Senior Subordinated Notes due 2005 of the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New F4L Senior Note Indenture" means the indenture pursuant to which the New F4L Senior Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "New F4L Subordinated Note Indenture" means the indenture pursuant to which the New F4L Subordinated Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "New Notes" means the ___% Senior Subordinated Notes due 2005 of the successor to the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New Note Indenture" means the indenture pursuant to which the New Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "Officer" means, with respect to any person, the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Controller, or the Secretary of such person. "Officers' Certificate" means, with respect to any person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such person and otherwise complying with the requirements of Sections 13.4 and 13.5. 10 28 "Operating Coverage Ratio" means with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT" for the Pro Forma Period shall be calculated, in the case of Holdings, after giving effect on a pro forma basis to the Merger as if it had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by this Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the legal counsel may be an employee of or counsel to Holdings or the Trustee. "Other Obligations" has the meaning set forth in Section 11.1 hereof. "Pari Passu Indebtedness" means, with respect to Holdings, Indebtedness that ranks pari passu in right of payment to the Securities (whether or not secured by any Lien). "Paying Agent" shall have the meaning provided in Section 2.3, except that, for the purposes of Articles Three and Eight and Section 4.14, the Paying Agent shall not be Holdings or any Subsidiary. 11 29 "Payment Restriction" means, with respect to a Subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person, or (c) transfer any of its properties or assets to such person or any other subsidiary of such person, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The Yucaipa Companies or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P., or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of Holdings or any Subsidiary, or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of Holdings or any Subsidiary or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its subsidiaries pursuant to (i) the term loans under the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $750 million, less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the provisions of Section 4.15 subsequent to the Issue Date, (ii) the revolving credit facility under the Credit Agreement (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the provisions of Section 4.15, and (iii) any guarantee by Holdings of the Indebtedness referred to in the foregoing clauses (i) and (ii); (b) Indebtedness of Holdings or a Subsidiary owed to and held by Holdings or a Subsidiary; (c) Indebtedness incurred by Holdings or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of Holdings and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the first anniversary of the Merger) and (ii) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon this clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of Holdings and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the third anniversary of the Merger); (d) Indebtedness incurred by Holdings or any Subsidiary in connection with capital expenditures in an aggregate principal amount not exceeding $150 million, provided that such capital expenditures relate solely to the integration of the operations of Ralphs Supermarkets, the Company, and their respective subsidiaries as described in that certain Registration Statement of Holdings dated ______, 1995; (e) Indebtedness of Holdings or 12 30 any Subsidiary incurred under Foreign Exchange Agreements and Interest Swap Obligations; (f) guarantees incurred in the ordinary course of business, by Holdings or a Subsidiary, of Indebtedness of any other person in aggregate not to exceed $25 million at any time outstanding; (g) guarantees by Holdings or a Subsidiary of Indebtedness incurred by a wholly-owned Subsidiary so long as the incurrence of such Indebtedness incurred by such wholly-owned Subsidiary is permitted under the terms of this Indenture; (h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (j) other Indebtedness outstanding on the Issue Date (after giving effect to the Merger); (k) Indebtedness arising from guarantees of Indebtedness of Holdings or any Subsidiary or other agreements of Holdings or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by Holdings and its Subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by Holdings or any Subsidiary in the ordinary course of business; (m) Indebtedness of Holdings with respect to the Senior Discount Notes and the Securities as in effect on the Issue Date (including the accretion of the Senior Discount Notes and the issuance of Secondary Securities in lieu of cash interest payments pursuant to the terms of this Indenture as in effect on the Issue Date); and (n) additional Indebtedness of Holdings or any Subsidiary in an amount not to exceed $200 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with Sections 4.3 and 4.11, (vi) Investments in any Subsidiary or by any Subsidiary in Holdings or any other Subsidiary in other Subsidiaries, and (vii) additional Investments in an aggregate amount not exceeding $5 million. "Permitted Payments" means any (i) payment by Holdings or any Subsidiary to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar services during such period pursuant to that certain Consulting Agreement, dated as of the Issue Date, between Holdings, the Company and The Yucaipa Companies, as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date, and (ii) any payment by Holdings or any Subsidiary, (a) in connection with repurchases of outstanding shares of Holdings' common stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by Holdings or any Subsidiaries to participants in employee benefit plans upon any termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed 13 31 $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period). "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of Holdings, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person, and (v) any investment fund or investment entity that is a subsidiary of such person or a permitted transferee of such person. "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of such person's preferred or preference stock, whether outstanding on the date hereof or issued after the Issue Date, and including, without limitation, all classes and series of preferred or preference stock of such person. "principal" of any Indebtedness (including the Securities) means the principal of such Indebtedness plus the premium, if any, on such Indebtedness. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as interpreted by Holdings' chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Pro Forma Period" shall have the meaning set forth in the definition of Operating Coverage Ratio contained in this Section 1.1. "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. 14 32 "Ralphs Supermarkets" means Ralphs Supermarkets, Inc., a Delaware corporation, until a successor replaces it and thereafter means such successor. "Record Date" means the Record Dates specified in the Securities; provided that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Securities. "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Securities. "Reference Period" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.1. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (a), (c), (d), (h), (j) and (m) of the definition thereof) incurred in accordance with this Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Registrar" shall have the meaning provided in Section 2.3. "Registration Rights Agreement" means the registration rights agreement dated as of the Issue Date by and among Holdings, the Company and the stockholders of Ralphs Supermarkets with respect to the Securities. 15 33 "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by Holdings or any Subsidiary as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment (without regard to the $5 million threshold in the definition thereof), in each case reasonably related to the business of Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Indebtedness. "Restricted Debt Prepayment" means the purchase, redemption, acquisition or retirement for value by Holdings, prior to the scheduled maturity or prior to any scheduled repayment of principal or any sinking fund payment in respect of any Subordinated Indebtedness. "Restricted Payment" means any (i) Stock Payment or (ii) Investment (other than a Permitted Investment) or (iii) Restricted Debt Prepayment. "RGC" means Ralphs Grocery Company, a Delaware corporation, until a successor replaces it and thereafter means such successor. "SEC" means the Securities and Exchange Commission. "Secondary Securities" has the meaning set forth in Section 2.2. "Securities" means the 13% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings, including any Secondary Securities issued in respect thereof, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Senior Discount Notes" means the 15.25% Senior Discount Notes due 2004 of Food 4 Less Holdings, Inc., issued pursuant to an indenture dated as of December 15, 1992, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under this Indenture. "Senior Discount Note Indenture" means the indenture pursuant to which the Senior Discount Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. 16 34 "Senior Indebtedness" means the principal of, premium, if any, and interest on (such Senior Indebtedness being deemed to include for all purposes of Article XI of this Indenture the amount required to fully secure in cash undrawn Letter of Credit Obligations under the Loan Documents and such interest on Senior Indebtedness being deemed to include for all purposes of Article XI interest accruing after the filing of a petition initiating any proceeding pursuant to any Bankruptcy Law in accordance with and at the rate (including any rate applicable upon any default, to the extent lawful) specified in any document evidencing the Senior Indebtedness, whether or not the claim for such interest is allowed as a claim after such filing in any proceeding under such Bankruptcy Law) any Indebtedness of Holdings (and, in the case of the Loan Documents, all obligations of Holdings for fees, expenses, indemnities and other amounts payable thereunder or in connection therewith), whether outstanding on the Issue Date or thereafter created, incurred, assumed or guaranteed or in effect guaranteed by Holdings (including, without limitation, Indebtedness under the Loan Documents), unless, in the case of any particular Indebtedness, the instrument creating or evidencing such Indebtedness expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of Holdings from time to time owed or guaranteed by Holdings with respect to the Credit Agreement and the Senior Discount Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) any Pari Passu Indebtedness or any Subordinated Indebtedness, (ii) any Indebtedness constituting Disqualified Capital Stock, (iii) Indebtedness of Holdings to any Subsidiary, (iv) that portion of any Indebtedness which is incurred in violation of Section 4.12 of this Indenture, (v) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of Holdings or of any Subsidiary (including, without limitation, amounts owed for compensation), (vi) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, and (vii) any liability for federal, state, local or other taxes owed or owing by Holdings. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each Subsidiary that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the date hereof) or (b) material to the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. "Stock Payment" means, with respect to any person, (a) the declaration or payment by such person, either in cash or in property, of any dividend on (except, in the case of Holdings, dividends payable solely in Qualified Capital Stock of Holdings), or the making by such person or any of its subsidiaries of any other distribution in respect of, such person's Qualified Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), or (b) the redemption, repurchase, retirement or other acquisition for value by such person or any of its subsidiaries, directly or indirectly, of such person's Qualified Capital Stock (and, in 17 35 the case of a Subsidiary, Qualified Capital Stock of Holdings) or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), other than, in the case of Holdings, through the issuance in exchange therefor solely of Qualified Capital Stock of Holdings; provided, however, that in the case of a Subsidiary, the term "Stock Payment" shall not include any such payment with respect to its Capital Stock or warrants, rights or options to purchase or acquire shares of any class of its Capital Stock that are owned solely by Holdings or a wholly-owned Subsidiary. "Subordinated Indebtedness" means Indebtedness of Holdings that is subordinated in right of payment to the Securities. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than 50% of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of Holdings. "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as amended, as in effect on the date on which this Indenture is qualified under the TIA, except as otherwise provided in Section 9.3. "Transaction Date" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.1. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "U.S. Government Obligations" shall have the meaning provided in Section 8.4. 18 36 "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "wholly-owned Subsidiary" means any Subsidiary all of the shares of Capital Stock of which (other than permitted Preferred Stock and directors' qualifying shares) are at the time directly or indirectly owned by Holdings. "Yearly Period" means each fiscal year of Holdings; provided that the first Yearly Period shall begin on the Issue Date and shall end on January 28, 1996. Section 1.2. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means Holdings or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. 19 37 Section 1.3. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE II THE SECURITIES Section 2.1. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage or as required by the Registration Rights Agreement. Holdings and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, Holdings and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.2. Execution and Authentication. An Officer or an Assistant Secretary, shall sign (either of whom shall, in each case, have been duly authorized by all requisite corporate actions) the Securities for Holdings by manual or facsimile signature. If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. 20 38 A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities, excluding Secondary Securities, for original issue in the aggregate principal amount of up to $100,000,000 upon a written order of Holdings in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $100,000,000, except for any Securities that may be issued pursuant to the immediately following paragraph and except as provided in Section 2.7 and 2.8. Upon the written order of Holdings in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of Holdings. Holdings may, on each Interest Payment Date prior to (and including) [the Interest Payment Date five years after the Issue Date], at its option and in its sole discretion, pay interest in additional Securities ("Secondary Securities") in lieu of the payment in whole or in part of interest in cash on the Securities as provided in paragraph 1 of the Securities. Holdings shall give written notice to the Trustee of the amount of interest to be paid in Secondary Securities not less than five Business Days prior to the relevant Interest Payment Date, and the Trustee or an authenticating agent (upon written order of Holdings signed by an Officer of Holdings given not less than five nor more than 45 days prior to such Interest Payment Date) shall authenticate for original issue (pro rata to each Holder of any Securities of such record date) Secondary Securities in an aggregate principal amount equal to the amount of cash interest not paid on such Interest Payment Date. Except as set forth in the following paragraph each issuance of Secondary Securities in lieu of the payment of interest in cash on the Securities shall be made pro rata with respect to the outstanding Securities, and Holdings shall have the right to aggregate amounts of interest payable in the form of Secondary Securities to a Holder of outstanding Securities and issue to such Holder a single Secondary Security in payment thereof. Any Secondary Securities may be denominated a separate series if Holdings deems it necessary to do so in order to comply with any law or other applicable regulation or requirement, with appropriate distinguishing designations. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof except that Secondary Securities or Securities issued upon registration of transfer of such Secondary Securities may be in denominations of other than $1,000; provided that Holdings may at its option pay cash in lieu of issuing Secondary Securities in any denominations of less than $1,000. 21 39 The Trustee may appoint an authenticating agent reasonably acceptable to Holdings to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holdings and Affiliates of Holdings. Section 2.3. Registrar and Paying Agent. Holdings shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon Holdings in respect of the Securities and this Indenture may be served. Holdings may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve Holdings of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. Holdings may act as its own Registrar or Paying Agent except that for the purposes of Articles Three and Eight and Sections 4.4 and 4.14, neither Holdings nor any Subsidiary shall act as Paying Agent. The Registrar shall keep a register of the Securities and of their transfer and exchange. Holdings, upon notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional paying agent. Holdings initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. Holdings shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. Holdings shall notify the Trustee, in advance, of the name and address of any such Agent. If Holdings fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. Section 2.4. Paying Agent To Hold Assets in Trust. Holdings shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets and/or Secondary Securities held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by Holdings or any other obligor on the Securities), and shall notify the Trustee of any Default by Holdings (or any other obligor on the Securities) in making any such payment. If Holdings or a Subsidiary acts as Paying Agent, it shall segregate such assets and/or Secondary Securities and hold them as a separate trust fund. Holdings at any time may require a Paying Agent to distribute all assets and/or Secondary Securities held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets and/or Secondary Securities held by it to the Trustee and to account for any assets so distributed. Upon 22 40 distribution to the Trustee of all assets that shall have been delivered by Holdings to the Paying Agent, the Paying Agent shall have no further liability for such assets and/or Secondary Securities. Section 2.5. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, Holdings shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. Section 2.6. Transfer and Exchange. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of the Registrar are met. The Registrar need not transfer or exchange any Securities selected for redemption. Also, it need not transfer or exchange any Securities for a period of 30 days before a selection of Securities to be redeemed. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall make the exchange as requested if the requirements of the Registrar are met. Holdings shall cooperate with the Registrar in meeting its requirements. To permit transfers, registration and exchanges, the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any transfer, registration or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or 9.5. Section 2.7. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, Holdings shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or Holdings, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both Holdings and the Trustee, to protect Holdings, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. Holdings may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security shall constitute an additional obligation of Holdings. Section 2.8. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee, including the Secondary Securities, except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A 23 41 Security does not cease to be outstanding because Holdings or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.7 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.7. If on a Redemption Date or the Maturity Date the Paying Agent (other than Holdings or any Subsidiary) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. Section 2.9. Treasury Securities. In determining whether the Holders of the required aggregate principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by Holdings or any of its Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows or has reason to know are so owned shall be disregarded. Notwithstanding the foregoing and except as otherwise provided by the TIA, a majority of Securities not owned by Holdings or any of its Affiliates shall be sufficient to approve any such direction, waiver or consent. Section 2.10. Temporary Securities. Until definitive Securities are ready for delivery, Holdings may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that Holdings considers appropriate for temporary Securities. Without unreasonable delay, Holdings shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Section 2.11. Cancellation. Holdings at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than Holdings or any Subsidiary), and no one else, shall cancel and, at the written direction of Holdings, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7, Holdings may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If Holdings or any Subsidiary shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. 24 42 Section 2.12. Defaulted Interest. If Holdings defaults in a payment of interest on the Securities, it shall, unless the Trustee fixes another record date pursuant to Section 6.10, pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by Holdings for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, Holdings shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Section 2.13. CUSIP Number. Holdings in issuing the Securities may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. ARTICLE III REDEMPTION Section 3.1. Notices to Trustee. If Holdings elects to redeem Securities pursuant to Paragraph 5 of the Securities it shall notify the Trustee of the Redemption Date and aggregate principal amount of the Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders (at Holdings' expense) at least 30 days (unless a shorter notice shall be satisfactory to the Trustee) but not more than 60 days before the Redemption Date. Any notice given pursuant to this Section 3.1 may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. Section 3.2. Selection of Securities To Be Redeemed. If fewer than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata, by lot or by such other method as the Trustee considers to be fair and appropriate and in such manner as complies with applicable legal and stock exchange requirements, if any. Securities in denominations of less than $1,000 shall be redeemed first. Thereafter the Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify Holdings in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the 25 43 aggregate principal amount thereof to be redeemed. Securities in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.3. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, Holdings shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed at such Holder's registered address, with a copy to the Trustee. At Holdings' request, the Trustee shall give the notice of redemption in Holdings' name and at Holdings' expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) that, unless Holdings defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the aggregate principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof to be redeemed), as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. Section 3.4. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price. 26 44 Section 3.5. Deposit of Redemption Price. On or before the Redemption Date, Holdings shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date (other than Securities or portions thereof called for redemption on that date which have been delivered by Holdings to the Trustee for cancellation). The Paying Agent shall promptly return to Holdings any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of Holdings, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If Holdings complies with the preceding paragraph, then, unless Holdings defaults in the payment of such Redemption Price, interest on the Securities to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. If a Security is redeemed on or after a Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Security was registered at the close of business on such Record Date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of Holdings to comply with the first paragraph of this Section 3.5, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.1 hereof. Section 3.6. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV COVENANTS Section 4.1. Payment of Securities. Holdings shall pay the principal amount of, premium, if any, and interest on, as the case may be, the Securities on the dates and in the manner provided in the Securities. An installment shall be considered paid on the date it is due if the Trustee or Paying Agent (other than Holdings or a Subsidiary) holds on that date U.S. Legal Tender and/or, to the extent permitted by Section 2.2, Secondary Securities designated for and sufficient to pay the installment. Holdings shall pay interest on overdue principal (including post-petition interest in any proceeding under any Bankruptcy Law, to the extent allowable as a claim in any such proceeding) at the same rate borne by the Securities and it shall pay interest (including post- 27 45 petition interest in any proceeding under any Bankruptcy Law, to the extent allowable as a claim in any such proceeding) on overdue installments of interest (without regard to any applicable grace period) at the same rate borne by the Securities, to the extent lawful. Section 4.2. Maintenance of Office or Agency. Holdings shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.3. Holdings shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time Holdings shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.2. Section 4.3. Limitation on Restricted Payments. Holdings shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) Holdings or such Subsidiary could not incur at least $1 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12, or (c) the aggregate amount expended for all Restricted Payments, including such Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment, as determined in good faith by the Board of Directors of Holdings, which determination shall be evidenced by a Board Resolution), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such Consolidated Net Income is a loss, minus 100% of such loss) of Holdings earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by Holdings from any person (other than a Subsidiary) from the issuance and sale (including upon exchange or conversion for other securities of Holdings) subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from Holdings or any Subsidiary, until and to the extent such borrowing is repaid) plus (iii) 100% of the aggregate net cash proceeds received by Holdings as capital contributions to Holdings after the Issue Date, plus (iv) $25,000,000. Notwithstanding the foregoing, if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of Holdings or the repurchase, redemption, or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of Holdings, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of Holdings with an Average Life 28 46 equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid, and (4) Permitted Payments; provided that (x) the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (ii) of the definition of "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and (y) no amounts paid pursuant to clause (3) above or clause (i) of the definition of "Permitted Payments" shall be so counted. Prior to making any Restricted Payment under the first paragraph of this Section 4.3, Holdings shall deliver to the Trustee an Officers' Certificate setting forth the computation by which the amount available for Restricted Payments pursuant to such paragraph was determined. The Trustee shall have no duty or responsibility to determine the accuracy or correctness of this computation and shall be fully protected in relying on such Officers' Certificate. Section 4.4. Corporate Existence. Except as otherwise permitted by Article Five, Holdings shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each such Significant Subsidiary and the rights (charter and statutory) and franchises of Holdings and each such Significant Subsidiary; provided, however, that Holdings shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Significant Subsidiaries, any such existence, right or franchise, if the Board of Directors of Holdings or such Significant Subsidiary, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of Holdings or any such Significant Subsidiary. Section 4.5. Payment of Taxes and Other Claims. Holdings shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that Holdings shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim if either (a) the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and an adequate reserve has been established therefor to the extent required by GAAP or (b) the failure to make such payment or effect such discharge (together with all other such failures) would not have a material adverse effect on the financial condition or results or operations of Holdings and its Subsidiaries taken as a whole. 29 47 Section 4.6. Maintenance of Properties and Insurance. (a) Holdings shall cause all properties used or useful to the conduct of its business or the business of any Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times unless the failure to so maintain such properties (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole; provided, however, that nothing in this Section 4.6 shall prevent Holdings or any Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is either (i) in the ordinary course of business, (ii) in the good faith judgment of the Board of Directors of Holdings or the Subsidiary concerned, or of the senior officers of Holdings or such Subsidiary, as the case may be, desirable in the conduct of the business of Holdings or such Subsidiary, as the case may be, or (iii) is otherwise permitted by this Indenture. (b) Holdings shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of Holdings, are adequate and appropriate for the conduct of the business of Holdings and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of Holdings or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of Holdings, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries, taken as a whole. Section 4.7. Compliance Certificate; Notice of Default. (a) Holdings shall deliver to the Trustee within 120 days after the end of Holdings' fiscal year an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his knowledge Holdings during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no Default or Event of Default occurred during such year or, if such signers do know of such a Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should Holdings elect to change the manner in which it fixes its fiscal year end. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, Holdings shall deliver to the Trustee within 30 48 120 days after the end of each fiscal year a written statement by Holdings' independent certified public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof. (c) Holdings shall, so long as the Securities are outstanding, deliver to the Trustee, within five Business Days after any officer becomes aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action Holdings is taking or proposes to take with respect thereto. Section 4.8. Compliance with Laws. Holdings shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. Section 4.9. SEC Reports and Other Information. (a) To the extent permitted by applicable law or regulation, whether or not Holdings is subject to the requirements of Section 13 or 15(d) of the Exchange Act, Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. Holdings shall file with the Trustee, within 5 days after it files the same with the SEC, copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to this Section 4.9. Holdings shall also comply with the other provisions of TIA Section 314(a). If Holdings is not permitted by applicable law or regulations to file the aforementioned reports, Holdings (at its own expense) shall file with the Trustee and mail, or cause the Trustee to mail, to Holders at their addresses appearing in the register of Securities maintained by the Registrar at the time of such mailing within 5 days after it would have been required to file such information with the SEC, all information and financial statements, including any notes thereto and with respect to annual reports, an auditors' report by an accounting firm of established national reputation, and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," comparable to the disclosure that Holdings would have been required to include in annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if Holdings was subject to the requirements of such Section 13 or 15(d) of the Exchange Act. 31 49 (b) At any time when Holdings is not permitted by applicable law or regulations to file the aforementioned reports, upon the request of a Holder of Securities, Holdings will promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of such Securities designated by such Holder, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act. Section 4.10. Waiver of Stay, Extension or Usury Laws. Holdings covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive Holdings from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) Holdings hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.11. Limitation on Transactions with Affiliates. (a) Neither Holdings nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of Holdings or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under Section 4.11(b) and (y) Affiliate Transactions in the ordinary course of business, that are fair to Holdings or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided, that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such transaction or series of transactions complies with clause (y) above, (B) with respect to Affiliate Transactions involving aggregate payments in excess of $5 million and less than $15 million, Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above and that such Affiliate Transaction has received the approval of a majority of the disinterested members of the Board of Directors of Holdings or the Subsidiary, as the case may be, or, in the absence of any such approval by the disinterested members of the Board of Directors of Holdings or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and that such Independent Financial Advisor has provided 32 50 written confirmation of such determination to the Board of Directors and (C) with respect to Affiliates Transactions involving aggregate payments in excess of $15 million, Holdings or such Subsidiary, as the case may be, shall have delivered to the Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. (b) The provisions of Section 4.11(a) shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of Section 4.3, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of Holdings or any Subsidiary, as determined by the Board of Directors of Holdings or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among Holdings and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture, (v) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders in any material respect, (vi) the existence of, or the performance by Holdings or any of its Subsidiaries of its obligations under the terms of, any stockholder agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by Holdings or any of its Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders in any material respect, (vii) transactions permitted by, and complying with, the provisions of Section 5.1, and (viii) purchases or sales of goods or services or other transactions with suppliers, in each case, in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which are fair to Holdings or any Subsidiary, in the reasonable determination of the Board of Directors, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Section 4.12. Limitation on Incurrences of Additional Indebtedness.1/ Holdings will not, and will not permit any Subsidiary, directly or indirectly, to incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the Securities or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness, (i) Holdings - -------------------- 1. This Section 4.12 will conform to the covenant in the new public securities, as appropriately modified to be applicable to Holdings and its subsidiaries. 33 51 may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of Holdings would be greater than 2.0 to 1.0 and (ii) the Company or any subsidiary of the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of the Company would be greater than 2.0 to 1.0. Section 4.13. Limitation on Liens. Holdings will not create, incur, assume or suffer to exist any Lien of any kind securing any Pari Passu Indebtedness, any Subordinated Indebtedness or any Affiliate Obligation upon any property or assets of Holdings owned on the Issue Date or acquired after the Issue Date, or any income or profits therefrom, unless the Securities are secured equally and ratably with (or prior to in the case of Subordinated Indebtedness) to the obligation or liability secured by such Lien, and except for any Lien securing Acquired Indebtedness created prior to the incurrence of such Indebtedness by Holdings, provided that any such Lien only extends to the assets that were subject to such Lien securing such Acquired Indebtedness prior to the related acquisition by Holdings. Section 4.14. Limitation on Change of Control. (a) Upon the occurrence of a Change of Control (the "Change of Control Date"), each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to the offer described in paragraph (b), below (the "Change of Control Offer"), at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Prior to the mailing of the notice to Holders provided for in paragraph (b) below, but in any event within 30 days following the Change of Control Date, Holdings shall cause the Company to either (a) repay in full and terminate all commitments under Indebtedness under the Credit Agreement to the extent the terms thereof require repayment upon a Change of Control (or offer to repay in full and terminate all commitments under all such Indebtedness under the Credit Agreement and repay the Indebtedness owed to each lender which has accepted such offer), or (b) obtain the requisite consents under the Credit Agreement, the terms of which require repayment upon a Change of Control, to permit the repurchase of the Securities as provided for in this Section 4.14. Holdings shall first comply with the covenant in the immediately preceding sentence before Holdings shall be required to repurchase Securities pursuant to this Section 4.14, and any failure to so comply shall constitute an Event of Default under this Indenture. Within 10 days after any Change of Control Date requiring Holdings to make a Change of Control Offer pursuant to this Section 4.14, Holdings shall so notify the Trustee. (b) The Change of Control Offer shall be made to all Holders and the notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. Within 30 days following any Change of Control Date, Holdings shall send, by first class mail, a notice to each Holder, with copies to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state: 34 52 (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Securities tendered will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the aggregate principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Holder shall tender Securities, and each Security purchased and each such new Security issued by Holdings shall be, in a principal amount of $1,000 or integral multiples thereof (except for Secondary Securities that were issued in denominations other than $1,000); and (8) the circumstances and relevant facts regarding such Change of Control, including information available to Holdings concerning the Person or Persons acquiring control and such historical or pro forma financial information as Holdings reasonably deems appropriate under the circumstances. (c) On or before the Change of Control Payment Date, Holdings shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by Holdings. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price; provided that each such new Security shall be in the 35 53 principal amount of $1,000 or integral multiples thereof. Holdings will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 4.14, the Trustee shall act as the Paying Agent. (d) Holdings, to the extent applicable and if required by law, will comply with Rule 14e-1 under the Exchange Act and any other applicable provisions of the federal securities laws in connection with a Change of Control Offer. Section 4.15. Limitation on Asset Sales. (a) Neither Holdings nor any of its Subsidiaries will consummate an Asset Sale, unless (a) Holdings or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold; and (b) upon consummation of an Asset Sale, Holdings or the applicable Subsidiary will, within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (1) a Related Business Investment (2) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, or (3) an investment in properties and assets that will be used in the business of Holdings and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto; (ii) apply or cause to be applied such Net Cash Proceeds to the repayment of Senior Indebtedness or Pari Passu Indebtedness of Holdings or any Indebtedness of any Subsidiary; (iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of Notes tendered to Holdings for purchase at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase pursuant to an offer to purchase made by Holdings as set forth below (a "Net Proceeds Offer"), provided, however, that if at any time any noncash consideration received by Holdings or any Subsidiary in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such cash shall constitute Net Cash Proceeds for purposes of this Section 4.15 and shall be applied in accordance with clause (b) above within 365 days of the receipt of such cash; and provided further, however, that if at any time any security deposits or other amounts used to secure Letter of Credit Obligations pursuant to clause b(iii) above are returned to Holdings or any Subsidiary, then such security deposits or other amounts shall constitute Net Cash Proceeds for purposes of this Section 4.15 and shall be applied in accordance with clause (b) above within 365 days of the receipt of such security deposits or other amounts. A Net Proceeds Offer as a result of an Asset Sale made by the Company or one of its subsidiaries shall not be required to be in excess of the Net Cash Proceeds of such Asset Sale less the Net Cash Proceeds actually applied in accordance with clauses (b)(i), (ii) or (iii) above; provided, however, that Holdings shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, (x) the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets which are acquired or constructed by Holdings or a Subsidiary subsequent to the Issue Date, provided that such sale and substantially concurrent lease-back occurs within 180 days following such acquisition or the completion of such construction, as the case may be, and (y) the proceeds of which in the aggregate do not exceed $20 million. 36 54 (b) Notice of a Net Proceeds Offer pursuant to this Section 4.15 shall be mailed, by first class mail, by Holdings not less than 305 days nor more than 335 days after the relevant Asset Sale to all Holders at their last registered addresses, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.15 and that all Securities tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Securities tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, Holdings shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by Holdings so that only Securities in denominations of $1,000 or multiples thereof shall be purchased, except for Secondary Securities that were issued in denominations other than $1,000); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Proceeds Purchase Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; and (7) that Holders whose Securities were purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. On or before the Proceeds Purchase Date, Holdings shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above, (ii) deposit with the Paying Agent U.S. Legal 37 55 Tender sufficient to pay the purchase price of all Securities to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by Holdings. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price. Holdings will publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. (c) Holdings will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities pursuant to a Net Proceeds Offer. Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer shall be returned by the Trustee to Holdings. Section 4.16. Limitation on Senior Subordinated Indebtedness. Holdings will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the Securities. Section 4.17. Limitation on Preferred Stock of Subsidiaries. Holdings will not permit any of its Subsidiaries to issue any Preferred Stock (other than to Holdings or a wholly-owned Subsidiary), or permit any person (other than Holdings or a wholly-owned Subsidiary) to own or hold an interest in any Preferred Stock of any such Subsidiary, unless such Subsidiary would be entitled to incur Indebtedness in accordance with the provisions of Section 4.12 in the aggregate principal amount equal to the aggregate liquidation value of such Preferred Stock. Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. Holdings shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Loan Documents as in effect on the Issue Date, as any such Payment Restriction may apply to any present or future Subsidiary, (ii) the Senior Discount Note Indenture, the New F4L Senior Note Indenture, the New F4L Subordinated Note Indenture, the New Note Indenture and any other agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to Section 4.12), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.12 and 4.13 that limit the right of the debtor to dispose of the assets securing such 38 56 Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole, than those provided for in such Indebtedness being refinanced, refunded, extended or renewed, and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 4.12; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect of the Issue Date. ARTICLE V SUCCESSOR CORPORATION Section 5.1. When Holdings May Merge, Etc. (a) Holdings, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case: (1) either Holdings shall be the continuing person, or the person (if other than Holdings) formed by such consolidation or into which Holdings is merged or to which all or substantially all of the properties and assets of Holdings as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (Holdings or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of Holdings under the Securities and this Indenture; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of Holdings immediately preceding the transaction and (B) the Surviving Person could incur at least $1 of Indebtedness other than Permitted Indebtedness pursuant to Section 4.12; and 39 57 (3) immediately before and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of Holdings shall be deemed to be the transfer of all or substantially all of the properties and assets of Holdings. Section 5.2. Successor Corporation Substituted. Upon any consolidation or merger or any transfer of all or substantially all of the assets of Holdings or any adoption of a Plan of Liquidation by Holdings in accordance with Section 5.1, the surviving person formed by such consolidation or into which Holdings is merged or to which such transfer is made, (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, Holdings under this Indenture with the same effect as if such surviving person had been named as Holdings herein; provided, however, that solely for purposes of computing amounts described in subclause (c) of Section 4.3, any such surviving person shall only be deemed to have succeeded to and be substituted for Holdings with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. When a successor corporation assumes all of the obligations of Holdings hereunder and under the Securities and agrees to be bound hereby and thereby, the predecessor shall be released from such obligations. ARTICLE VI DEFAULT AND REMEDIES Section 6.1. Events of Default. An "Event of Default" occurs if: (1) Holdings defaults in the payment of interest on the Securities when the same becomes due and payable and the default continues for a period of 30 days; (2) Holdings defaults in the payment of the principal of the Securities when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise (including the failure to repurchase Securities tendered pursuant to the requirements set forth in Sections 4.14 and 4.15), whether or not such payment shall be prohibited by the provisions of Article Eleven hereof; (3) Holdings fails to comply with any of its other agreements or covenants in, or provisions of, the Securities or this Indenture and the default continues for the period and after the notice specified below; 40 58 (4) there shall be a default under any bond, debenture, or other evidence of Indebtedness of Holdings or of any Significant Subsidiary or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any such Indebtedness, whether such Indebtedness now exists or shall hereafter be created, if both (A) such default either (i) results from the failure to pay such Indebtedness at its stated final maturity (that is, the date of the last principal installment of any installment Indebtedness under the instrument or agreement pursuant to or under which such Indebtedness was created or is evidenced) or (ii) relates to an obligation (including any obligation to pay interest, to purchase such Indebtedness or to pay the principal of such Indebtedness, other than the obligation to pay any principal of such Indebtedness at its stated final maturity) and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated final maturity) and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $25 million or more at any one time; (5) Holdings or any Significant Subsidiary (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; (6) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of Holdings or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of Holdings or any Significant Subsidiary, (B) appoint a Custodian of Holdings or any Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (7) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of Holdings and its Subsidiaries; or (8) any final judgments or order for payment of money in excess of $25 million shall be rendered against Holdings or any Significant Subsidiary by a court of competent jurisdiction and shall remain undischarged for a period of 60 days after such judgment becomes final and nonappealable. A Default under clause (3) above (other than in the case of any Defaults resulting from any Default under Section 4.3, 4.14 or 5.1, which Defaults shall be Events of Default with the notice specified in this paragraph but without the passage of time specified in this paragraph) 41 59 is not an Event of Default until the Trustee notifies Holdings, or the Holders of at least 25% in aggregate principal amount of the outstanding Securities notify Holdings and the Trustee, of the Default, and Holdings does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in aggregate principal amount of the Securities then outstanding. When a Default is cured, it ceases. Section 6.2. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 6.1(5) or (6) with respect to Holdings or any Significant Subsidiary) occurs and is continuing, the Trustee may, by notice to Holdings (and, if any Indebtedness is outstanding under the Credit Agreement or any Loan Documents is otherwise in effect, to the Credit Agent), or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by written notice to Holdings and the Trustee, and the Trustee shall (with notice to the Credit Agent if any Indebtedness is outstanding under the Credit Agreement or any Loan Document is otherwise in effect), upon the request of such Holders, declare the aggregate principal amount of the Securities outstanding, together with accrued but unpaid interest thereon to the date of payment, to be due and payable and, upon any such declaration, the same shall become and be due and payable; provided, that so long as the Credit Agreement shall be in force and effect, if any such Event of Default shall have occurred and be continuing, any such acceleration shall not be effective until the earlier of (a) five Business Days following a notice of acceleration given to Holdings and the Credit Agent under the Credit Agreement and only if upon such fifth Business Day such Event of Default shall be continuing or (b) the acceleration of any Indebtedness under the Credit Agreement. If an Event of Default specified in Section 6.1(5) or (6) occurs with respect to Holdings or any Significant Subsidiary, all unpaid principal and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. Upon payment of such principal amount, interest, and premium, if any, all of Holdings' obligations under the Securities and this Indenture, other than obligations under Section 7.7, shall terminate. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the non-payment of the principal and interest on the Securities which have become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, and (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. (b) In the event of a declaration of acceleration under this Indenture because an Event of Default set forth in Section 6.1(4) has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default 42 60 has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. Section 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. Subject to Sections 6.7 and 9.2, the Holders of at least a majority in aggregate principal amount of the outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (1) and (2) of Section 6.1. When a Default or Event of Default is waived, it is cured and ceases. Section 6.5. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. Subject to Section 7.1, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.6. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee notice of a continuing Event of Default; 43 61 (2) the Holder or Holders of at least 25% in aggregate principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holder or Holders of at least 25% in aggregate principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. Section 6.7. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. Section 6.8. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against Holdings or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to Holdings or any other obligor upon the Securities, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee 44 62 and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.7; Second: if the Holders are forced to proceed against Holdings directly without the Trustee, to the Holders for their collection costs; Third: to the Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Fourth: to Holdings. The Trustee, upon prior notice to Holdings, may fix a record date and payment date for any payment to the Holders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by a Holder or Holders of more than 10% in aggregate principal amount of the outstanding Securities. ARTICLE VII TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. 45 63 Section 7.1. Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person could exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture that are adverse to the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1. (f) The Trustee shall not be liable for interest on any assets received by it except as the Trustee may agree with Holdings. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. 46 64 Section 7.2. Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with Holdings, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. Section 7.4. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for Holdings' use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than the Trustee's certificate of authentication. 47 65 Section 7.5. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on, any Security, including the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer, the Trustee may withhold the notice if and so long as its board of directors, the executive committee of its board of directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. Section 7.6. Reports By Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA Section 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Holders shall be mailed to Holdings and filed with the SEC and each stock exchange, if any, on which the Securities are listed. Holdings shall notify the Trustee if the Securities become listed on any stock exchange. Section 7.7. Compensation and Indemnity. Holdings shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. Holdings shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it including, without limitation, any taxes imposed on the trust or on the income from the Securities. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. Holdings shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it except for such actions to the extent caused by any negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder. The Trustee shall notify Holdings promptly of any claim asserted against the Trustee for which it may seek indemnity. Holdings shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and Holdings shall pay the reasonable fees and expenses of such counsel; provided that Holdings will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between Holdings and the Trustee in connection with such defense as reasonably 48 66 determined by the Trustee. Holdings need not pay for any settlement made without its written consent. Holdings need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure Holdings' payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal of, premium, if any, or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(5) or (6) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.8. Replacement of Trustee. The Trustee may resign by so notifying Holdings. The Holders of a majority in aggregate principal amount of the outstanding Securities may remove the Trustee by so notifying Holdings and the Trustee may appoint a successor Trustee with Holdings' consent. Holdings may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, Holdings shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by Holdings. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to Holdings. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, Holdings or the Holders of at least 10% in aggregate principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. 49 67 If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, Holdings' obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. Section 7.9. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. Section 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of Holdings are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. Section 7.11. Preferential Collection of Claims Against Holdings. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance. Holdings may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article Eight. Section 8.2. Legal Defeasance. Upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.2, Holdings shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from its obligations with respect to all outstanding 50 68 Securities on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that Holdings shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of Holdings, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, payments in respect of the principal, of, premium, if any, and interest on such Securities when such payments are due, (b) Holdings' obligations with respect to such Securities under Article Two and Section 4.2 hereof and the rights, powers, trusts, duties and immunities of the Trustee and Holdings' obligations in connection therewith, and (c) this Article Eight. Subject to compliance with this Article Eight, Holdings may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. Section 8.3. Covenant Defeasance. Upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.3, Holdings shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from its obligations under the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Securities, Holdings may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only to the extent it relates to a breach of any of the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V hereof), 6.1(4) and 6.1(7) hereof shall not constitute Events of Default. Section 8.4. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Securities: 51 69 In order to exercise either Legal Defeasance or Covenant Defeasance: (a) Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Securities, cash in United States dollars, or direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged ("U.S. Government Obligations"), or a combination thereof, in such amounts and at such times as will be sufficient, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Securities to redemption or maturity provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities on the Maturity Date or such redemption date, as the case may be; (b) in the case of an election under Section 8.2 hereof, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that (A) Holdings has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and Legal Defeasance had not occurred; (c) in the case of an election under Section 8.3 hereof, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if deposit and such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Section 6.1(5) or 6.1(6) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit (it being understood that this condition shall not be deemed satisfied until after such 91st day); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or 52 70 any other material agreement or instrument to which Holdings is a party or by which Holdings is bound (and in that connection, the Trustee shall have received a certificate from the administrative agent under the Credit Agreement to that effect with respect to such Credit Agreement if then in effect); (f) Holdings shall have delivered to the Trustee an Opinion of Counsel to the effect that, assuming that no Default or Event of Default shall occur and be continuing under Section 6.1(5) or 6.1(6) during the period ending on the 91st day after the date of deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) Holdings shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by Holdings with the intent of preferring the Holders over the other creditors of Holdings or with the intent of defeating, hindering, delaying or defrauding creditors of Holdings, or others; and (h) Holdings shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.6 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 8.4 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (excluding Holdings or any Affiliate thereof) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. Holdings shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Obligations deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to Holdings from time to time upon the request of Holdings any money or non-callable U.S. Government Obligations held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under 53 71 Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Covenant Defeasance. Section 8.6. Repayment to Holdings. Any money deposited with the Trustee or any Paying Agent in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to Holdings on its request or shall be discharged from such trust; and the Holder of such Security shall thereafter, as a creditor, look only to Holdings for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense of Holdings cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to Holdings. Section 8.7. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then Holdings' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; provided, however, that, if Holdings makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, Holdings shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1. Without Consent of Holders. Holdings, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder; (2) to comply with Article Five; 54 72 (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as from time to time amended, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Internal Revenue Code of 1986, as from time to time amended; (4) to make any other change that does not adversely affect the rights of any Holders; or (5) to comply with any requirements of the SEC in connection with the qualification of this Indenture under the TIA; provided that Holdings has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.1. Section 9.2. With Consent of Holders. Subject to Section 6.7, Holdings, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least fifty one percent in aggregate principal amount of the outstanding Securities, may amend or supplement this Indenture or the Securities, without notice to any other Holders. Subject to Section 6.7, the Holder or Holders of at least fifty one percent in aggregate principal amount of the outstanding Securities may waive compliance by Holdings with any provision of this Indenture or the Securities without notice to any other Holder. Without the consent of each Holder affected, however, no amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may: (1) change the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture or the Securities; (2) reduce the rate or extend the time for payment of interest on any Security; (3) reduce the principal amount of any Security; (4) change the Maturity Date of any Security, or alter the redemption provisions contained in paragraph 5 of the Securities in a manner adverse to any Holder; (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on, or redemption payment with respect to, any Security; (6) make any changes in Section 6.4, 6.7 or this third sentence of this Section 9.2; or 55 73 (7) make the principal of, or the interest on any Security payable with anything or in any manner other than as provided for in this Indenture and the Securities as in effect on the date hereof. Without the consent of the Holder or Holders of at least 66 2/3% of the aggregate principal amount of the outstanding Securities, no change may be made to the provisions of Article Eleven that adversely affects the rights of any Holder under Article Eleven. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, Holdings shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of Holdings to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. In connection with any amendment, supplement or waiver under this Article Nine, Holdings may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. Holdings agrees that no amendment, supplement or waiver under this Article Nine may make any change that adversely affects the rights under Article Eleven of any holders of Senior Indebtedness unless the holders of such Senior Indebtedness consent to the change. Section 9.3. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 9.4. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or Holdings received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. Holdings may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, 56 74 those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (7) of Section 9.2, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. Section 9.5. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if Holdings or the Trustee so determines, Holdings in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 9.6. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. ARTICLE X MEETINGS OF SECURITYHOLDERS Section 10.1. Purposes for Which Meetings May Be Called. A meeting of Holders may be called at any time and from time to time pursuant to the provisions of this Article Ten for any of the following purposes: (a) to give any notice to Holdings or to the Trustee, or to give any directions to the Trustee, or to waive or to consent to the waiving of any Default or Event of 57 75 Default hereunder and its consequences, or to take any other action authorized to be taken by Holders pursuant to any of the provisions of Article Six; (b) to remove the Trustee or appoint a successor Trustee pursuant to the provisions of Article Seven; (c) to consent to an amendment, supplement or waiver pursuant to the provisions of Section 9.2; or (d) to take any other action (i) authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Securities under any other provision of this Indenture, or authorized or permitted by law or (ii) which the Trustee deems necessary or appropriate in connection with the administration of this Indenture. Section 10.2. Manner of Calling Meetings. The Trustee may at any time call a meeting of Holders to take any action specified in Section 10.1, to be held at such time and at such place in New York, New York or elsewhere as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed by the Trustee, first-class postage prepaid, to Holdings and to the Holders at their last addresses as they shall appear on the registration books of the Registrar not less than 10 nor more than 60 days prior to the date fixed for a meeting. Any meeting of Holders shall be valid without notice if the Holders of all Securities then outstanding are present in person or by proxy, or if notice is waived before or after the meeting by the Holders of all Securities outstanding, and if Holdings, any Subsidiary and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3. Call of Meetings by Holdings or Holders. In case at any time Holdings, pursuant to a Board Resolution, or the Holders of not less than 10% in aggregate principal amount of the Securities then outstanding shall have requested the Trustee to call a meeting of Holders to take any action specified in Section 10.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then Holdings or the Holders in the amount above specified may determine the time and place in New York, New York or elsewhere for such meeting and may call such meeting for the purpose of taking such action, by mailing or causing to be mailed notice thereof as provided in Section 10.2, or by causing notice thereof to be published at least once in each of two successive calendar weeks (on any Business Day during such week) in a newspaper or newspapers printed in the English language, customarily published at least five days a week of a general circulation in New York, New York, the first such publication to be not less than 10 nor more than 60 days prior to the date fixed for the meeting. 58 76 Section 10.4. Who May Attend and Vote at Meetings. To be entitled to vote at any meeting of Holders, a person shall (a) be a registered Holder of one or more Securities, or (b) be a person appointed by an instrument in writing as proxy for the registered Holder or Holders of Securities. The only persons who shall be entitled to be present or to speak at any meeting of Holders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of Holdings and its counsel. Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment. Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any action by or any meeting of Holders, in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, and submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think appropriate. Such regulations may fix a record date and time for determining the Holders of record of Securities entitled to vote at such meeting, in which case those and only those persons who are Holders of Securities at the record date and time so fixed, or their proxies, shall be entitled to vote at such meeting whether or not they shall be such Holders at the time of the meeting. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by Holdings or by Holders as provided in Section 10.3, in which case Holdings or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote. At any meeting each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Securities challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman may adjourn any such meeting if he is unable to determine whether any Holder or proxy shall be entitled to vote at such meeting. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Holders. Any meeting of Holders duly called pursuant to the provisions of Section 10.2 or Section 10.3 may be adjourned from time to time by vote of the Holders of a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote, and the meeting may be held as so adjourned without further notice. Section 10.6. Voting at the Meeting and Record To Be Kept. The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their 59 77 representatives by proxy and the principal amount of the Securities voted by the ballot. The permanent chairman of the meeting shall appoint two inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts, setting forth a copy of the notice of the meeting and showing that such notice was mailed as provided in Section 10.2 or published as provided in Section 10.3. The record shall be signed and verified by the affidavits of the permanent chairman and the secretary of the meeting and one of the duplicates shall be delivered to Holdings and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting. Nothing contained in this Article Ten shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Holders under any of the provisions of this Indenture or of the Securities. ARTICLE XI SUBORDINATION Section 11.1. Securities Subordinated to Senior Indebtedness. Anything herein to the contrary notwithstanding, Holdings, for itself and its successors, and each Holder, by accepting a Security, agrees, that the payment of the principal of and interest on and premiums, penalties, fees and other liabilities (including, without limitation, liabilities in respect of any indemnity, reimbursement, compensation or contribution obligations, the occurrence of a Change of Control, any liquidated damage provision, any breach of representation or warranty, or any rights of redemption or rescission under this Indenture, the Merger Agreement and the Registration Rights Agreement or by law or otherwise) ("Other Obligations") with respect to the Securities is subordinated, to the extent and in the manner provided in this Article Eleven, to the prior payment in full in cash of all Senior Indebtedness. This Article Eleven shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness and such holders are made obligees hereunder and any 60 78 one or more of them may enforce such provisions. Holders of Senior Indebtedness need not prove reliance on the subordination provisions hereof. Section 11.2. No Payment on Securities in Certain Circumstances. (a) No direct or indirect payment or distribution shall be made by or on behalf of Holdings (other than a payment in Secondary Securities) on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities (i) upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof and interest thereon shall first be paid in full in cash or (ii) upon the happening of any default in payment of any principal of or interest on any Senior Indebtedness when the same becomes due and payable (a "Payment Default"), unless and until such default shall have been cured or waived or shall have ceased to exist. (b) Without limiting the effect of Section 11.2(a), upon the happening of a default or event of default (other than a Payment Default) (including any event which, with the giving of notice or lapse of time, or both, would become an event of default and including any default or event of default that would result upon any payment with respect to the Securities) with respect to any Senior Indebtedness, as such default or event of default is defined therein or in the instrument or agreement under which it is outstanding, and upon written notice thereof given to Holdings and the Trustee by any holders of such Senior Indebtedness or their Representative specifying an intent to effect a Payment Blockage Period hereunder ("Payment Notice"), then, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment or distribution (other than of Secondary Securities) shall be made by or on behalf of Holdings on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities; provided, however, that this paragraph (b) shall not prevent the making of any payment for a period of (a "Payment Blockage Period") of more than 179 days after a Payment Notice shall have been given (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and Holdings from the Credit Agent or the Representative which gave such Payment Notice, (ii) repayment in full of such Senior Indebtedness or (iii) because the default specified in the Payment Notice is no longer continuing). Subject to the provisions contained in Section 11.2(a) above, Holdings may resume payments on the Securities after such Payment Blockage Period expires. Notwithstanding the foregoing, (i) not more than one Payment Notice shall be given within a period of 360 consecutive days, and (ii) a Payment Notice may only be given (A) if Senior Indebtedness is outstanding under the Credit Agreement at the time of such notice, by the Credit Agent and (B) if no Senior Indebtedness is outstanding under the Credit Agreement at the time of such notice, by a holder or holders (or the Representative of holders) of at least $35,000,000 principal amount of such Senior Indebtedness. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Senior 61 79 Indebtedness whether or not within a period of 360 consecutive days unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In furtherance of the provisions of Section 11.1, if, notwithstanding the foregoing provisions of this Section 11.2, any direct or indirect payment or distribution other than Secondary Securities on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities shall be made by or on behalf of Holdings and received by the Trustee, by any Holder or by any Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent, money for any such payment or distribution shall be segregated and held in trust), at a time when such payment or distribution was prohibited by the provisions of this Section 11.2, then, unless and until such payment or distribution is no longer prohibited by this Section 11.2, such payment or distribution (subject to the provisions of Sections 11.6 and 11.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent, as the case may be, for the benefit of, and shall be immediately paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to all concurrent payments and distributions to or for the holders of Senior Indebtedness. Holdings shall give prompt notice to the Trustee of any default or event of default or any acceleration under any Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness may have been issued. Failure to give such notice shall not affect the subordination of the Securities to Senior Indebtedness provided in this Article Eleven. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or willful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Holdings. Upon any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, upon any dissolution, winding-up, total or partial liquidation or total or partial reorganization of Holdings (including, without limitation, in bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings and whether voluntary or involuntary): (a) the holders of all Senior Indebtedness shall first be entitled to receive payments in full in cash of the principal thereof and interest thereon before the Holders are entitled to receive any payment on account of the principal of or interest on or Other Obligations with respect to the Securities (whether by payment, acquisition, retirement, defeasance, redemption or otherwise) or any other payment or distribution of assets or securities by or on behalf of Holdings; 62 80 (b) any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled except for the provisions of this Article Eleven, including any such payment or distribution that is payable or deliverable by reason of the payment of any other Indebtedness of Holdings being subordinated to the payment of the Securities (except for any such payment or distribution (x) authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of the Securities to the Senior Indebtedness, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law, (y) of securities that (i) are unsecured, (ii) have a Weighted Average Life to Maturity and final maturity that are no shorter than the Weighted Average Life to Maturity of the Securities or any securities issued to the holders of Senior Indebtedness under the Loan Documents pursuant to a plan of reorganization or readjustment and (iii) are subordinated, to at least the same extent as the Securities, to the payment of all Senior Indebtedness then outstanding or (z) of Capital Stock), shall be paid by the liquidating trustee or agent or other person making such a payment or distribution, directly to the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash, after giving effect to all concurrent payments and distributions to or for the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent, money, assets or securities of any kind or character for any such payment or distribution shall be segregated or held in trust) on account of principal of or interest on or Other Obligations with respect to the Securities before all Senior Indebtedness is paid in full in cash, such payment or distribution (subject to the provisions of Sections 11.6 and 11.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash, after giving effect to all concurrent payments and distributions to or for the holders of Senior Indebtedness. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or wilful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay over such payment over to, the holders of Senior Indebtedness or their Representative. Holdings shall give prompt notice to the Trustee prior to any dissolution, winding-up, total or partial liquidation or total or partial reorganization of Holdings or assignment for the benefit of creditors by Holdings. 63 81 Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash of all Senior Indebtedness, the Holders of Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of Holdings applicable to the Senior Indebtedness until all amounts owing on the Securities shall be paid in full in cash, and for the purpose of such subrogation no payments or distributions to the holders of Senior Indebtedness by or on behalf of Holdings, or by or on behalf of the Holders by virtue of this Article Eleven, which otherwise would have been made to the Holders, shall, as between Holdings and the Holders, be deemed to be payment by Holdings to or on account of the Senior Indebtedness, it being understood that the provisions of this Article Eleven are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Eleven shall have been applied, pursuant to the provisions of this Article Eleven, to the payment of all amounts payable under the Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of the Senior Indebtedness in full in cash. Section 11.5. Obligations of Holdings Unconditional. Nothing contained in this Article Eleven or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between Holdings and the Holders, the obligation of Holdings, which is absolute and unconditional, to pay to the Holders the principal of and interest on and Other Obligations in respect of the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of Holdings other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Eleven, of the holders of Senior Indebtedness in respect of cash, property or securities of Holdings received upon the exercise of any such remedy. Upon any payment or distribution of assets or securities of Holdings referred to in this Article Eleven, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of Holdings, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Eleven. Nothing in this Section 11.5 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.7. 64 82 Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received written notice thereof from Holdings or from one or more holders of Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be entitled in all respects conclusively to assume that no such fact exists. Section 11.7. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Section 8.4 shall be for the sole benefit of Holders and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Eleven. Otherwise, any deposit of assets or securities by or on behalf of Holdings with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on or Other Obligations with respect to any Securities shall be subject to the provisions of this Article Eleven; provided that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 11.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent. Nothing contained in this Section 11.7 (except the first sentence of this Section 11.7) shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Eleven. Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce the subordination provisions contained in this Article Eleven shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Holdings or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by Holdings with the terms of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, restate, supplement, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with Holdings and its Subsidiaries all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. No provision in any supplemental indenture that affects the subordination of the Securities or other provisions of this Article Eleven shall be effective against the holders of the Senior Indebtedness who have not consented thereto. 65 83 Each Holder by accepting a Security agrees that the Representative of any Senior Indebtedness (including without limitation, the Credit Agent), in its discretion, without notice or demand and without affecting any rights of any holder of Senior Indebtedness under this Article Eleven, may foreclose any mortgage or deed of trust covering interests in real property secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives any defense to the enforcement by the Representative (including without limitation, the Credit Agent) of any Senior Indebtedness or by any holder of any Senior Indebtedness against such Holder of this Article Eleven after a judicial or nonjudicial sale or other disposition of its interests in real property secured by such mortgage or deed of trust; and such Holder expressly waives any defense or benefits that may be derived from California Civil Code Section Section 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil Procedure Section Section 580a, 580d or 726, or comparable provisions of the laws of any other jurisdiction or any similar statute in effect in any other jurisdiction. Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities. Each Holder by accepting a Security authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Eleven, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of Holdings (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings) tending towards liquidation or reorganization of the business and assets of Holdings, the immediate filing of a claim for the unpaid balance of its or his Securities and Other Obligations in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. Section 11.10. Right of Trustee to Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Eleven in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. 66 84 Section 11.11. Article Eleven Not to Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article Eleven shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.1. Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall in good faith mistakenly pay over or deliver to the Holders of Securities or Holdings or any other person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Eleven or otherwise. Nothing in this Section 11.12 shall affect the obligation of any person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. ARTICLE XII SATISFACTION AND DISCHARGE Section 12.1. Satisfaction and Discharge of the Indenture. This Indenture will be discharged and will cease to be of further effect as to all outstanding Securities when: (a) all Securities theretofore authenticated and delivered (except lost, stolen or destroyed Securities which have been replaced or paid and Securities for whose payment money has theretofore been deposited in trust and thereafter repaid to Holdings) have been delivered to the Trustee for cancellation; or (b) (1) all Securities not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and Holdings has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on the Securities not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (2) Holdings has paid all sums payable by it under this Indenture; and (3) Holdings has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Securities at maturity or the redemption date, as the case may be. Section 12.2. Conditions to Satisfaction and Discharge of the Indenture. 67 85 Holdings shall deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. ARTICLE XIII MISCELLANEOUS Section 13.1. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed duties shall control. Section 13.2. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to Holdings: c/o The Yucaipa Companies 10000 Santa Monica Boulevard Fifth Floor Los Angeles, California 90067 Attention: Mark A. Resnik if to the Trustee: ____________________________________ ____________________________________ ____________________________________ ____________________________________ Attention: Corporate Trust Administration Each of Holdings and the Trustee by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to Holdings and the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 68 86 Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 13.3. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. Holdings, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c). Section 13.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by Holdings to the Trustee to take any action under this Indenture, Holdings shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 13.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.7, shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that with respect to 69 87 matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 13.6. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 13.7. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, Los Angeles, California or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 13.8. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. Section 13.9. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of Holdings or any Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of Holdings shall not have any liability for any obligations of Holdings under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Holder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. Section 13.11. Successors. All agreements of Holdings in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. 70 88 Section 13.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 13.13. Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. 71 89 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the date first written above. Dated: ________ __, 1995 [SEAL] FOOD 4 LESS HOLDINGS, INC. Attest: By: ------------------------------------ Name: Mark A. Resnik Title: Vice President ____________________________ Dated: ________ __, 1995 [SEAL] ---------------------------------------- ---------------------------------------- as Trustee Attest: By: ------------------------------------ Name: Title: ____________________________ S-1 90 EXHIBIT A PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO ORIGINAL ISSUE DISCOUNT AND TREASURY REGULATIONS PROMULGATED THEREUNDER WITH RESPECT TO DEBT INSTRUMENTS ISSUED ON OR AFTER APRIL 4, 1994, THE FOLLOWING INFORMATION IS PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE AMOUNT OF $____ PER FACE AMOUNT; (2) THE ISSUE PRICE OF THIS SECURITY IS $___ PER FACE AMOUNT; (3) THE ISSUE DATE OF THIS SECURITY IS ______ __, ____; AND (4) THE YIELD TO MATURITY OF THIS SECURITY IS __%. FOOD 4 LESS HOLDINGS, INC. 13% Senior Subordinated Pay-in-Kind Debentures due ________ __, 2007 No. $ Food 4 Less Holdings, Inc., a Delaware corporation ("Holdings," which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of dollars, on ________ __, 2007. Interest payment dates: ________________ and _______________ commencing ________ __, ____. Record dates: _________ and _________. Reference is made to the further provisions of this security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, Holdings has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: ________ __, 1995 FOOD 4 LESS HOLDINGS, INC. By: Name: Title: This is one of the Securities described in the within-mentioned Indenture. Dated: ________ __, 1995 __________________________________ as Trustee By: Title: A-1 91 FOOD 4 LESS HOLDINGS, INC. 13% Senior Subordinated Pay-in-Kind Debenture due ________ __, 2007 1. Interest. FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Holdings may, in its sole discretion, issue additional Securities ("Secondary Securities") in lieu of a cash payment of any or all of the interest due on any Interest Payment Date occurring on or prior to [the Interest Payment Date five years after the Issue Date]. If Holdings issues Secondary Securities in lieu of cash payment, in whole or in part, of interest due on any Interest Payment Date occurring on or prior to [the Interest Payment Date five years after the Issue Date], pursuant to this paragraph, it shall give notice to the Trustee not less than 5 Business Days prior to the relevant Interest Payment Date, and shall instruct the Trustee (upon written order of Holdings signed by an Officer of Holdings given not less than 5 nor more than 45 days prior to such Interest Payment Date) to authenticate a Secondary Security, dated such Interest Payment Date, in a principal amount equal to the amount of interest not paid in cash in respect of this Security on such Interest Payment Date. Each issuance of Secondary Securities in lieu of cash payments of interest on the Securities shall be made pro rata with respect to the outstanding Securities. Any such Secondary Securities shall be governed by the Indenture and shall be subject to the same terms (including the maturity date and the rate of interest from time to time payable thereon) as this Security (except, as the case may be, with respect to the title, issuance date and aggregate principal amount). The term Securities shall include the Secondary Securities that may be issued under the Indenture. Holdings will pay interest semi-annually in arrears on ___________ and _________ of each year (the "Interest Payment Date"), commencing ___________, ____. Interest on this Security will accrue from the date of issuance or from the most recent date to which interest has been paid. Interest will be computed on the basis of a 360-day year of twelve 30-day months and actual number of days elapsed. Holdings shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at the rate per annum borne by the Securities. 2. Method of Payment. Holdings shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. Holdings shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender") (or, pursuant to A-2 92 Paragraph 1 hereof, in Secondary Securities). However, Holdings may pay principal and interest by its check payable in such U.S. Legal Tender or by wire transfer of federal funds (or, pursuant to Paragraph 1 hereof, in Secondary Securities). Holdings may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota, N.A. (the "Trustee"), will act as Paying Agent and Registrar. Holdings may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. Holdings or any Subsidiary may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. Holdings issued the Securities under an Indenture, dated as of ________ __, 1995 (the "Indenture"), between Holdings and the Trustee. This Security is one of a duly authorized issue of Securities of Holdings designated as its 13% Senior Subordinated Pay-in-Kind Debentures due 2007. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of Holdings limited in aggregate principal amount to $100,000,000, except for Secondary Securities and except as otherwise provided in the Indenture. 5. Optional Redemption. The Securities may not be redeemed at the option of Holdings prior to ________ __, 2000. Thereafter, upon at least 30 days' but not more than 60 days' notice to the Holders, Holdings may redeem all or any of the Securities at any time at redemption prices equal to the applicable percentage of the principal amount thereof set forth below, plus accrued interest, if any, to the Redemption Date (as defined in the Indenture) if redeemed during the 12-month period beginning ________ __ of the years indicated below:
Applicable Year Percentage ---- ---------- 2000 . . . . . . . . . . . . . . . . . . . . . . . 106.500% 2001 . . . . . . . . . . . . . . . . . . . . . . . 104.875% 2002 . . . . . . . . . . . . . . . . . . . . . . . 103.250% 2003 . . . . . . . . . . . . . . . . . . . . . . . 101.625% 2004 and thereafter . . . . . . . . . . . . . . . . 100.000 %
Notwithstanding the foregoing, prior to ________ __, 1998, Holdings may use the Net Proceeds (as defined in the Indenture) of an Initial Public Offering (as defined in the A-3 93 Indenture) of Holdings or the Company to redeem up to 35% of the Securities at a redemption price equal to 110% of the principal amount thereof plus accrued interest, if any, to the date of redemption. In order to effect the foregoing redemption, Holdings shall send the notice required by Section 3.3 of the Indenture not later than 30 days after the Initial Public Offering Consummation Date (as defined in the Indenture). 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless Holdings defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. In the event of a Change of Control, upon the satisfaction of the conditions set forth in the Indenture, Holdings shall be required to offer to purchase all of the then outstanding Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Holders of Securities which are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. 8. Limitation on Disposition of Assets. Under certain circumstances Holdings is required to apply the net proceeds from Asset Sales to the repayment of Indebtedness of Holdings or any Subsidiary, to make Related Business Investments and certain other investments or to purchase in a Net Proceeds Offer at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest, if any, to the date of purchase, which shall in the aggregate equal the net proceeds required to be applied thereto. 9. Subordination. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of Senior Indebtedness of Holdings whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder, by accepting a Security, agrees to such subordination and authorizes the Trustee to give it effect. A-4 94 10. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000 (other than Secondary Securities which may be in denominations of less than $1,000). A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. No service charge shall be made for any transfer, registration or exchange, but Holdings may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or 9.5 of the Indenture. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agents will pay the money back to Holdings at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 13. Discharge Prior to Redemption or Maturity. If Holdings at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, Holdings will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of fifty one percent in aggregate principal amount, as the case may be, of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, comply with Article Five of the Indenture or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other A-5 95 change that does not adversely affect the rights of any Holder of a Security. An amendment may not make any change that adversely affects the rights under Article 11 of the Indenture of any holders of Senior Indebtedness unless the holders of Senior Indebtedness consent to the change. 15. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Holdings. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with Holdings, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of Holdings shall have any liability for any obligation of Holdings under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. A-6 96 20. Governing Law. The Laws of the State of New York shall govern this Security and the Indenture. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, Holdings will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Security, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. Holdings will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: FOOD 4 LESS HOLDINGS, INC., c/o The Yucaipa Companies, 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067, Attn: Mark A. Resnik. 24. Certain Information Obligations. To the extent permitted by applicable law or regulation, whether or not Holdings is subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. Holdings shall file with the Trustee copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to the Indenture. At any time when Holdings is not permitted by applicable law or regulations to file the aforementioned reports, Holdings shall furnish the Trustee and the Holders with the information that Holdings would have had to provide to the SEC if Holdings had been subject to Section 13 or 15(d) of the Exchange Act. 25. Holdings Indebtedness. Each Holder acknowledges that Holdings is the sole obligor of the Securities and no Subsidiary of Holdings is a co-obligor or a guarantor of the Securities. A-7 97 [FORM OF ASSIGNMENT] I or we assign this Security to_______________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ (Print or type name, address and zip code of assignee) Please insert Social Security or other identifying number of assignee ______________________________________________________________________________ and irrevocably appoint _______________________ agent to transfer this Security on the books of Holdings. The agent may substitute another to act for him. Dated:____________________________ Signed:___________________________________ ______________________________________________________________________________ ______________________________________________________________________________ (Sign exactly as your name appears on the front of this Security) Signature Guarantee:__________________________________________________________ A-8 98 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Security purchased by Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, check the box: Section 4.14 [ ] Section 4.15 [ ] If you want to elect to have only part of this Security purchased by Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, state the amount: $ Date:_________________________ Signature:____________________________________ (Sign exactly as your name appears on the front of this Security) Signature Guarantee:_________________________________________________________ A-9 EX-10.30 3 AGREEMENT AND PLAN OF MERGER, AMENDMENT NO. 2 1 EXHIBIT 10.30 AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER This Amendment No. 2 (this "Amendment"), dated as of February 24, 1995, to the Agreement and Plan of Merger dated as of September 14, 1994, as amended by Amendment No. 1 dated as of January 12, 1995 (collectively, the "Merger Agreement"), is by and among Food 4 Less, Inc., a Delaware corporation ("F4L"), Food 4 Less Holdings, Inc., a California corporation ("F4L Holdings"), Food 4 Less Holdings, Inc., a Delaware corporation ("F4L Holdings Delaware"), Food 4 Less Supermarkets, Inc., a Delaware corporation ("F4L Supermarkets"), Ralphs Supermarkets, Inc., a Delaware corporation ("Ralphs Supermarkets"), and The Edward J. DeBartolo Corporation ("EJDC") and the other stockholders of Ralphs Supermarkets (each a "Selling Stockholder"). Capitalized terms not otherwise defined herein have the meanings given to them in the Merger Agreement. WHEREAS, F4L, F4L Holdings, F4L Holdings Delaware, F4L Supermarkets, Ralphs Supermarkets and the Selling Stockholders previously have entered into the Merger Agreement, by which the parties agreed to merge F4L Supermarkets with and into Ralphs Supermarkets in accordance with the terms and conditions of the Merger Agreement and Section 251 of the General Corporation Law of the State of Delaware; WHEREAS, the parties desire to amend certain provisions of the Merger Agreement as more fully set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: 1. Amendment of Defined Terms. (a) The definition of "Closing Date" in Section 1.1 of the Merger Agreement is hereby amended to delete the date "March 15, 1995" and to substitute in its place the date "April 14, 1995." (b) The definition of "Debentures" in Section 1.1 of the Merger Agreement is hereby amended to read as follows: "Debentures" shall mean the 13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be issued by F4L Holdings Delaware pursuant to the Indenture. (c) The definition of "Indenture" in Section 1.1 of the Merger Agreement is hereby amended to delete "F4L Holdings" and to substitute in its place "F4L Holdings Delaware." 2. Amendment of Section 2.1(a). Section 2.1(a) of the Merger Agreement is hereby amended (i) to delete "$12.31060748 in cash" appearing in the third line thereof and to substitute in its place "$8.20710248 in cash" and (ii) to delete "$8.2074 principal amount of Debentures" appearing in the third line thereof and to substitute in its place "$12.310905 principal amount of Debentures." 2 3. Amendment of Section 9.6. Section 9.6 of the Merger Agreement is hereby amended to delete "F4L Holdings" and to substitute in its place "F4L Holdings Delaware." 4. Amendment of Section 11.1(b). Section 11.1(b) of the Merger Agreement is hereby amended to delete the date "March 31, 1995" appearing in the second line thereof and to substitute in its place the date "April 14, 1995." 5. Schedules. (a) Schedule 2.1 of the Merger Agreement is hereby deleted and the attached Schedule 2.1 is hereby substituted in its place and incorporated herein by reference. (b) Schedule 9.9 of the Merger Agreement is hereby amended to delete "$150 million" appearing in clause (1) thereof and to substitute in its place "$140 million." 6. Exhibit A. Exhibit A (Form of Indenture) of the Merger Agreement is hereby deleted and the attached Exhibit A (Form of Indenture) is hereby substituted in its place and incorporated herein by reference. 7. Exhibit D. Exhibit D (Form of Opinion of Counsel to F4L, F4L Holdings and F4L Supermarkets) of the Merger Agreement is hereby amended as more fully described below. (a) All references in Paragraph 7 to the "Consulting Agreement" are hereby amended to substitute in its place the "Put Agreement." (b) Paragraph 7 is hereby amended to delete the phrase "and in good standing" appearing in the first and second lines thereof. 8. Exhibit E. Exhibit E (Form of Put Agreement) of the Merger Agreement is hereby amended to delete "$60,346,000 aggregate principal amount of 13% Senior Subordinated Pay-in-Kind Debentures due 2006 (the "Debentures") issued by F4L Holdings" appearing in the second recital and to substitute in its place "$90,517,000 aggregate principal amount of 13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 (the "Debentures") issued by Food 4 Less Holdings, Inc., a Delaware corporation." 9. Exhibit G. Exhibit G (Form of Registration Rights Agreement) of the Merger Agreement is hereby amended as more fully described below. (a) F4L Holdings Delaware shall replace F4L Holdings as a party to such Registration Rights Agreement and all references to the "Company" therein shall mean F4L Holdings Delaware. (b) The definition of "Debentures" in Section 1 is hereby amended to (i) delete "13% Senior Subordinated Pay-in-Kind Debentures due 2006" appearing in the first line and to substitute in its place "13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007," and (ii) delete "$100,000,000" appearing in the third line and to substitute in its place "$150,000,000." 10. Terms and Conditions. Except as specifically modified herein, all other terms and conditions of the Merger Agreement shall remain in full force and effect. 2 3 IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the parties as of the day first above written. "F4L": FOOD 4 LESS, INC. By: _________________________ Name: Title: "F4L HOLDINGS": FOOD 4 LESS HOLDINGS, INC. By: _________________________ Name: Title: "F4L HOLDINGS DELAWARE": FOOD 4 LESS HOLDINGS, INC. By: _________________________ Name: Title: "F4L SUPERMARKETS": FOOD 4 LESS SUPERMARKETS, INC. By: _________________________ Name: Title: "RALPHS SUPERMARKETS": RALPHS SUPERMARKETS, INC. By: _________________________ Name: Title: "SELLING STOCKHOLDERS": THE EDWARD J. DEBARTOLO CORPORATION By: _________________________ Name: Title: S-1 4 CAMDEV PROPERTIES INC. By: _________________________ Name: Title: BANK OF MONTREAL By: _________________________ Name: Title: BANQUE PARIBAS By: _________________________ Name: Title: FEDERATED DEPARTMENT STORES, INC. By: _________________________ Name: Title: S-2 5 EXHIBIT A FOOD 4 LESS HOLDINGS, INC. AND NORWEST BANK MINNESOTA, N.A. AS TRUSTEE INDENTURE Dated as of ___________ __, 1995 $150,000,000 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 6 CROSS-REFERENCE TABLE
TIA INDENTURE Section Section - ------- --------- 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10; 13.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 13.2 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10; 13.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 13.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 - -----------------------
N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 7 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2. Incorporation by Reference of TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE II THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.4. Paying Agent To Hold Assets in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 2.13. CUSIP Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE III REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.2. Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.3. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.4. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.5. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.6. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 4.7. Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 4.8. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
i 8
Page ---- Section 4.9. SEC Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.10. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.12. Limitation on Incurrences of Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 4.13. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.14. Limitation on Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.15. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 4.16. Limitation on Senior Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.17. Limitation on Preferred Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . 38 ARTICLE V SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 5.1. When Holdings May Merge, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE VI DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.7. Rights of Holders To Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE VII TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.6. Reports By Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 7.9. Successor Trustee by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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Page ---- Section 7.11. Preferential Collection of Claims Against Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. . 53 Section 8.6. Repayment to Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 9.3. Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.5. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.6. Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE X MEETINGS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.1. Purposes for Which Meetings May Be Called . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.2. Manner of Calling Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.3. Call of Meetings by Holdings or Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.4. Who May Attend and Vote at Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment . . . . . . . . 59 Section 10.6. Voting at the Meeting and Record To Be Kept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting . . . . . . 60 ARTICLE XI SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 11.1. Securities Subordinated to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 11.2. No Payment on Securities in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . 64 Section 11.5. Obligations of Holdings Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . . . . . 65
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---- Section 11.7. Application by Trustee of Assets Deposited with It. . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness . 66 Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities . . . . . . . . . . . . . . . . . 66 Section 11.10. Right of Trustee to Hold Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.11. Article Eleven Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . 67 ARTICLE XII SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.1. Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.2. Conditions to Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . 68 ARTICLE XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.3. Communications by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.6. Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 13.9. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 13.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 13.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 13.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 13.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
iv 11 INDENTURE dated as of ________ __, 1995, between FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"), and Norwest Bank Minnesota, N.A., a National Banking Association, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "Acquired Indebtedness" means Indebtedness of a person or any of its subsidiaries existing at the time such person becomes a Subsidiary or assumed in connection with the acquisition of assets from such person and not incurred by such person in connection with, or in anticipation or contemplation of, such person becoming a Subsidiary or such acquisition. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of this Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of Holdings or any of its Subsidiaries. "Affiliate Obligation" means any contractual obligation (not constituting Indebtedness) between Holdings and any Affiliate, other than obligations relating to the purchase or sale of goods in the ordinary course of business made in compliance with Section 4.11 hereof. "Affiliate Transaction" shall have the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or co-Registrar. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise), made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than Holdings or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, 1 12 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 Holdings or any Subsidiary of $500,000 or less or (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of Holdings or any Subsidiary with a Lien on such assets, which Lien is permitted under this Indenture, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law. "Average Life" means, as of any date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payments of such debt security multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any person, the Board of Directors of such person or any committee of the Board of Directors of such person duly authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such person. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person, including Preferred Stock. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii) and (v) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two 2 13 highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means (I) the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of Holdings such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of Holdings (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of Holdings' Board of Directors or (II) Holdings ceasing to own 100% of the outstanding voting securities entitled to vote on a regular basis to elect a majority of the Board of Directors of the Company. "Change of Control Date" shall have the meaning provided in Section 4.14. "Change of Control Offer" shall have the meaning provided in Section 4.14. "Change of Control Payment Date" shall have the meaning provided in Section 4.14. "Company" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, Ralphs Supermarkets (to be renamed Ralphs Grocery Company) following the Merger. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received by, such person or a subsidiary of such person not subject to any Payment Restriction, provided, however, that with respect to the net income of Holdings, the net income of the Company and its subsidiaries shall not be so excluded, notwithstanding the existence of any such Payment Restriction, so long as the terms of any such consensual Payment Restriction limiting the 3 14 payment of dividends are not materially more restrictive at the time of determination of Consolidated Net Income than the most restrictive Payment Restriction limiting the payment of dividends in effect on the Issue Date; and (c)(i) the net income (or loss) of any other person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of such person or any of its subsidiaries and any gains on pension reversions received by such person or any of its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any of its subsidiaries of any securities of such person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C) any other restructuring reserves or charges (provided, however, that any cash payments actually made with respect to the liabilities for which such restructuring reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case, incurred by Holdings or any of its Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by Holdings and its Subsidiaries resulting from earthquakes and (ix) with respect to Holdings and its Subsidiaries, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Consulting Agreement" means that certain Consulting Agreement, dated as of the Issue Date, between Holdings, the Company and The Yucaipa Companies, as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date. "Covenant Defeasance" shall have the meaning provided in Section 8.3. "Credit Agent" means, at any time, the then-acting Administrative Agent as defined in and under the Credit Agreement, which initially shall be ____________________. Holdings shall promptly notify the Trustee of any change in the Credit Agent. "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among the Company, certain of its subsidiaries, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in 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 any 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 4 15 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. Holdings shall promptly notify the Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Capital Stock" means, (i) with respect to any person, any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security into which it is convertible, puttable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (a) redeemable or repurchasable solely at the option of such person or (b) issued to employees of Holdings or its Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated; and (ii) with respect to any Subsidiary of Holdings, any Preferred Stock issued by a Subsidiary of Holdings other than Preferred Stock issued to Holdings. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credit) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period in each case determined in accordance with GAAP and (ii) the amount of all cash payments made by such person or its subsidiaries during such period to the extent that such cash payment has been provided for in a restructuring reserve or charge referred to in clause (v) above (and was not otherwise deducted in the computation of Consolidated Net Income of such person for such period). "EJDC" means The Edward J. DeBartolo Corporation, an Ohio corporation. 5 16 "Event of Default" shall have the meaning provided in Section 6.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Excluded Assets" means assets of Holdings or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of Holdings, any original issue discount on the Senior Discount Notes and the Securities but excluding amortization of debt issuance costs and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period, but excluding the amortization of debt issuance costs) and (ii) dividend requirements on Capital Stock of such person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock)) declared or paid, or required to be declared or paid or accrued during such period (except to the extent accrued in a prior period) and excluding items eliminated in consolidation. For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such person (as evidenced by a Board Resolution) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as Holdings may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. 6 17 "Forward Period" shall have the meaning set forth in the definition of Operating Coverage Ratio contained in this Section 1.1. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the date of this Indenture. "Holder" means the person in whose name a Security is registered on the Registrar's books. "Holdings" means the party named as such above, until a successor replaces it in accordance with the terms of this Indenture, and thereafter means such successor. "incur" shall have the meaning set forth in Section 4.12. "Indebtedness" means with respect to any person, without duplication, (i) all liabilities, contingent or otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person or, if there is no such maximum fixed repurchase price, the liquidation preference of such Disqualified Capital Stock, plus accrued but unpaid dividends; (iii) reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock 7 18 (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes hereof, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of Holdings, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or a nationally recognized investment banking firm that is, in the reasonable judgment of the Board of Directors of Holdings, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to Holdings and its Affiliates. "Initial Public Offering" means an underwritten primary public offering of common stock of Holdings at a time when Holdings has not previously issued or sold any equity securities in an underwritten transaction pursuant to a registration statement filed pursuant to the Securities Act. "Initial Public Offering Consummation Date" means the first date on which Holdings or the Company receives any proceeds from an Initial Public Offering. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by a purchase of assets, in any transaction or series of related transactions, individually or in the aggregate, in an amount greater than $5 million, share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances, or to permit the purchase of Qualified Capital Stock of Holdings or any Subsidiary and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar 8 19 credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of first issuance of the Securities under this Indenture. "Legal Defeasance" shall have the meaning provided in Section 8.2. "Legal Holiday" shall have the meaning provided in Section 13.7. "Letter of Credit Obligations" means Indebtedness of Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of Section 4.12, the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien hereunder. "Maturity Date" means ________ __, 2007. "Merger" means (i) the merger of the Company into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of RGC into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated as of September 14, 1994, by and among Food 4 Less, Inc., a Delaware corporation, Holdings, Food 4 Less Holdings, Inc., a California corporation, Ralphs Supermarkets, the Company and the stockholders of Ralphs Supermarkets, as such agreement is in effect on the Issue Date. "Net Cash Proceeds" means Net Proceeds of (i) the sale of Qualified Capital Stock of Holdings or (ii) any Asset Sale, in each case, in the form of cash or Cash Equivalents. 9 20 "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 Holdings, the sum of (i) the fair market value of the proceeds received by Holdings in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the holder to Holdings upon such conversion or exchange. "New F4L Senior Notes" means the ___% Senior Notes due 2004 of the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New F4L Subordinated Notes" means the 13.75% Senior Subordinated Notes due 2005 of the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New F4L Senior Note Indenture" means the indenture pursuant to which the New F4L Senior Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "New F4L Subordinated Note Indenture" means the indenture pursuant to which the New F4L Subordinated Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "New Notes" means the ___% Senior Subordinated Notes due 2005 of the Company, issued pursuant to an indenture dated as of the Issue Date, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancings are permitted to be incurred under this Indenture. "New Note Indenture" means the indenture pursuant to which the New Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "Officer" means, with respect to any person, the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Controller, or the Secretary of such person. 10 21 "Officers' Certificate" means, with respect to any person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such person and otherwise complying with the requirements of Sections 13.4 and 13.5. "Operating Coverage Ratio" means with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT" for the Pro Forma Period shall be calculated, in the case of Holdings, after giving effect on a pro forma basis to the Merger as if it had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by this Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the legal counsel may be an employee of or counsel to Holdings or the Trustee. "Other Obligations" has the meaning set forth in Section 11.1 hereof. "Pari Passu Indebtedness" means, with respect to Holdings, Indebtedness that ranks pari passu in right of payment to the Securities (whether or not secured by any Lien). 11 22 "Paying Agent" shall have the meaning provided in Section 2.3, except that, for the purposes of Articles Three and Eight and Section 4.14, the Paying Agent shall not be Holdings or any Subsidiary. "Payment Restriction" means, with respect to a Subsidiary of any person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such person or any other subsidiary of such person, (b) make loans or advances to such person or any other subsidiary of such person, or (c) transfer any of its properties or assets to such person or any other subsidiary of such person, or (ii) such person or any other subsidiary of such person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) transfer of properties or assets. "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The Yucaipa Companies or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P., or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of Holdings or any Subsidiary, or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of Holdings or any Subsidiary or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its subsidiaries pursuant to (i) the term loans under the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $750 million, less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the provisions of Section 4.15 subsequent to the Issue Date, (ii) the revolving credit facility under the Credit Agreement (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the provisions of Section 4.15, and (iii) any guarantee by Holdings of the Indebtedness referred to in the foregoing clauses (i) and (ii); (b) Indebtedness of Holdings or a Subsidiary owed to and held by Holdings or a Subsidiary; (c) Indebtedness incurred by Holdings or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of Holdings and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the first anniversary of the Merger) and (ii) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon this clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of Holdings and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the third anniversary of the Merger); (d) Indebtedness incurred by Holdings or any Subsidiary in 12 23 connection with capital expenditures in an aggregate principal amount not exceeding $150 million, provided that such capital expenditures relate solely to the integration of the operations of Ralphs Supermarkets, the Company, and their respective subsidiaries as described in that certain Registration Statement of Holdings dated ______, 1995; (e) Indebtedness of Holdings or any Subsidiary incurred under Foreign Exchange Agreements and Interest Swap Obligations; (f) guarantees incurred in the ordinary course of business, by Holdings or a Subsidiary, of Indebtedness of any other person in aggregate not to exceed $25 million at any time outstanding; (g) guarantees by Holdings or a Subsidiary of Indebtedness incurred by a wholly-owned Subsidiary so long as the incurrence of such Indebtedness incurred by such wholly-owned Subsidiary is permitted under the terms of this Indenture; (h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (j) other Indebtedness outstanding on the Issue Date (after giving effect to the Merger); (k) Indebtedness arising from guarantees of Indebtedness of Holdings or any Subsidiary or other agreements of Holdings or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by Holdings and its Subsidiaries in connection with such disposition; (l) obligations in respect of performance bonds and completion guarantees provided by Holdings or any Subsidiary in the ordinary course of business; (m) Indebtedness of Holdings with respect to the Senior Discount Notes and the Securities as in effect on the Issue Date (including the accretion of the Senior Discount Notes and the issuance of Secondary Securities in lieu of cash interest payments pursuant to the terms of this Indenture as in effect on the Issue Date); and (n) additional Indebtedness of Holdings or any Subsidiary in an amount not to exceed $200 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with Sections 4.3 and 4.11, (vi) Investments in any Subsidiary or by any Subsidiary in Holdings or any other Subsidiary in other Subsidiaries, and (vii) additional Investments in an aggregate amount not exceeding $5 million. "Permitted Payments" means any (i) payment by Holdings or any Subsidiary to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar services during such period pursuant to the Consulting Agreement (including payments for the repurchase of equity securities pursuant to the terms of such Consulting Agreement), (ii) payment by Holdings or any Subsidiary to Apollo Advisors, L.P. or the principals or any Affiliates thereof in an aggregate amount not to exceed $5 million as a commitment fee in connection with the purchase of equity securities of Holdings on the Issue Date, and (iii) any payment by Holdings or any Subsidiary, (a) in connection with repurchases of outstanding shares of Holdings' common stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by Holdings or any Subsidiaries to participants in employee benefit plans upon any termination of employment by such participants, as provided in the documents 13 24 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). "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of Holdings, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person, and (v) any investment fund or investment entity that is a subsidiary of such person or a permitted transferee of such person. "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of such person's preferred or preference stock, whether outstanding on the date hereof or issued after the Issue Date, and including, without limitation, all classes and series of preferred or preference stock of such person. "principal" of any Indebtedness (including the Securities) means the principal of such Indebtedness plus the premium, if any, on such Indebtedness. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as interpreted by Holdings' chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Pro Forma Period" shall have the meaning set forth in the definition of Operating Coverage Ratio contained in this Section 1.1. "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. 14 25 "Ralphs Supermarkets" means Ralphs Supermarkets, Inc., a Delaware corporation, until a successor replaces it and thereafter means such successor. "Record Date" means the Record Dates specified in the Securities; provided that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Securities. "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Securities. "Reference Period" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.1. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (c), (d), (h), (j) and (m) of the definition thereof) incurred in accordance with this Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Registrar" shall have the meaning provided in Section 2.3. "Registration Rights Agreement" means the registration rights agreement dated as of the Issue Date by and among Holdings, the Company and the stockholders of Ralphs Supermarkets with respect to the Securities. 15 26 "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by Holdings or any Subsidiary as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment (without regard to the $5 million threshold in the definition thereof), in each case reasonably related to the business of Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Indebtedness. "Restricted Debt Prepayment" means the purchase, redemption, acquisition or retirement for value by Holdings, prior to the scheduled maturity or prior to any scheduled repayment of principal or any sinking fund payment in respect of any Subordinated Indebtedness. "Restricted Payment" means any (i) Stock Payment or (ii) Investment (other than a Permitted Investment) or (iii) Restricted Debt Prepayment. "RGC" means Ralphs Grocery Company, a Delaware corporation, until a successor replaces it and thereafter means such successor. "SEC" means the Securities and Exchange Commission. "Secondary Securities" has the meaning set forth in Section 2.2. "Securities" means the 13% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings, including any Secondary Securities issued in respect thereof, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Senior Discount Notes" means the 15.25% Senior Discount Notes due 2004 of Food 4 Less Holdings, Inc., issued pursuant to an indenture dated as of December 15, 1992, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under this Indenture. "Senior Discount Note Indenture" means the indenture pursuant to which the Senior Discount Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. 16 27 "Senior Indebtedness" means the principal of, premium, if any, and interest on (such Senior Indebtedness being deemed to include for all purposes of Article XI of this Indenture the amount required to fully secure in cash undrawn Letter of Credit Obligations under the Credit Agreement and such interest on Senior Indebtedness being deemed to include for all purposes of Article XI interest accruing after the filing of a petition initiating any proceeding pursuant to any Bankruptcy Law in accordance with and at the rate (including any rate applicable upon any default, to the extent lawful) specified in any document evidencing the Senior Indebtedness, whether or not the claim for such interest is allowed as a claim after such filing in any proceeding under such Bankruptcy Law) any Indebtedness of Holdings (and, in the case of the Credit Agreement, all obligations of Holdings for fees, expenses, indemnities and other amounts payable thereunder or in connection therewith), whether outstanding on the Issue Date or thereafter created, incurred, assumed or guaranteed or in effect guaranteed by Holdings (including, without limitation, Indebtedness under the Credit Agreement), unless, in the case of any particular Indebtedness, the instrument creating or evidencing such Indebtedness expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of Holdings from time to time owed or guaranteed by Holdings with respect to the Credit Agreement and the Senior Discount Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) any Pari Passu Indebtedness or any Subordinated Indebtedness, (ii) any Indebtedness constituting Disqualified Capital Stock, (iii) Indebtedness of Holdings to any Subsidiary, (iv) that portion of any Indebtedness which is incurred in violation of Section 4.12 of this Indenture, (v) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of Holdings or of any Subsidiary (including, without limitation, amounts owed for compensation), (vi) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, and (vii) any liability for federal, state, local or other taxes owed or owing by Holdings. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each Subsidiary that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the date hereof) or (b) material to the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. "Stock Payment" means, with respect to any person, (a) the declaration or payment by such person, either in cash or in property, of any dividend on (except, in the case of Holdings, dividends payable solely in Qualified Capital Stock of Holdings), or the making by such person or any of its subsidiaries of any other distribution in respect of, such person's Qualified Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), or (b) the redemption, repurchase, retirement or other acquisition for value by such person or any of its subsidiaries, directly or indirectly, of such person's Qualified Capital Stock (and, in 17 28 the case of a Subsidiary, Qualified Capital Stock of Holdings) or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), other than, in the case of Holdings, through the issuance in exchange therefor solely of Qualified Capital Stock of Holdings; provided, however, that in the case of a Subsidiary, the term "Stock Payment" shall not include any such payment with respect to its Capital Stock or warrants, rights or options to purchase or acquire shares of any class of its Capital Stock that are owned solely by Holdings or a wholly-owned Subsidiary. "Subordinated Indebtedness" means Indebtedness of Holdings that is subordinated in right of payment to the Securities. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than 50% of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of Holdings. "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as amended, as in effect on the date on which this Indenture is qualified under the TIA, except as otherwise provided in Section 9.3. "Transaction Date" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.1. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "U.S. Government Obligations" shall have the meaning provided in Section 8.4. "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. 18 29 "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "wholly-owned Subsidiary" means any Subsidiary all of the shares of Capital Stock of which (other than permitted Preferred Stock and directors' qualifying shares) are at the time directly or indirectly owned by Holdings. "Yearly Period" means each fiscal year of Holdings; provided that the first Yearly Period shall begin on the Issue Date and shall end on January 28, 1996. Section 1.2. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means Holdings or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. Section 1.3. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; 19 30 (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE II THE SECURITIES Section 2.1. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage or as required by the Registration Rights Agreement. Holdings and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, Holdings and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.2. Execution and Authentication. An Officer or an Assistant Secretary, shall sign (either of whom shall, in each case, have been duly authorized by all requisite corporate actions) the Securities for Holdings by manual or facsimile signature. If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities, excluding Secondary Securities, for original issue in the aggregate principal amount of up to $150,000,000 upon a written order of Holdings in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be 20 31 authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $150,000,000, except for any Securities that may be issued pursuant to the immediately following paragraph and except as provided in Section 2.7 and 2.8. Upon the written order of Holdings in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of Holdings. Holdings may, on each Interest Payment Date prior to (and including) [the Interest Payment Date five years after the Issue Date], at its option and in its sole discretion, pay interest in additional Securities ("Secondary Securities") in lieu of the payment in whole or in part of interest in cash on the Securities as provided in paragraph 1 of the Securities. Holdings shall give written notice to the Trustee of the amount of interest to be paid in Secondary Securities not less than five Business Days prior to the relevant Interest Payment Date, and the Trustee or an authenticating agent (upon written order of Holdings signed by an Officer of Holdings given not less than five nor more than 45 days prior to such Interest Payment Date) shall authenticate for original issue (pro rata to each Holder of any Securities of such record date) Secondary Securities in an aggregate principal amount equal to the amount of cash interest not paid on such Interest Payment Date. Except as set forth in the following paragraph each issuance of Secondary Securities in lieu of the payment of interest in cash on the Securities shall be made pro rata with respect to the outstanding Securities, and Holdings shall have the right to aggregate amounts of interest payable in the form of Secondary Securities to a Holder of outstanding Securities and issue to such Holder a single Secondary Security in payment thereof. Any Secondary Securities may be denominated a separate series if Holdings deems it necessary to do so in order to comply with any law or other applicable regulation or requirement, with appropriate distinguishing designations. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof except that Secondary Securities or Securities issued upon registration of transfer of such Secondary Securities may be in denominations of other than $1,000; provided that Holdings may at its option pay cash in lieu of issuing Secondary Securities in any denominations of less than $1,000. The Trustee may appoint an authenticating agent reasonably acceptable to Holdings to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holdings and Affiliates of Holdings. Section 2.3. Registrar and Paying Agent. Holdings shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon Holdings in respect of the Securities and this Indenture may be served. Holdings may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any 21 32 or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve Holdings of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. Holdings may act as its own Registrar or Paying Agent except that for the purposes of Articles Three and Eight and Sections 4.4 and 4.14, neither Holdings nor any Subsidiary shall act as Paying Agent. The Registrar shall keep a register of the Securities and of their transfer and exchange. Holdings, upon notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional paying agent. Holdings initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. Holdings shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. Holdings shall notify the Trustee, in advance, of the name and address of any such Agent. If Holdings fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. Section 2.4. Paying Agent To Hold Assets in Trust. Holdings shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets and/or Secondary Securities held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by Holdings or any other obligor on the Securities), and shall notify the Trustee of any Default by Holdings (or any other obligor on the Securities) in making any such payment. If Holdings or a Subsidiary acts as Paying Agent, it shall segregate such assets and/or Secondary Securities and hold them as a separate trust fund. Holdings at any time may require a Paying Agent to distribute all assets and/or Secondary Securities held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets and/or Secondary Securities held by it to the Trustee and to account for any assets so distributed. Upon distribution to the Trustee of all assets that shall have been delivered by Holdings to the Paying Agent, the Paying Agent shall have no further liability for such assets and/or Secondary Securities. Section 2.5. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, Holdings shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. 22 33 Section 2.6. Transfer and Exchange. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of the Registrar are met. The Registrar need not transfer or exchange any Securities selected for redemption. Also, it need not transfer or exchange any Securities for a period of 30 days before a selection of Securities to be redeemed. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall make the exchange as requested if the requirements of the Registrar are met. Holdings shall cooperate with the Registrar in meeting its requirements. To permit transfers, registration and exchanges, the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any transfer, registration or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or 9.5. Section 2.7. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, Holdings shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or Holdings, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both Holdings and the Trustee, to protect Holdings, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. Holdings may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security shall constitute an additional obligation of Holdings. Section 2.8. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee, including the Secondary Securities, except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because Holdings or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.7 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.7. If on a Redemption Date or the Maturity Date the Paying Agent (other than Holdings or any Subsidiary) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. 23 34 Section 2.9. Treasury Securities. In determining whether the Holders of the required aggregate principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by Holdings or any of its Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows or has reason to know are so owned shall be disregarded. Notwithstanding the foregoing and except as otherwise provided by the TIA, a majority of Securities not owned by Holdings or any of its Affiliates shall be sufficient to approve any such direction, waiver or consent. Section 2.10. Temporary Securities. Until definitive Securities are ready for delivery, Holdings may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that Holdings considers appropriate for temporary Securities. Without unreasonable delay, Holdings shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Section 2.11. Cancellation. Holdings at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than Holdings or any Subsidiary), and no one else, shall cancel and, at the written direction of Holdings, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7, Holdings may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If Holdings or any Subsidiary shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. Section 2.12. Defaulted Interest. If Holdings defaults in a payment of interest on the Securities, it shall, unless the Trustee fixes another record date pursuant to Section 6.10, pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by Holdings for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, Holdings shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. 24 35 Section 2.13. CUSIP Number. Holdings in issuing the Securities may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. ARTICLE III REDEMPTION Section 3.1. Notices to Trustee. If Holdings elects to redeem Securities pursuant to Paragraph 5 of the Securities it shall notify the Trustee of the Redemption Date and aggregate principal amount of the Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders (at Holdings' expense) at least 30 days (unless a shorter notice shall be satisfactory to the Trustee) but not more than 60 days before the Redemption Date. Any notice given pursuant to this Section 3.1 may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. Section 3.2. Selection of Securities To Be Redeemed. If fewer than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata, by lot or by such other method as the Trustee considers to be fair and appropriate and in such manner as complies with applicable legal and stock exchange requirements, if any. Securities in denominations of less than $1,000 shall be redeemed first. Thereafter the Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify Holdings in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the aggregate principal amount thereof to be redeemed. Securities in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.3. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, Holdings shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed at such Holder's registered address, with a copy to the Trustee. At Holdings' request, 25 36 the Trustee shall give the notice of redemption in Holdings' name and at Holdings' expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) that, unless Holdings defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the aggregate principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof to be redeemed), as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. Section 3.4. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price. Section 3.5. Deposit of Redemption Price. On or before the Redemption Date, Holdings shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date (other than Securities or portions thereof called for redemption on that date which have been delivered by Holdings to the Trustee for cancellation). The Paying Agent shall promptly return to Holdings any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of Holdings, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If Holdings complies with the preceding paragraph, then, unless Holdings defaults in the payment of such Redemption Price, interest on the Securities to be redeemed will cease 26 37 to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. If a Security is redeemed on or after a Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Security was registered at the close of business on such Record Date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of Holdings to comply with the first paragraph of this Section 3.5, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.1 hereof. Section 3.6. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV COVENANTS Section 4.1. Payment of Securities. Holdings shall pay the principal amount of, premium, if any, and interest on, as the case may be, the Securities on the dates and in the manner provided in the Securities. An installment shall be considered paid on the date it is due if the Trustee or Paying Agent (other than Holdings or a Subsidiary) holds on that date U.S. Legal Tender and/or, to the extent permitted by Section 2.2, Secondary Securities designated for and sufficient to pay the installment. Holdings shall pay interest on overdue principal (including post-petition interest in any proceeding under any Bankruptcy Law, to the extent allowable as a claim in any such proceeding) at the same rate borne by the Securities and it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law, to the extent allowable as a claim in any such proceeding) on overdue installments of interest (without regard to any applicable grace period) at the same rate borne by the Securities, to the extent lawful. Section 4.2. Maintenance of Office or Agency. Holdings shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.3. Holdings shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time Holdings shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.2. 27 38 Section 4.3. Limitation on Restricted Payments. Holdings shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) Holdings or such Subsidiary could not incur at least $1 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12, or (c) the aggregate amount expended for all Restricted Payments, including such Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment, as determined in good faith by the Board of Directors of Holdings, which determination shall be evidenced by a Board Resolution), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such Consolidated Net Income is a loss, minus 100% of such loss) of Holdings earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by Holdings from any person (other than a Subsidiary) from the issuance and sale (including upon exchange or conversion for other securities of Holdings) subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from Holdings or any Subsidiary, until and to the extent such borrowing is repaid) plus (iii) 100% of the aggregate net cash proceeds received by Holdings as capital contributions to Holdings after the Issue Date, plus (iv) $25,000,000. Notwithstanding the foregoing, if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of Holdings or the repurchase, redemption, or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of Holdings, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of Holdings with an Average Life equal to or greater than the then remaining Average Life of the Subordinated Indebtedness repurchased, redeemed or repaid, and (4) Permitted Payments; provided that (x) the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (ii) of the definition of "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and (y) no amounts paid pursuant to clause (3) above or clause (i) of the definition of "Permitted Payments" shall be so counted. Prior to making any Restricted Payment under the first paragraph of this Section 4.3, Holdings shall deliver to the Trustee an Officers' Certificate setting forth the computation by which the amount available for Restricted Payments pursuant to such paragraph was determined. The Trustee shall have no duty or responsibility to determine the accuracy or 28 39 correctness of this computation and shall be fully protected in relying on such Officers' Certificate. Section 4.4. Corporate Existence. Except as otherwise permitted by Article Five, Holdings shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each such Significant Subsidiary and the rights (charter and statutory) and franchises of Holdings and each such Significant Subsidiary; provided, however, that Holdings shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Significant Subsidiaries, any such existence, right or franchise, if the Board of Directors of Holdings or such Significant Subsidiary, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of Holdings or any such Significant Subsidiary. Section 4.5. Payment of Taxes and Other Claims. Holdings shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that Holdings shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim if either (a) the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and an adequate reserve has been established therefor to the extent required by GAAP or (b) the failure to make such payment or effect such discharge (together with all other such failures) would not have a material adverse effect on the financial condition or results or operations of Holdings and its Subsidiaries taken as a whole. Section 4.6. Maintenance of Properties and Insurance. (a) Holdings shall cause all properties used or useful to the conduct of its business or the business of any Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times unless the failure to so maintain such properties (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole; provided, however, that nothing in this Section 4.6 shall prevent Holdings or any Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is either (i) in the ordinary course of business, (ii) in the good faith judgment of the Board of Directors of Holdings or the Subsidiary concerned, or of the senior officers of Holdings or such Subsidiary, as the case may be, desirable in the 29 40 conduct of the business of Holdings or such Subsidiary, as the case may be, or (iii) is otherwise permitted by this Indenture. (b) Holdings shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of Holdings, are adequate and appropriate for the conduct of the business of Holdings and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of Holdings or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of Holdings, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries, taken as a whole. Section 4.7. Compliance Certificate; Notice of Default. (a) Holdings shall deliver to the Trustee within 120 days after the end of Holdings' fiscal year an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his knowledge Holdings during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no Default or Event of Default occurred during such year or, if such signers do know of such a Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should Holdings elect to change the manner in which it fixes its fiscal year end. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, Holdings shall deliver to the Trustee within 120 days after the end of each fiscal year a written statement by Holdings' independent certified public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof. (c) Holdings shall, so long as the Securities are outstanding, deliver to the Trustee, within five Business Days after any officer becomes aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action Holdings is taking or proposes to take with respect thereto. Section 4.8. Compliance with Laws. Holdings shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, 30 41 all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. Section 4.9. SEC Reports and Other Information. (a) To the extent permitted by applicable law or regulation, whether or not Holdings is subject to the requirements of Section 13 or 15(d) of the Exchange Act, Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. Holdings shall file with the Trustee, within 5 days after it files the same with the SEC, copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to this Section 4.9. Holdings shall also comply with the other provisions of TIA Section 314(a). If Holdings is not permitted by applicable law or regulations to file the aforementioned reports, Holdings (at its own expense) shall file with the Trustee and mail, or cause the Trustee to mail, to Holders at their addresses appearing in the register of Securities maintained by the Registrar at the time of such mailing within 5 days after it would have been required to file such information with the SEC, all information and financial statements, including any notes thereto and with respect to annual reports, an auditors' report by an accounting firm of established national reputation, and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," comparable to the disclosure that Holdings would have been required to include in annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if Holdings was subject to the requirements of such Section 13 or 15(d) of the Exchange Act. (b) At any time when Holdings is not permitted by applicable law or regulations to file the aforementioned reports, upon the request of a Holder of Securities, Holdings will promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of such Securities designated by such Holder, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act. Section 4.10. Waiver of Stay, Extension or Usury Laws. Holdings covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive Holdings from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) Holdings hereby expressly waives all benefit or advantage of any such law, and covenants that 31 42 it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.11. Limitation on Transactions with Affiliates. (a) Neither Holdings nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of Holdings or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under Section 4.11(b) and (y) Affiliate Transactions in the ordinary course of business, that are fair to Holdings or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided, that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such transaction or series of transactions complies with clause (y) above (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, Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (y) above (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 Holdings or the Subsidiary, as the case may be, or, in the absence of any such approval by the disinterested members of the Board of Directors of Holdings or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and that such Independent Financial Advisor has provided written confirmation of such determination to the Board of Directors and (C) with respect to Affiliates Transactions involving aggregate payments in excess of $15 million, Holdings or such Subsidiary, as the case may be, shall have delivered to the Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. (b) The provisions of Section 4.11(a) shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of Section 4.3, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of Holdings or any Subsidiary, as determined by the Board of Directors of Holdings or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among Holdings and any of its 32 43 wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture, (v) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders in any material respect, (vi) the existence of, or the performance by Holdings or any of its Subsidiaries of its obligations under the terms of, any stockholder agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by Holdings or any of its Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders in any material respect, (vii) transactions permitted by, and complying with, the provisions of Section 5.1, and (viii) purchases or sales of goods or services or other transactions with suppliers, in each case, in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which are fair to Holdings or any Subsidiary, in the reasonable determination of the Board of Directors, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Section 4.12. Limitation on Incurrences of Additional Indebtedness.1/ Holdings will not, and will not permit any Subsidiary, directly or indirectly, to incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the Securities or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness, (i) Holdings may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of Holdings would be greater than 2.0 to 1.0 and (ii) the Company or any subsidiary of the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of the Company would be greater than 2.0 to 1.0. Section 4.13. Limitation on Liens. Holdings will not create, incur, assume or suffer to exist any Lien of any kind securing any Pari Passu Indebtedness, any Subordinated Indebtedness or any Affiliate Obligation upon any property or assets of Holdings owned on the Issue Date or acquired after the Issue Date, or any income or profits therefrom, unless the Securities are secured equally and ratably with (or prior to in the case of Subordinated Indebtedness) to the obligation or liability secured by such Lien, and except for any Lien securing Acquired Indebtedness created prior to the ____________________ 1. This Section 4.12 will conform to the covenant in the new public securities, as appropriately modified to be applicable to Holdings and its subsidiaries. 33 44 incurrence of such Indebtedness by Holdings, provided that any such Lien only extends to the assets that were subject to such Lien securing such Acquired Indebtedness prior to the related acquisition by Holdings. Section 4.14. Limitation on Change of Control. (a) Upon the occurrence of a Change of Control (the "Change of Control Date"), each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to the offer described in paragraph (b), below (the "Change of Control Offer"), at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Prior to the mailing of the notice to Holders provided for in paragraph (b) below, but in any event within 30 days following the Change of Control Date, Holdings shall cause the Company to either (a) repay in full and terminate all commitments under Indebtedness under the Credit Agreement to the extent the terms thereof require repayment upon a Change of Control (or offer to repay in full and terminate all commitments under all such Indebtedness under the Credit Agreement and repay the Indebtedness owed to each lender which has accepted such offer), or (b) obtain the requisite consents under the Credit Agreement, the terms of which require repayment upon a Change of Control, to permit the repurchase of the Securities as provided for in this Section 4.14. Holdings shall first comply with the covenant in the immediately preceding sentence before Holdings shall be required to repurchase Securities pursuant to this Section 4.14, and any failure to so comply shall constitute an Event of Default under this Indenture. Within 10 days after any Change of Control Date requiring Holdings to make a Change of Control Offer pursuant to this Section 4.14, Holdings shall so notify the Trustee. (b) The Change of Control Offer shall be made to all Holders and the notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. Within 30 days following any Change of Control Date, Holdings shall send, by first class mail, a notice to each Holder, with copies to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Securities tendered will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; 34 45 (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the aggregate principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Holder shall tender Securities, and each Security purchased and each such new Security issued by Holdings shall be, in a principal amount of $1,000 or integral multiples thereof (except for Secondary Securities that were issued in denominations other than $1,000); and (8) the circumstances and relevant facts regarding such Change of Control, including information available to Holdings concerning the Person or Persons acquiring control and such historical or pro forma financial information as Holdings reasonably deems appropriate under the circumstances. (c) On or before the Change of Control Payment Date, Holdings shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by Holdings. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price; provided that each such new Security shall be in the principal amount of $1,000 or integral multiples thereof. Holdings will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 4.14, the Trustee shall act as the Paying Agent. (d) Holdings, to the extent applicable and if required by law, will comply with Rule 14e-1 under the Exchange Act and any other applicable provisions of the federal securities laws in connection with a Change of Control Offer. Section 4.15. Limitation on Asset Sales. (a) Neither Holdings nor any of its Subsidiaries will consummate an Asset Sale, unless (a) Holdings or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold; and (b) upon consummation of an Asset Sale, Holdings or the applicable Subsidiary will, within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds 35 46 of any Asset Sale to (1) a Related Business Investment (2) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, or (3) an investment in properties and assets that will be used in the business of Holdings and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto; (ii) apply or cause to be applied such Net Cash Proceeds to the repayment of Senior Indebtedness or Pari Passu Indebtedness of Holdings or any Indebtedness of any Subsidiary; (iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of Notes tendered to Holdings for purchase at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase pursuant to an offer to purchase made by Holdings as set forth below (a "Net Proceeds Offer"), provided, however, that if at any time any noncash consideration received by Holdings or any Subsidiary in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such cash shall constitute Net Cash Proceeds for purposes of this Section 4.15 and shall be applied in accordance with clause (b) above within 365 days of the receipt of such cash; and provided further, however, that if at any time any security deposits or other amounts used to secure Letter of Credit Obligations pursuant to clause b(iii) above are returned to Holdings or any Subsidiary, then such security deposits or other amounts shall constitute Net Cash Proceeds for purposes of this Section 4.15 and shall be applied in accordance with clause (b) above within 365 days of the receipt of such security deposits or other amounts. A Net Proceeds Offer as a result of an Asset Sale made by the Company or one of its subsidiaries shall not be required to be in excess of the Net Cash Proceeds of such Asset Sale less the Net Cash Proceeds actually applied in accordance with clauses (b)(i), (ii) or (iii) above; provided, however, that Holdings shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, (x) the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets which are acquired or constructed by Holdings or a Subsidiary subsequent to the Issue Date, provided that such sale and substantially concurrent lease-back occurs within 180 days following such acquisition or the completion of such construction, as the case may be, and (y) the proceeds of which in the aggregate do not exceed $20 million. (b) Notice of a Net Proceeds Offer pursuant to this Section 4.15 shall be mailed, by first class mail, by Holdings not less than 305 days nor more than 335 days after the relevant Asset Sale to all Holders at their last registered addresses, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.15 and that all Securities tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Securities tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, Holdings shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by Holdings so that only Securities in denominations of $1,000 or multiples thereof shall be purchased, except for Secondary Securities that were issued in denominations other than $1,000); 36 47 (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Proceeds Purchase Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; and (7) that Holders whose Securities were purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. On or before the Proceeds Purchase Date, Holdings shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(l) 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 Holdings. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price. Holdings will publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. (c) Holdings will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities pursuant to a Net Proceeds Offer. Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer shall be returned by the Trustee to Holdings. 37 48 Section 4.16. Limitation on Senior Subordinated Indebtedness. Holdings will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the Securities. Section 4.17. Limitation on Preferred Stock of Subsidiaries. Holdings will not permit any of its Subsidiaries to issue any Preferred Stock (other than to Holdings or a wholly-owned Subsidiary), or permit any person (other than Holdings or a wholly-owned Subsidiary) to own or hold an interest in any Preferred Stock of any such Subsidiary, unless such Subsidiary would be entitled to incur Indebtedness in accordance with the provisions of Section 4.12 in the aggregate principal amount equal to the aggregate liquidation value of such Preferred Stock. Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. Holdings shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Credit Agreement as in effect on the Issue Date, as any such Payment Restriction may apply to any present or future Subsidiary, (ii) the Senior Discount Note Indenture, the New F4L Senior Note Indenture, the New F4L Subordinated Note Indenture, the New Note Indenture and any other agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to Section 4.12), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.12 and 4.13 that limit the right of the debtor to dispose of the assets securing such Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole, than those provided for in such Indebtedness being refinanced, refunded, extended or renewed, and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 4.12; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect of the Issue Date. 38 49 ARTICLE V SUCCESSOR CORPORATION Section 5.1. When Holdings May Merge, Etc. (a) Holdings, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case: (1) either Holdings shall be the continuing person, or the person (if other than Holdings) formed by such consolidation or into which Holdings is merged or to which all or substantially all of the properties and assets of Holdings as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (Holdings or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of Holdings under the Securities and this Indenture; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of Holdings immediately preceding the transaction and (B) the Surviving Person could incur at least $1 of Indebtedness other than Permitted Indebtedness pursuant to Section 4.12; and (3) immediately before and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of Holdings shall be deemed to be the transfer of all or substantially all of the properties and assets of Holdings. Section 5.2. Successor Corporation Substituted. Upon any consolidation or merger or any transfer of all or substantially all of the assets of Holdings or any adoption of a Plan of Liquidation by Holdings in accordance with Section 5.1, the surviving person formed by such consolidation or into which Holdings is 39 50 merged or to which such transfer is made, (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, Holdings under this Indenture with the same effect as if such surviving person had been named as Holdings herein; provided, however, that solely for purposes of computing amounts described in subclause (c) of Section 4.3, any such surviving person shall only be deemed to have succeeded to and be substituted for Holdings with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. When a successor corporation assumes all of the obligations of Holdings hereunder and under the Securities and agrees to be bound hereby and thereby, the predecessor shall be released from such obligations. ARTICLE VI DEFAULT AND REMEDIES Section 6.1. Events of Default. An "Event of Default" occurs if: (1) Holdings defaults in the payment of interest on the Securities when the same becomes due and payable and the default continues for a period of 30 days; (2) Holdings defaults in the payment of the principal of the Securities when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise (including the failure to repurchase Securities tendered pursuant to the requirements set forth in Sections 4.14 and 4.15), whether or not such payment shall be prohibited by the provisions of Article Eleven hereof; (3) Holdings fails to comply with any of its other agreements or covenants in, or provisions of, the Securities or this Indenture and the default continues for the period and after the notice specified below; (4) there shall be a default under any bond, debenture, or other evidence of Indebtedness of Holdings or of any Significant Subsidiary or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any such Indebtedness, whether such Indebtedness now exists or shall hereafter be created, if both (A) such default either (i) results from the failure to pay such Indebtedness at its stated final maturity (that is, the date of the last principal installment of any installment Indebtedness under the instrument or agreement pursuant to or under which such Indebtedness was created or is evidenced) or (ii) relates to an obligation (including any obligation to pay interest, to purchase such Indebtedness or to pay the principal of such Indebtedness, other than the obligation to pay any principal of such Indebtedness at its stated final maturity) and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated final maturity) and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $25 million or more at any one time; 40 51 (5) Holdings or any Significant Subsidiary (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; (6) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of Holdings or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of Holdings or any Significant Subsidiary, (B) appoint a Custodian of Holdings or any Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (7) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of Holdings and its Subsidiaries; or (8) any final judgments or order for payment of money in excess of $25 million shall be rendered against Holdings or any Significant Subsidiary by a court of competent jurisdiction and shall remain undischarged for a period of 60 days after such judgment becomes final and nonappealable. A Default under clause (3) above (other than in the case of any Defaults resulting from any Default under Section 4.3, 4.14 or 5.1, which Defaults shall be Events of Default with the notice specified in this paragraph but without the passage of time specified in this paragraph) is not an Event of Default until the Trustee notifies Holdings, or the Holders of at least 25% in aggregate principal amount of the outstanding Securities notify Holdings and the Trustee, of the Default, and Holdings does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in aggregate principal amount of the Securities then outstanding. When a Default is cured, it ceases. Section 6.2. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 6.1(5) or (6) with respect to Holdings or any Significant Subsidiary) occurs and is continuing, the Trustee may, by notice to Holdings (and, if any Indebtedness is outstanding under the Credit Agreement or the Credit Agreement is otherwise in effect, to the Credit Agent), or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by written notice to Holdings and the Trustee, and the Trustee shall (with 41 52 notice to the Credit Agent if any Indebtedness is outstanding under the Credit Agreement or the Credit Agreement is otherwise in effect), upon the request of such Holders, declare the aggregate principal amount of the Securities outstanding, together with accrued but unpaid interest thereon to the date of payment, to be due and payable and, upon any such declaration, the same shall become and be due and payable; provided, that so long as the Credit Agreement shall be in force and effect, if any such Event of Default shall have occurred and be continuing, any such acceleration shall not be effective until the earlier of (a) five Business Days following a notice of acceleration given to Holdings and the Credit Agent under the Credit Agreement and only if upon such fifth Business Day such Event of Default shall be continuing or (b) the acceleration of any Indebtedness under the Credit Agreement. If an Event of Default specified in Section 6.1(5) or (6) occurs with respect to Holdings or any Significant Subsidiary, all unpaid principal and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. Upon payment of such principal amount, interest, and premium, if any, all of Holdings' obligations under the Securities and this Indenture, other than obligations under Section 7.7, shall terminate. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the non-payment of the principal and interest on the Securities which have become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, and (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. (b) In the event of a declaration of acceleration under this Indenture because an Event of Default set forth in Section 6.1(4) has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. Section 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall 42 53 not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. Subject to Sections 6.7 and 9.2, the Holders of at least a majority in aggregate principal amount of the outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (1) and (2) of Section 6.1. When a Default or Event of Default is waived, it is cured and ceases. Section 6.5. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. Subject to Section 7.1, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.6. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee notice of a continuing Event of Default; (2) the Holder or Holders of at least 25% in aggregate principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holder or Holders of at least 25% in aggregate principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. 43 54 Section 6.7. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. Section 6.8. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against Holdings or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to Holdings or any other obligor upon the Securities, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.7; 44 55 Second: if the Holders are forced to proceed against Holdings directly without the Trustee, to the Holders for their collection costs; Third: to the Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Fourth: to Holdings. The Trustee, upon prior notice to Holdings, may fix a record date and payment date for any payment to the Holders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by a Holder or Holders of more than 10% in aggregate principal amount of the outstanding Securities. ARTICLE VII TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. Section 7.1. Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person could exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture that are adverse to the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements 45 56 of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1. (f) The Trustee shall not be liable for interest on any assets received by it except as the Trustee may agree with Holdings. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. Section 7.2. Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. 46 57 (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with Holdings, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. Section 7.4. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for Holdings' use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than the Trustee's certificate of authentication. Section 7.5. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on, any Security, including the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer, the Trustee may withhold the notice if and so long as its board of directors, the executive committee of its board of directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. Section 7.6. Reports By Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA Section 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief 47 58 report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Holders shall be mailed to Holdings and filed with the SEC and each stock exchange, if any, on which the Securities are listed. Holdings shall notify the Trustee if the Securities become listed on any stock exchange. Section 7.7. Compensation and Indemnity. Holdings shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. Holdings shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it including, without limitation, any taxes imposed on the trust or on the income from the Securities. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. Holdings shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it except for such actions to the extent caused by any negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder. The Trustee shall notify Holdings promptly of any claim asserted against the Trustee for which it may seek indemnity. Holdings shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and Holdings shall pay the reasonable fees and expenses of such counsel; provided that Holdings will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between Holdings and the Trustee in connection with such defense as reasonably determined by the Trustee. Holdings need not pay for any settlement made without its written consent. Holdings need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure Holdings' payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal of, premium, if any, or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(5) or (6) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.8. Replacement of Trustee. The Trustee may resign by so notifying Holdings. The Holders of a majority in aggregate principal amount of the outstanding Securities may remove the Trustee by so notifying 48 59 Holdings and the Trustee may appoint a successor Trustee with Holdings' consent. Holdings may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, Holdings shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by Holdings. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to Holdings. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, Holdings or the Holders of at least 10% in aggregate principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, Holdings' obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. Section 7.9. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. Section 7.10. Eligibility; Disqualification. 49 60 This Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of Holdings are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. Section 7.11. Preferential Collection of Claims Against Holdings. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance. Holdings may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article Eight. Section 8.2. Legal Defeasance. Upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.2, Holdings shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that Holdings shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of Holdings, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, payments in respect of the principal, of, premium, if any, and interest on such Securities when such payments are due, (b) Holdings' obligations with respect to such Securities under Article Two and Section 4.2 hereof and the rights, powers, trusts, duties and immunities of the Trustee and Holdings' obligations in connection therewith, and (c) this Article Eight. Subject to compliance with this Article Eight, Holdings may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. 50 61 Section 8.3. Covenant Defeasance. Upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.3, Holdings shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from its obligations under the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Securities, Holdings may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only to the extent it relates to a breach of any of the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V hereof), 6.1(4) and 6.1(7) hereof shall not constitute Events of Default. Section 8.4. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Securities: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Securities, cash in United States dollars, or direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged ("U.S. Government Obligations"), or a combination thereof, in such amounts and at such times as will be sufficient, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Securities to redemption or maturity provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities on the Maturity Date or such redemption date, as the case may be; 51 62 (b) in the case of an election under Section 8.2 hereof, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that (A) Holdings has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and Legal Defeasance had not occurred; (c) in the case of an election under Section 8.3 hereof, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if deposit and such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Section 6.1(5) or 6.1(6) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit (it being understood that this condition shall not be deemed satisfied until after such 91st day); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which Holdings is a party or by which Holdings is bound (and in that connection, the Trustee shall have received a certificate from the administrative agent under the Credit Agreement to that effect with respect to such Credit Agreement if then in effect); (f) Holdings shall have delivered to the Trustee an Opinion of Counsel to the effect that, assuming that no Default or Event of Default shall occur and be continuing under Section 6.1(5) or 6.1(6) during the period ending on the 91st day after the date of deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) Holdings shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by Holdings with the intent of preferring the Holders over the other creditors of Holdings or with the intent of defeating, hindering, delaying or defrauding creditors of Holdings, or others; and 52 63 (h) Holdings shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.6 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 8.4 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (excluding Holdings or any Affiliate thereof) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. Holdings shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Obligations deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to Holdings from time to time upon the request of Holdings any money or non-callable U.S. Government Obligations held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Covenant Defeasance. Section 8.6. Repayment to Holdings. Any money deposited with the Trustee or any Paying Agent in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to Holdings on its request or shall be discharged from such trust; and the Holder of such Security shall thereafter, as a creditor, look only to Holdings for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense of Holdings cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to Holdings. 53 64 Section 8.7. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then Holdings' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; provided, however, that, if Holdings makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, Holdings shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1. Without Consent of Holders. Holdings, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder; (2) to comply with Article Five; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as from time to time amended, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Internal Revenue Code of 1986, as from time to time amended; (4) to make any other change that does not adversely affect the rights of any Holders; or (5) to comply with any requirements of the SEC in connection with the qualification of this Indenture under the TIA; provided that Holdings has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.1. Section 9.2. With Consent of Holders. 54 65 Subject to Section 6.7, Holdings, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least fifty four percent in aggregate principal amount of the outstanding Securities (or at least a majority in aggregate principal amount of the outstanding Securities in the event that EJDC shall cease to beneficially own at least a majority in aggregate principal amount of the outstanding Securities), may amend or supplement this Indenture or the Securities, without notice to any other Holders. Subject to Section 6.7, the Holder or Holders of at least fifty four percent in aggregate principal amount of the outstanding Securities (or at least a majority in aggregate principal amount of the outstanding Securities in the event that EJDC shall cease to beneficially own at least a majority in aggregate principal amount of the outstanding Securities) may waive compliance by Holdings with any provision of this Indenture or the Securities without notice to any other Holder. Without the consent of each Holder affected, however, no amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may: (1) change the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture or the Securities; (2) reduce the rate or extend the time for payment of interest on any Security; (3) reduce the principal amount of any Security; (4) change the Maturity Date of any Security, or alter the redemption provisions contained in paragraph 5 of the Securities in a manner adverse to any Holder; (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on, or redemption payment with respect to, any Security; (6) make any changes in Section 6.4, 6.7 or this third sentence of this Section 9.2; or (7) make the principal of, or the interest on any Security payable with anything or in any manner other than as provided for in this Indenture and the Securities as in effect on the date hereof. Without the consent of the Holder or Holders of at least 66 2/3% of the aggregate principal amount of the outstanding Securities, no change may be made to the provisions of Article Eleven that adversely affects the rights of any Holder under Article Eleven. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, Holdings shall mail to the Holders affected thereby a notice briefly describing the amendment, 55 66 supplement or waiver. Any failure of Holdings to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. In connection with any amendment, supplement or waiver under this Article Nine, Holdings may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. Holdings agrees that no amendment, supplement or waiver under this Article Nine may make any change that adversely affects the rights under Article Eleven of any holders of Senior Indebtedness unless the holders of such Senior Indebtedness consent to the change. Section 9.3. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 9.4. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or Holdings received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. Holdings may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (7) of Section 9.2, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. 56 67 Section 9.5. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if Holdings or the Trustee so determines, Holdings in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 9.6. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. ARTICLE X MEETINGS OF SECURITYHOLDERS Section 10.1. Purposes for Which Meetings May Be Called. A meeting of Holders may be called at any time and from time to time pursuant to the provisions of this Article Ten for any of the following purposes: (a) to give any notice to Holdings or to the Trustee, or to give any directions to the Trustee, or to waive or to consent to the waiving of any Default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Holders pursuant to any of the provisions of Article Six; (b) to remove the Trustee or appoint a successor Trustee pursuant to the provisions of Article Seven; (c) to consent to an amendment, supplement or waiver pursuant to the provisions of Section 9.2; or (d) to take any other action (i) authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Securities under any other provision of this Indenture, or authorized or permitted by law or (ii) which the Trustee deems necessary or appropriate in connection with the administration of this Indenture. Section 10.2. Manner of Calling Meetings. 57 68 The Trustee may at any time call a meeting of Holders to take any action specified in Section 10.1, to be held at such time and at such place in New York, New York or elsewhere as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed by the Trustee, first-class postage prepaid, to Holdings and to the Holders at their last addresses as they shall appear on the registration books of the Registrar not less than 10 nor more than 60 days prior to the date fixed for a meeting. Any meeting of Holders shall be valid without notice if the Holders of all Securities then outstanding are present in person or by proxy, or if notice is waived before or after the meeting by the Holders of all Securities outstanding, and if Holdings, any Subsidiary and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3. Call of Meetings by Holdings or Holders. In case at any time Holdings, pursuant to a Board Resolution, or the Holders of not less than 10% in aggregate principal amount of the Securities then outstanding shall have requested the Trustee to call a meeting of Holders to take any action specified in Section 10.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then Holdings or the Holders in the amount above specified may determine the time and place in New York, New York or elsewhere for such meeting and may call such meeting for the purpose of taking such action, by mailing or causing to be mailed notice thereof as provided in Section 10.2, or by causing notice thereof to be published at least once in each of two successive calendar weeks (on any Business Day during such week) in a newspaper or newspapers printed in the English language, customarily published at least five days a week of a general circulation in New York, New York, the first such publication to be not less than 10 nor more than 60 days prior to the date fixed for the meeting. Section 10.4. Who May Attend and Vote at Meetings. To be entitled to vote at any meeting of Holders, a person shall (a) be a registered Holder of one or more Securities, or (b) be a person appointed by an instrument in writing as proxy for the registered Holder or Holders of Securities. The only persons who shall be entitled to be present or to speak at any meeting of Holders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of Holdings and its counsel. Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment. Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any action by or any meeting of Holders, in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, and submission and examination of proxies, 58 69 certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think appropriate. Such regulations may fix a record date and time for determining the Holders of record of Securities entitled to vote at such meeting, in which case those and only those persons who are Holders of Securities at the record date and time so fixed, or their proxies, shall be entitled to vote at such meeting whether or not they shall be such Holders at the time of the meeting. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by Holdings or by Holders as provided in Section 10.3, in which case Holdings or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote. At any meeting each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Securities challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman may adjourn any such meeting if he is unable to determine whether any Holder or proxy shall be entitled to vote at such meeting. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Holders. Any meeting of Holders duly called pursuant to the provisions of Section 10.2 or Section 10.3 may be adjourned from time to time by vote of the Holders of a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote, and the meeting may be held as so adjourned without further notice. Section 10.6. Voting at the Meeting and Record To Be Kept. The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amount of the Securities voted by the ballot. The permanent chairman of the meeting shall appoint two inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts, setting forth a copy of the notice of the meeting and showing that such notice was mailed as provided in Section 10.2 or published as provided in Section 10.3. The record shall be signed and verified by the affidavits of the permanent chairman and the secretary of the meeting and one of the duplicates shall be delivered to Holdings and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 59 70 Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting. Nothing contained in this Article Ten shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Holders under any of the provisions of this Indenture or of the Securities. ARTICLE XI SUBORDINATION Section 11.1. Securities Subordinated to Senior Indebtedness. Anything herein to the contrary notwithstanding, Holdings, for itself and its successors, and each Holder, by accepting a Security, agrees, that the payment of the principal of and interest on and premiums, penalties, fees and other liabilities (including, without limitation, liabilities in respect of any indemnity, reimbursement, compensation or contribution obligations, the occurrence of a Change of Control, any liquidated damage provision, any breach of representation or warranty, or any rights of redemption or rescission under this Indenture, the Merger Agreement and the Registration Rights Agreement or by law or otherwise) ("Other Obligations") with respect to the Securities is subordinated, to the extent and in the manner provided in this Article Eleven, to the prior payment in full in cash of all Senior Indebtedness. This Article Eleven shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. Holders of Senior Indebtedness need not prove reliance on the subordination provisions hereof. Section 11.2. No Payment on Securities in Certain Circumstances. (a) No direct or indirect payment or distribution shall be made by or on behalf of Holdings (other than a payment in Secondary Securities) on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities (i) upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof and interest thereon shall first be paid in full in cash or (ii) upon the happening of any default in payment of any principal of or interest on any Senior Indebtedness when the same becomes due and payable (a "Payment Default"), unless and until such default shall have been cured or waived or shall have ceased to exist. (b) Without limiting the effect of Section 11.2(a), upon the happening of a default or event of default (other than a Payment Default) (including any event which, with the giving of notice or lapse of time, or both, would become an event of default and including any 60 71 default or event of default that would result upon any payment with respect to the Securities) with respect to any Senior Indebtedness, as such default or event of default is defined therein or in the instrument or agreement under which it is outstanding, and upon written notice thereof given to Holdings and the Trustee by any holders of such Senior Indebtedness or their Representative specifying an intent to effect a Payment Blockage Period hereunder ("Payment Notice"), then, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment or distribution (other than of Secondary Securities) shall be made by or on behalf of Holdings on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities; provided, however, that this paragraph (b) shall not prevent the making of any payment for a period of (a "Payment Blockage Period") of more than 179 days after a Payment Notice shall have been given (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and Holdings from the Credit Agent or the Representative which gave such Payment Notice, (ii) repayment in full of such Senior Indebtedness or (iii) because the default specified in the Payment Notice is no longer continuing). Subject to the provisions contained in Section 11.2(a) above, Holdings may resume payments on the Securities after such Payment Blockage Period expires. Notwithstanding the foregoing, (i) not more than one Payment Notice shall be given within a period of 360 consecutive days, and (ii) a Payment Notice may only be given (A) if Senior Indebtedness is outstanding under the Credit Agreement at the time of such notice, by the Credit Agent and (B) if no Senior Indebtedness is outstanding under the Credit Agreement at the time of such notice, by a holder or holders (or the Representative of holders) of at least $35,000,000 principal amount of such Senior Indebtedness. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Senior Indebtedness whether or not within a period of 360 consecutive days unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In furtherance of the provisions of Section 11.1, if, notwithstanding the foregoing provisions of this Section 11.2, any direct or indirect payment or distribution other than Secondary Securities on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities shall be made by or on behalf of Holdings and received by the Trustee, by any Holder or by any Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent, money for any such payment or distribution shall be segregated and held in trust), at a time when such payment or distribution was prohibited by the provisions of this Section 11.2, then, unless and until such payment or distribution is no longer prohibited by this Section 11.2, such payment or distribution (subject to the provisions of Sections 11.6 and 11.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent, as the case may be, for the benefit of, and shall be immediately paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to all concurrent payments and distributions 61 72 to or for the holders of Senior Indebtedness. Holdings shall give prompt notice to the Trustee of any default or event of default or any acceleration under any Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness may have been issued. Failure to give such notice shall not affect the subordination of the Securities to Senior Indebtedness provided in this Article Eleven. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or willful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Holdings. Upon any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, upon any dissolution, winding-up, total or partial liquidation or total or partial reorganization of Holdings (including, without limitation, in bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings and whether voluntary or involuntary): (a) the holders of all Senior Indebtedness shall first be entitled to receive payments in full in cash of the principal thereof and interest thereon before the Holders are entitled to receive any payment on account of the principal of or interest on or Other Obligations with respect to the Securities (whether by payment, acquisition, retirement, defeasance, redemption or otherwise) or any other payment or distribution of assets or securities by or on behalf of Holdings; (b) any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled except for the provisions of this Article Eleven, including any such payment or distribution that is payable or deliverable by reason of the payment of any other Indebtedness of Holdings being subordinated to the payment of the Securities (except for any such payment or distribution (x) authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of the Securities to the Senior Indebtedness, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law, (y) of securities that (i) are unsecured, (ii) have a Weighted Average Life to Maturity and final maturity that are no shorter than the Weighted Average Life to Maturity of the Securities or any securities issued to the holders of Senior Indebtedness under the Credit Agreement pursuant to a plan of reorganization or readjustment and (iii) are subordinated, to at least the same extent as the Securities, to the payment of all Senior Indebtedness then outstanding or (z) of Capital Stock), shall be paid by the liquidating trustee or agent or other person making such a payment or distribution, directly to the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash, after giving 62 73 effect to all concurrent payments and distributions to or for the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent, money, assets or securities of any kind or character for any such payment or distribution shall be segregated or held in trust) on account of principal of or interest on or Other Obligations with respect to the Securities before all Senior Indebtedness is paid in full in cash, such payment or distribution (subject to the provisions of Sections 11.6 and 11.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash, after giving effect to all concurrent payments and distributions to or for the holders of Senior Indebtedness. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or wilful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay over such payment over to, the holders of Senior Indebtedness or their Representative. Holdings shall give prompt notice to the Trustee prior to any dissolution, winding-up, total or partial liquidation or total or partial reorganization of Holdings or assignment for the benefit of creditors by Holdings. Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash of all Senior Indebtedness, the Holders of Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of Holdings applicable to the Senior Indebtedness until all amounts owing on the Securities shall be paid in full in cash, and for the purpose of such subrogation no payments or distributions to the holders of Senior Indebtedness by or on behalf of Holdings, or by or on behalf of the Holders by virtue of this Article Eleven, which otherwise would have been made to the Holders, shall, as between Holdings and the Holders, be deemed to be payment by Holdings to or on account of the Senior Indebtedness, it being understood that the provisions of this Article Eleven are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Eleven shall have been applied, pursuant to the provisions of this Article Eleven, to the payment of all amounts payable under the Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Senior 63 74 Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of the Senior Indebtedness in full in cash. Section 11.5. Obligations of Holdings Unconditional. Nothing contained in this Article Eleven or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between Holdings and the Holders, the obligation of Holdings, which is absolute and unconditional, to pay to the Holders the principal of and interest on and Other Obligations in respect of the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of Holdings other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Eleven, of the holders of Senior Indebtedness in respect of cash, property or securities of Holdings received upon the exercise of any such remedy. Upon any payment or distribution of assets or securities of Holdings referred to in this Article Eleven, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of Holdings, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Eleven. Nothing in this Section 11.5 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.7. Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received written notice thereof from Holdings or from one or more holders of Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be entitled in all respects conclusively to assume that no such fact exists. Section 11.7. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Section 8.4 shall be for the sole benefit of Holders and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Eleven. Otherwise, any deposit of assets or securities by or on behalf of Holdings with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on or Other Obligations with respect to any Securities shall be subject to the provisions of this Article Eleven; provided that if prior to the second 64 75 Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 11.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent. Nothing contained in this Section 11.7 (except the first sentence of this Section 11.7) shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Eleven. Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce the subordination provisions contained in this Article Eleven shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Holdings or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by Holdings with the terms of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, restate, supplement, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with Holdings and its Subsidiaries all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. No provision in any supplemental indenture that affects the subordination of the Securities or other provisions of this Article Eleven shall be effective against the holders of the Senior Indebtedness who have not consented thereto. Each Holder by accepting a Security agrees that the Representative of any Senior Indebtedness (including without limitation, the Credit Agent), in its discretion, without notice or demand and without affecting any rights of any holder of Senior Indebtedness under this Article Eleven, may foreclose any mortgage or deed of trust covering interests in real property secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives any defense to the enforcement by the Representative (including without limitation, the Credit Agent) of any Senior Indebtedness or by any holder of any Senior Indebtedness against such Holder of this Article Eleven after a judicial or nonjudicial sale or other disposition of its interests in real property secured by such mortgage or deed of trust; and such Holder expressly waives any defense or benefits that may be derived from California Civil Code Sections 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil Procedure Sections 580a, 580d or 726, or comparable provisions of the laws of any other jurisdiction or any similar statute in effect in any other jurisdiction. Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities. Each Holder by accepting a Security authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Eleven, and appoints the Trustee his attorney-in-fact for such 65 76 purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of Holdings (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings) tending towards liquidation or reorganization of the business and assets of Holdings, the immediate filing of a claim for the unpaid balance of its or his Securities and Other Obligations in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. Section 11.10. Right of Trustee to Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Eleven in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. Section 11.11. Article Eleven Not to Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article Eleven shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.1. Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall in good faith mistakenly pay over or deliver to the Holders of Securities or Holdings or any other person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Eleven or otherwise. Nothing in this Section 11.12 shall affect the obligation of any person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. ARTICLE XII 66 77 SATISFACTION AND DISCHARGE Section 12.1. Satisfaction and Discharge of the Indenture. This Indenture will be discharged and will cease to be of further effect as to all outstanding Securities when: (a) all Securities theretofore authenticated and delivered (except lost, stolen or destroyed Securities which have been replaced or paid and Securities for whose payment money has theretofore been deposited in trust and thereafter repaid to Holdings) have been delivered to the Trustee for cancellation; or (b) (1) all Securities not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and Holdings has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on the Securities not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (2) Holdings has paid all sums payable by it under this Indenture; and (3) Holdings has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Securities at maturity or the redemption date, as the case may be. Section 12.2. Conditions to Satisfaction and Discharge of the Indenture. Holdings shall deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. ARTICLE XIII MISCELLANEOUS Section 13.1. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed duties shall control. Section 13.2. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: 67 78 if to Holdings: c/o The Yucaipa Companies 10000 Santa Monica Boulevard Fifth Floor Los Angeles, California 90067 Attention: Mark A. Resnik if to the Trustee: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ Attention: Corporate Trust Administration Each of Holdings and the Trustee by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to Holdings and the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 13.3. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. Holdings, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c). Section 13.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by Holdings to the Trustee to take any action under this Indenture, Holdings shall furnish to the Trustee: 68 79 (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 13.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.7, shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 13.6. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 13.7. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, Los Angeles, California or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. 69 80 Section 13.8. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. Section 13.9. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of Holdings or any Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of Holdings shall not have any liability for any obligations of Holdings under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Holder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. Section 13.11. Successors. All agreements of Holdings in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. 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. 70 81 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the date first written above. Dated: , 1995 ------------- [SEAL] FOOD 4 LESS HOLDINGS, INC. Attest: By: ----------------------------------- Name: Mark A. Resnik Title: Vice President - ---------------------------- Dated: , 1995 ------------- [SEAL] -------------------------------------- -------------------------------------- as Trustee Attest: By: ----------------------------------- Name: Title: - ---------------------------- 71 82 EXHIBIT A PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO ORIGINAL ISSUE DISCOUNT AND TREASURY REGULATIONS PROMULGATED THEREUNDER WITH RESPECT TO DEBT INSTRUMENTS ISSUED ON OR AFTER APRIL 4, 1994, THE FOLLOWING INFORMATION IS PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE AMOUNT OF $____ PER FACE AMOUNT; (2) THE ISSUE PRICE OF THIS SECURITY IS $___ PER FACE AMOUNT; (3) THE ISSUE DATE OF THIS SECURITY IS ______ __, ____; AND (4) THE YIELD TO MATURITY OF THIS SECURITY IS __%. FOOD 4 LESS HOLDINGS, INC. 13 5/8% Senior Subordinated Pay-in-Kind Debentures due ________ __, 2007 No. $ Food 4 Less Holdings, Inc., a Delaware corporation ("Holdings," which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of dollars, on ________ __, 2007. Interest payment dates: ________________ and _______________ commencing ________ __, ____. Record dates: _________ and _________. Reference is made to the further provisions of this security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, Holdings has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: ________ __, 1995 FOOD 4 LESS HOLDINGS, INC. By: --------------------------------- Name: Title: This is one of the Securities described in the within-mentioned Indenture. Dated: ________ __, 1995 ------------------------------------- as Trustee By: --------------------------------- Title: A-1 83 FOOD 4 LESS HOLDINGS, INC. 13 5/8% Senior Subordinated Pay-in-Kind Debenture due ________ __, 2007 1. Interest. FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Holdings may, in its sole discretion, issue additional Securities ("Secondary Securities") in lieu of a cash payment of any or all of the interest due on any Interest Payment Date occurring on or prior to [the Interest Payment Date five years after the Issue Date]. If Holdings issues Secondary Securities in lieu of cash payment, in whole or in part, of interest due on any Interest Payment Date occurring on or prior to [the Interest Payment Date five years after the Issue Date], pursuant to this paragraph, it shall give notice to the Trustee not less than 5 Business Days prior to the relevant Interest Payment Date, and shall instruct the Trustee (upon written order of Holdings signed by an Officer of Holdings given not less than 5 nor more than 45 days prior to such Interest Payment Date) to authenticate a Secondary Security, dated such Interest Payment Date, in a principal amount equal to the amount of interest not paid in cash in respect of this Security on such Interest Payment Date. Each issuance of Secondary Securities in lieu of cash payments of interest on the Securities shall be made pro rata with respect to the outstanding Securities. Any such Secondary Securities shall be governed by the Indenture and shall be subject to the same terms (including the maturity date and the rate of interest from time to time payable thereon) as this Security (except, as the case may be, with respect to the title, issuance date and aggregate principal amount). The term Securities shall include the Secondary Securities that may be issued under the Indenture. Holdings will pay interest semi-annually in arrears on ___________ and _________ of each year (the "Interest Payment Date"), commencing ___________, ____. Interest on this Security will accrue from the date of issuance or from the most recent date to which interest has been paid. Interest will be computed on the basis of a 360-day year of twelve 30-day months and actual number of days elapsed. Holdings shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at the rate per annum borne by the Securities. 2. Method of Payment. Holdings shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. Holdings shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender") (or, pursuant to A-2 84 Paragraph 1 hereof, in Secondary Securities). However, Holdings may pay principal and interest by its check payable in such U.S. Legal Tender or by wire transfer of federal funds (or, pursuant to Paragraph 1 hereof, in Secondary Securities). Holdings may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota, N.A. (the "Trustee"), will act as Paying Agent and Registrar. Holdings may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. Holdings or any Subsidiary may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. Holdings issued the Securities under an Indenture, dated as of ________ __, 1995 (the "Indenture"), between Holdings and the Trustee. This Security is one of a duly authorized issue of Securities of Holdings designated as its 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of Holdings limited in aggregate principal amount to $150,000,000, except for Secondary Securities and except as otherwise provided in the Indenture. 5. Optional Redemption. The Securities may not be redeemed at the option of Holdings prior to ________ __, 2000. Thereafter, upon at least 30 days' but not more than 60 days' notice to the Holders, Holdings may redeem all or any of the Securities at any time at redemption prices equal to the applicable percentage of the principal amount thereof set forth below, plus accrued interest, if any, to the Redemption Date (as defined in the Indenture) if redeemed during the 12-month period beginning ________ __ of the years indicated below:
Year Percentage ---- ---------- 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.8125% 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.1094% 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.4063% 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.7031% 2004 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.0000%
A-3 85 Notwithstanding the foregoing, prior to ________ __, 1998, Holdings may use the Net Proceeds (as defined in the Indenture) of an Initial Public Offering (as defined in the Indenture) of Holdings or the Company to redeem up to 35% of the Securities at a redemption price equal to 110% of the principal amount thereof plus accrued interest, if any, to the date of redemption. In order to effect the foregoing redemption, Holdings shall send the notice required by Section 3.3 of the Indenture not later than 30 days after the Initial Public Offering Consummation Date (as defined in the Indenture). 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless Holdings defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. In the event of a Change of Control, upon the satisfaction of the conditions set forth in the Indenture, Holdings shall be required to offer to purchase all of the then outstanding Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Holders of Securities which are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. 8. Limitation on Disposition of Assets. Under certain circumstances Holdings is required to apply the net proceeds from Asset Sales to the repayment of Indebtedness of Holdings or any Subsidiary, to make Related Business Investments and certain other investments or to purchase in a Net Proceeds Offer at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest, if any, to the date of purchase, which shall in the aggregate equal the net proceeds required to be applied thereto. 9. Subordination. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of Senior Indebtedness of Holdings whether outstanding on the date of the Indenture or thereafter A-4 86 created, incurred, assumed or guaranteed. Each Holder, by accepting a Security, agrees to such subordination and authorizes the Trustee to give it effect. 10. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000 (other than Secondary Securities which may be in denominations of less than $1,000). A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. No service charge shall be made for any transfer, registration or exchange, but Holdings may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or 9.5 of the Indenture. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agents will pay the money back to Holdings at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 13. Discharge Prior to Redemption or Maturity. If Holdings at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, Holdings will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the written consent of the Holders of at least fifty four percent (and, in some cases, a majority) in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of fifty four percent (and, in some cases, a majority) in aggregate principal amount, as the case may be, of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or A-5 87 supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, comply with Article Five of the Indenture or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not adversely affect the rights of any Holder of a Security. An amendment may not make any change that adversely affects the rights under Article 11 of the Indenture of any holders of Senior Indebtedness unless the holders of Senior Indebtedness consent to the change. 15. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Holdings. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with Holdings, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of Holdings shall have any liability for any obligation of Holdings under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. A-6 88 20. Governing Law. The Laws of the State of New York shall govern this Security and the Indenture. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, Holdings will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Security, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. Holdings will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: FOOD 4 LESS HOLDINGS, INC., c/o The Yucaipa Companies, 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067, Attn: Mark A. Resnik. 24. Certain Information Obligations. To the extent permitted by applicable law or regulation, whether or not Holdings is subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. Holdings shall file with the Trustee copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to the Indenture. At any time when Holdings is not permitted by applicable law or regulations to file the aforementioned reports, Holdings shall furnish the Trustee and the Holders with the information that Holdings would have had to provide to the SEC if Holdings had been subject to Section 13 or 15(d) of the Exchange Act. 25. Holdings Indebtedness. Each Holder acknowledges that Holdings is the sole obligor of the Securities and no Subsidiary of Holdings is a co-obligor or a guarantor of the Securities. A-7 89 [FORM OF ASSIGNMENT] I or we assign this Security to - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code of assignee) Please insert Social Security or other identifying number of assignee - ----------------------------------------- and irrevocably appoint agent to transfer this Security ----------------------- on the books of Holdings. The agent may substitute another to act for him. Dated: Signed: ---------------------------- -------------------------------- - ------------------------------------------------------------------------------ (Sign exactly as your name appears on the front of this Security) Signature Guarantee: ---------------------------------------------------------- A-8 90 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Security purchased by Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, check the box: Section 4.14 [ ] Section 4.15 [ ] If you want to elect to have only part of this Security purchased by Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, state the amount: $ Date:_______________ Signature:____________________________ (Sign exactly as your name appears on the front of this Security) Signature Guarantee:___________________________________________________________ A-9 EX-10.31 4 AGREEMENT AND PLAN OF MERGER, AMENDMENT NO. 3 1 EXHIBIT 10.31 AMENDMENT NO. 3 TO AGREEMENT AND PLAN OF MERGER This Amendment No. 3 (this "Amendment"), dated as of April 26, 1995, to the Agreement and Plan of Merger dated as of September 14, 1994, as amended by Amendment No. 1 dated as of January 12, 1995 and Amendment No. 2 dated as of February 24, 1995 (collectively, the "Merger Agreement"), is by and among Food 4 Less, Inc., a Delaware corporation ("F4L"), Food 4 Less Holdings, Inc., a California corporation ("F4L Holdings"), Food 4 Less Holdings, Inc., a Delaware corporation ("F4L Holdings Delaware"), Food 4 Less Supermarkets, Inc., a Delaware corporation ("F4L Supermarkets"), Ralphs Supermarkets, Inc., a Delaware corporation ("Ralphs Supermarkets"), and The Edward J. DeBartolo Corporation ("EJDC") and the other stockholders of Ralphs Supermarkets (each a "Selling Stockholder"). Capitalized terms not otherwise defined herein have the meanings given to them in the Merger Agreement. WHEREAS, F4L, F4L Holdings, F4L Holdings Delaware, F4L Supermarkets, Ralphs Supermarkets and the Selling Stockholders previously have entered into the Merger Agreement, by which the parties agreed to merge F4L Supermarkets with and into Ralphs Supermarkets in accordance with the terms and conditions of the Merger Agreement and Section 251 of the General Corporation Law of the State of Delaware; WHEREAS, the parties desire to amend certain provisions of the Merger Agreement as more fully set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: 1. Defined Terms. (a) Section 1.1 of the Merger Agreement is hereby amended to add the following defined terms: "Discount Debentures" shall mean the 13-5/8% Senior Discount Debentures due 2005 to be issued by F4L Holdings Delaware pursuant to the terms set forth in the Description of Discount Debentures attached hereto as Exhibit I. "Discount Debenture Indenture" shall mean the indenture governing the Discount Debentures to be entered into by F4L Holdings Delaware on the Closing Date. (b) The definition of "Closing Date" in Section 1.1 of the Merger Agreement is hereby amended to delete the date "April 14, 1995" and to substitute in its place the date "June 6, 1995." 2 2. Amendment of Section 2.1(a). Section 2.1(a) of the Merger Agreement is hereby amended to delete the first sentence thereof and to substitute in its place the following sentence: F4L Holdings Delaware will purchase 12,184,405.61789 Shares (the "Share Purchase"), pro rata from the Selling Stockholders in proportion to their respective holdings, for per Share consideration consisting of (i) $8.20698 in cash, (ii) $10.79265 principal amount of Debentures and (iii) $1.5184 initial accreted value of Discount Debentures (or the pro rata portion of such cash, Debentures and Discount Debentures, in the case of fractional shares) (collectively, and together with the cash amounts referred to in Section 2.1(b) below, the "Purchase Consideration"). 3. Amendment of Section 2.1(b). Section 2.1(b) of the Merger Agreement is hereby deleted in full and the following provision is hereby substituted in its place: Debentures and Discount Debentures will each be issued only in denominations of $1000 and integral multiples of $1000. A Selling Stockholder will not be entitled to receive Debentures or Discount Debentures in initial principal amounts less than $1000, or in initial principal amounts in excess of $1000 (or an integral multiple thereof) but less than the next highest integral multiple ("Fractional Amounts"), but instead will be entitled to receive cash in lieu of any such Fractional Amount. 4. Amendment of Section 2.1(c). Section 2.1(c) of the Merger Agreement is hereby amended to delete the share amount "12,184,418.99116" appearing therein and to substitute in its place the share amount "12,184,405.61789." 5. Amendment of Section 2.6(a). Section 2.6(a) of the Merger Agreement is hereby amended to delete the amount "$20.51800748" appearing in the third line thereof and to substitute in its place the amount "$20.51803." 6. Amendment of Section 2.6(e). Section 2.6(e) of the Merger Agreement is hereby amended to delete the parenthetical phrase "(including the principal amount of Seller Debentures)" and to substitute in its place the parenthetical phrase "(including the initial principal amount of the Debentures and the Discount Debentures)." 7. Amendment of Sections 2.7, 2.8, 3.4, 5.1, 5.10, 6.1(d), 8.9, 9.6. Sections 2.7, 2.8, 3.4, 5.1, 5.10, 6.1(d) and 8.9 of the Merger Agreement are hereby amended so that each reference therein to the Debentures shall also include the Discount Debentures and Sections 5.1 and 9.6 are hereby amended so that each reference therein to the Indenture shall also include the Discount Debenture Indenture. 8. Amendment of Section 5.6. Section 5.6 of the Merger Agreement is hereby amended to add the words "or as partly or wholly replaced by" to the eighth line thereof following the words "exchanged for." 9. Amendment of Section 11.1(b). Section 11.1(b) of the Merger Agreement is hereby amended (i) to delete the date "April 14, 1995" appearing in the second line thereof and to 2 3 substitute in its place the date "June 6, 1995" and (ii) to delete the date "April 30, 1995" appearing in the third line thereof and to substitute in its place the date "June 30, 1995." 10. Schedules. (a) Schedule 2.1 of the Merger Agreement is hereby deleted and the attached Schedule 2.1 is hereby substituted in its place and incorporated herein by reference. (b) Schedule 9.9 of the Merger Agreement is hereby amended to delete "$2.150 billion" in clause (2) thereof and to substitute in its place "$2.210 billion." 11. Exhibit A. Exhibit A (Form of Indenture) of the Merger Agreement is hereby deleted and the attached Exhibit A (Form of Indenture) is hereby substituted in its place and incorporated herein by reference. 12. Exhibit D. Exhibit D (Form of Opinion of Counsel to F4L) of the Merger Agreement is hereby amended so that (i) each reference therein to the Debentures shall also include the Discount Debentures and (ii) each reference therein to the Indenture shall also include the Discount Debenture Indenture. 13. Exhibit E. Exhibit E (Form of Put Agreement) of the Merger Agreement is hereby amended to delete the amount $90,517,000" appearing in the second recital and to substitute in its place the amount "$79,354,000." 14. Exhibit G. Exhibit G (Form of Registration Rights Agreement) of the Merger Agreement is hereby amended as more fully described below. (a) The definition of "Debentures" in Section 1 is hereby amended to delete "$150,000,000" appearing in the third line thereof and to substitute in its place "$131,500,000." (b) The following sentence is hereby added at the end of Section 2: "It is further understood that a gift of any Debentures by Federated Department Stores, Inc. to Federated Department Stores Foundation, an Ohio not-for-profit corporation, made at any time while the Shelf Registration Statement is effective shall be deemed to be a transfer pursuant to an effective Registration Statement." (c) The parenthetical phrase contained in Section 5(d) shall be deleted and the parenthetical phrase "(other than the Company's 13-5/8% Senior Discount Debentures due 2005 sold for the account of RGC Partners, L.P. and other than bank borrowings, obligations of the Company with respect to trade debt and other debt incurred by the Company in the ordinary course of business)" shall be substituted in its place. 15. Exhibit I. Exhibit I (Description of the New Discount Debentures), as attached hereto, is hereby added as an Exhibit to the Merger Agreement. 16. Partnership. Notwithstanding Section 5.14 of the Merger Agreement, the Selling Stockholders, together with certain other entities, including an affiliate of The Yucaipa Companies, will 3 4 be parties to a partnership agreement, a subscription agreement and related documents with respect to RGC Partners, L.P., a partnership to be formed for the purpose of acquiring the Discount Debentures. 17. Amendment of Article IX. Article IX of the Merger Agreement is hereby amended to add the following new Section 9.14 at the end thereof: Section 9.14 Partnership Agreement. RGC Partners, L.P. shall have been formed and funded as contemplated by the commitment to purchase partnership interests. 18. Terms and Conditions. Except as specifically modified herein, all other terms and conditions of the Merger Agreement shall remain in full force and effect. 4 5 IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the parties as of the day first above written. "F4L": FOOD 4 LESS, INC. By: _________________________ Name: Title: "F4L HOLDINGS": FOOD 4 LESS HOLDINGS, INC. By: _________________________ Name: Title: "F4L HOLDINGS DELAWARE": FOOD 4 LESS HOLDINGS, INC. By: _________________________ Name: Title: "F4L SUPERMARKETS": FOOD 4 LESS SUPERMARKETS, INC. By: _________________________ Name: Title: "RALPHS SUPERMARKETS": RALPHS SUPERMARKETS, INC. By: _________________________ Name: Title: "SELLING STOCKHOLDERS": THE EDWARD J. DEBARTOLO CORPORATION By: _________________________ Name: Title: S-1 6 CAMDEV PROPERTIES INC. By: _________________________ Name: Title: BANK OF MONTREAL By: _________________________ Name: Title: BANQUE PARIBAS By: _________________________ Name: Title: FEDERATED DEPARTMENT STORES, INC. By: _________________________ Name: Title: S-2 7 SCHEDULE 2.1 CONSIDERATION TO RSI SHAREHOLDERS
discount cash in lieu tot cash cash payable debentures of fract purch price in merger cash total (Section 2.1(a)) (Section 2.1(b)) (Section 2.1) (Section 2.6) (purch + mrgr) ---------------- ---------------- -------------- --------------- --------------- EJDC ................................ $11,164,000 $ 947.59 $60,344,069.62 $165,948,624.40 $226,292,694.02 Camdev Properties ................... $ 2,369,000 $ 17.36 $12,805,554.99 $ 35,216,297.78 $ 48,021,852.77 Bank of Montreal .................... $ 1,874,000 $ 248.88 $10,129,273.36 $ 27,855,663.14 $ 37,984,936.50 Banque Paribas ...................... $ 1,874,000 $ 248.88 $10,129,273.36 $ 27,855,663.14 $ 37,984,936.50 Federated Department Stores, Inc. ... $ 1,219,000 $ 839.40 $ 6,591,303.99 $ 18,124,327.94 $ 24,715,631.93 ----------- --------- -------------- --------------- --------------- Total ........................... $18,500,000 $2,302.10 $99,999,475.32 $275,000,576.40 $375,000,051.71
Per share amounts - ----------------- Purchase price (Section 2.1) -------------- cash ......................... $ 8.2069800000 debentures ................... $10.7926500000 discount debentures .......... $ 1.5184000000 -------------- Total ...................... $20.5180300000 Merger consideration (Section 2.6) -------------------- cash ......................... $20.5180300000
8 EXHIBIT A FOOD 4 LESS HOLDINGS, INC. AND NORWEST BANK MINNESOTA, N.A. AS TRUSTEE INDENTURE Dated as of ___________ __, 1995 $131,500,000 13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 9 CROSS-REFERENCE TABLE
TIA INDENTURE Section Section - ------- --------------- 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10; 13.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 13.2 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10; 13.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 13.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 - -----------------------
N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 10 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . 1 Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2. Incorporation by Reference of TIA . . . . . . . . . . . . . . . 19 Section 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE II THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . 21 Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . 22 Section 2.4. Paying Agent To Hold Assets in Trust . . . . . . . . . . . . . . 22 Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . 23 Section 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . 23 Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . 24 Section 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . 25 Section 2.13. CUSIP Number. . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE III REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.2. Selection of Securities To Be Redeemed . . . . . . . . . . . . . 25 Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . 27 Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . 27 Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . 27 ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . 27 Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . 28 Section 4.3. Limitation on Restricted Payments . . . . . . . . . . . . . . . 28 Section 4.4. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.5. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . 29 Section 4.6. Maintenance of Properties and Insurance . . . . . . . . . . . . 30 Section 4.7. Compliance Certificate; Notice of Default . . . . . . . . . . . 30
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Page ---- Section 4.8. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 31 Section 4.9. SEC Reports and Other Information . . . . . . . . . . . . . . 31 Section 4.10. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . 32 Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . 32 Section 4.12. Limitation on Incurrences of Additional Indebtedness . . . . . 34 Section 4.13. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 34 Section 4.14. Limitation on Change of Control . . . . . . . . . . . . . . . 34 Section 4.15. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . 36 Section 4.16. Limitation on Senior Subordinated Indebtedness . . . . . . . . 38 Section 4.17. Limitation on Preferred Stock of Subsidiaries . . . . . . . . 38 Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . 39 ARTICLE V SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 5.1. When Holdings May Merge, Etc . . . . . . . . . . . . . . . . . 39 Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . 40 ARTICLE VI DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . 41 Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . 43 Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . 44 Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . 44 Section 6.7. Rights of Holders To Receive Payment . . . . . . . . . . . . . 44 Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . 45 Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . 45 Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . 46 ARTICLE VII TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . 48 Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . 48 Section 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . 48 Section 7.6. Reports By Trustee to Holders . . . . . . . . . . . . . . . . 48 Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . 49 Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . 49
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Page ---- Section 7.9. Successor Trustee by Merger, Etc . . . . . . . . . . . . . . 50 Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . 50 Section 7.11. Preferential Collection of Claims Against Holdings . . . . . 51 ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . 51 Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance . . 51 Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 51 Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . 52 Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. . . . . . . . Section 8.6. Repayment to Holdings . . . . . . . . . . . . . . . . . . . 54 Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 54 ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . 55 Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . 55 Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . 55 Section 9.3. Compliance with TIA . . . . . . . . . . . . . . . . . . . . 57 Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . 57 Section 9.5. Notation on or Exchange of Securities . . . . . . . . . . . 57 Section 9.6. Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . 58 ARTICLE X MEETINGS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . 58 Section 10.1. Purposes for Which Meetings May Be Called . . . . . . . . . 58 Section 10.2. Manner of Calling Meetings . . . . . . . . . . . . . . . . . 58 Section 10.3. Call of Meetings by Holdings or Holders . . . . . . . . . . 59 Section 10.4. Who May Attend and Vote at Meetings . . . . . . . . . . . . 59 Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment . . . . . . . . . . . . . . . . 59 Section 10.6. Voting at the Meeting and Record To Be Kept . . . . . . . . 60 Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting . . . . . . . . . . 61 ARTICLE XI SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 11.1. Securities Subordinated to Senior Indebtedness . . . . . . . 61 Section 11.2. No Payment on Securities in Certain Circumstances . . . . . 61 Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Holdings . . . . . . . . . . . . . . . . . 63
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Page ---- Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 64 Section 11.5. Obligations of Holdings Unconditional . . . . . . . . . . . . . . 65 Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.7. Application by Trustee of Assets Deposited with It. . . . . . . . 65 Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness . . . . 66 Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.10. Right of Trustee to Hold Senior Indebtedness . . . . . . . . . . 67 Section 11.11. Article Eleven Not to Prevent Events of Default . . . . . . . . . 67 Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness . 67 ARTICLE XII SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . 68 Section 12.1. Satisfaction and Discharge of the Indenture . . . . . . . . . . 68 Section 12.2. Conditions to Satisfaction and Discharge of the Indenture . . . 68 ARTICLE XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 13.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 13.3. Communications by Holders with Other Holders . . . . . . . . . . 69 Section 13.4. Certificate and Opinion as to Conditions Precedent . . . . . . . 70 Section 13.5. Statements Required in Certificate or Opinion . . . . . . . . . 70 Section 13.6. Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . 70 Section 13.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 13.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 13.9. No Adverse Interpretation of Other Agreements . . . . . . . . . 71 Section 13.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . 71 Section 13.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 13.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . 71 Section 13.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 71
iv 14 INDENTURE dated as of ________ __, 1995, between FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"), and Norwest Bank Minnesota, N.A., a National Banking Association, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the 13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "Acquired Indebtedness" means Indebtedness of a person or any of its subsidiaries existing at the time such person becomes a Subsidiary or assumed in connection with the acquisition of assets from such person and not incurred by such person in connection with, or in anticipation or contemplation of, such person becoming a Subsidiary or such acquisition. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of this Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of Holdings or any of its Subsidiaries. "Affiliate Obligation" means any contractual obligation (not constituting Indebtedness) between Holdings and any Affiliate, other than obligations relating to the purchase or sale of goods in the ordinary course of business made in compliance with Section 4.11 hereof. "Affiliate Transaction" shall have the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or co-Registrar. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise), made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than Holdings or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, 1 15 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 Holdings or any Subsidiary of $500,000 or less, (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of Holdings or any Subsidiary with a Lien on such assets, which Lien is permitted under this Indenture, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law, or (iv) the proceeds of which are not applied as contemplated in Section 4.15 hereof 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 such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any person, the Board of Directors of such person or any committee of the Board of Directors of such person duly authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such person. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person, including Preferred Stock. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any 2 16 bank described in clause (iii) and (v) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means (I) the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of Holdings such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of Holdings (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of Holdings' Board of Directors or (II) Holdings ceasing to own 100% of the outstanding voting securities entitled to vote on a regular basis to elect a majority of the Board of Directors of the Company (other than in connection with a merger of Holdings and the Company). "Change of Control Date" shall have the meaning provided in Section 4.14. "Change of Control Offer" shall have the meaning provided in Section 4.14. "Change of Control Payment Date" shall have the meaning provided in Section 4.14. "Company" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, Ralphs Supermarkets (to be renamed Ralphs Grocery Company) following the Merger. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received 3 17 by, such person or a subsidiary of such person not subject to any Payment Restriction, provided, however, that with respect to the net income of Holdings, the net income of the Company and its wholly-owned subsidiaries shall not be so excluded, notwithstanding the existence of any such Payment Restriction, so long as the terms of any such consensual Payment Restriction limiting the payment of dividends are not materially more restrictive at the time of determination of Consolidated Net Income than the most restrictive Payment Restriction limiting the payment of dividends in effect on the Issue Date and so long as the Company continues to be a wholly-owned subsidiary of Holdings; and (c)(i) the net income (or loss) of any other person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of such person or any of its subsidiaries and any gains on pension reversions received by such person or any of its subsidiaries, (iv) all gains and losses realized on the purchase or other acquisition by such person or any of its subsidiaries of any securities of such person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance costs and (C) any other restructuring reserves or charges (provided, however, that any cash payments actually made with respect to the liabilities for which such restructuring reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case, incurred by Holdings or any of its Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by Holdings and its Subsidiaries resulting from earthquakes and (ix) with respect to Holdings and its Subsidiaries, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Consulting Agreement" means that certain Consulting Agreement, dated as of the Issue Date, between Holdings, the Company and The Yucaipa Companies, as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amended or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date. "Covenant Defeasance" shall have the meaning provided in Section 8.3. "Credit Agent" means, at any time, the then-acting Administrative Agent as defined in and under the Credit Agreement, which initially shall be ____________________. Holdings shall promptly notify the Trustee of any change in the Credit Agent. "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among the Company as borrower, Holdings as guarantor, certain of the Company's subsidiaries, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise 4 18 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. Holdings shall promptly notify the Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Capital Stock" means, (i) with respect to any person, any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security into which it is convertible, puttable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (a) redeemable or repurchasable solely at the option of such person or (b) issued to employees of Holdings or its Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated; and (ii) with respect to any Subsidiary of Holdings, any Preferred Stock issued by a Subsidiary of Holdings other than Preferred Stock issued to Holdings. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credit) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period (excluding any such items which represent the reversal of any accrual of, or cash 5 19 reserve for, anticipated 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). "EJDC" means The Edward J. DeBartolo Corporation, an Ohio corporation. "Event of Default" shall have the meaning provided in Section 6.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Excluded Assets" means assets of Holdings or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. "Existing Indebtedness" means the following indebtedness of the Company outstanding on the Issue Date after giving effect to the Merger: (a) the ___% Senior Notes due 2004 issued pursuant to an indenture dated as of the Issue Date; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (c) the ___% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of the Issue Date; (d) the 9% Senior Subordinated Notes due 2003 issued pursuant to an indenture dated as of March 30, 1993; (e) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to an indenture dated as of July 29, 1992; (f) the 13.75% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of the Issue Date; and (g) the 13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated as of June 15, 1991. "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of Holdings, any original issue discount on the Senior Discount Debentures, the Senior Discount Notes and the Securities but excluding amortization of debt issuance costs and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period, but excluding the amortization of debt issuance costs) and (ii) dividend requirements on Capital Stock of such person and its consolidated subsidiaries declared or paid in cash or required to be declared or paid in cash during such period and excluding items eliminated in consolidation. For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such person (as evidenced by a Board Resolution) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime 6 20 or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as Holdings may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "Forward Period" shall have the meaning set forth in the definition of Operating Coverage Ratio contained in this Section 1.1. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the date of this Indenture. "Holder" means the person in whose name a Security is registered on the Registrar's books. "Holdings" means the party named as such above, until a successor replaces it in accordance with the terms of this Indenture, and thereafter means such successor. "incur" shall have the meaning set forth in Section 4.12. "Indebtedness" means with respect to any person, without duplication, (i) all liabilities, contingent or otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person or, if there is no such maximum fixed repurchase price, the liquidation preference of such Disqualified Capital Stock, plus accrued but unpaid dividends; (iii) 7 21 reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes hereof, Indebtedness incurred by any person that is a general partnership (other than non-recourse Indebtedness) shall be deemed to have been incurred by the general partners of such partnership pro rata in accordance with their respective interests in the liabilities of such partnership unless any such general partner shall, in the reasonable determination of the Board of Directors of Holdings, be unable to satisfy its pro rata share of the liabilities of the partnership, in which case the pro rata share of any Indebtedness attributable to such partner shall be deemed to be incurred at such time by the remaining general partners on a pro rata basis in accordance with their interests. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or a nationally recognized investment banking firm that is, in the reasonable judgment of the Board of Directors of Holdings, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to Holdings and its Affiliates. "Initial Public Offering" means an underwritten primary public offering of common stock of Holdings at a time when Holdings has not previously issued or sold any equity securities in an underwritten transaction pursuant to a registration statement filed pursuant to the Securities Act. "Initial Public Offering Consummation Date" means the first date on which Holdings or the Company receives any proceeds from an Initial Public Offering. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. 8 22 "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances, or to permit the purchase of Qualified Capital Stock of Holdings or any Subsidiary and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of first issuance of the Securities pursuant to this Indenture. "Legal Defeasance" shall have the meaning provided in Section 8.2. "Legal Holiday" shall have the meaning provided in Section 13.7. "Letter of Credit Obligations" means Indebtedness of Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of Section 4.12, the aggregate principal amount of Indebtedness outstanding at any time with respect thereto, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell which is intended to constitute or create a security interest, mortgage, pledge or lien, any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien hereunder. "Maturity Date" means ________ __, 2007. "Merger" means (i) the merger of the Company into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of RGC 9 23 into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated as of September 14, 1994, by and among Food 4 Less, Inc., a Delaware corporation, Holdings, Food 4 Less Holdings, Inc., a California corporation, Ralphs Supermarkets, the Company and the stockholders of Ralphs Supermarkets, as such agreement is in effect on the Issue Date. "Net Cash Proceeds" means Net Proceeds of (i) the sale of Qualified Capital Stock of Holdings or (ii) any Asset Sale, in each case, in the form of cash or Cash Equivalents. "Net Proceeds" means (a) in the case of any Asset Sale or any issuance and sale by any person of Qualified Capital Stock, the aggregate net proceeds received by such person after payment of expenses, taxes, commissions and the like incurred in connection therewith, (and, in the case of any Asset Sale, net of the amount of cash applied to repay Indebtedness secured by the asset involved in such Asset Sale) whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt as determined with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution) and (b) in the case of any conversion or exchange of any outstanding Indebtedness or Disqualified Capital Stock of such person for or into shares of Qualified Capital Stock of Holdings, the sum of (i) the fair market value of the proceeds received by Holdings in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the holder to Holdings upon such conversion or exchange. "Officer" means, with respect to any person, the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Controller, or the Secretary of such person. "Officers' Certificate" means, with respect to any person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such person and otherwise complying with the requirements of Sections 13.4 and 13.5. "Old RGC Notes" means the 9% Senior Subordinated Notes due 2003 and the 10-1/4% Senior Subordinated Notes due 2002 of Ralphs Grocery Company. "Operating Coverage Ratio" means with respect to any person, the ratio of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT" for the Pro Forma Period shall be calculated, in the case of Holdings, after giving 10 24 effect on a pro forma basis to the Merger as if it had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by this Indenture, and (c) any sales or other dispositions of assets (other than sales of inventory in the ordinary course of business) occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Fixed Charges" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If such person or any of its subsidiaries directly or indirectly guarantees any Indebtedness of a third person, the Operating Coverage Ratio shall give effect to the incurrence of such Indebtedness as if such person or subsidiary had directly incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the legal counsel may be an employee of or counsel to Holdings or the Trustee. "Other Obligations" has the meaning set forth in Section 11.1 hereof. "Pari Passu Indebtedness" means, with respect to Holdings, Indebtedness that ranks pari passu in right of payment to the Securities (whether or not secured by any Lien). "Paying Agent" shall have the meaning provided in Section 2.3, except that, for the purposes of Articles Three and Eight and Section 4.14, the Paying Agent shall not be Holdings or any Subsidiary. "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. 11 25 "Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The Yucaipa Companies or any entity controlled thereby or any of the partners thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P., or any entity controlled thereby or any of the partners thereof, (iii) an employee benefit plan of Holdings or any Subsidiary, or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of Holdings or any Subsidiary or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its subsidiaries pursuant to (i) the Term Loans (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $750 million or such lesser amount as may be actually funded under the Term Loans on or within 91 days following the Issue Date (with any such amounts funded after the Issue Date to be used to finance the repurchase of up to $224.5 million aggregate principal amount of Old RGC Notes pursuant to the "change of control purchase offer" provision set forth in Section 1014 of the indentures pursuant to which the Old RGC Notes were issued, plus related fees and expenses), less the aggregate amount of all principal repayments thereunder pursuant to and in accordance with the provisions of Section 4.15 subsequent to the Issue Date and (ii) the revolving credit facility under the Credit Agreement (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the provisions of Section 4.15; (b) any guarantee by Holdings of the Indebtedness referred to in the foregoing clause (a); (c) Indebtedness of Holdings or a Subsidiary owed to and held by Holdings or a Subsidiary; (d) Indebtedness incurred by Holdings or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (d) does not exceed, in the aggregate, 3% of net sales of Holdings and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the first anniversary of the Merger) and (ii) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon this clause (d) does not exceed, in the aggregate, 3% of the aggregate net sales of Holdings and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the third anniversary of the Merger); (e) Indebtedness incurred by Holdings or any Subsidiary in connection with capital expenditures in an aggregate principal amount not exceeding $150 million, provided that such capital expenditures relate solely to the integration of the operations of Ralphs Supermarkets, the Company, and their respective subsidiaries as described in that certain Registration Statement of Holdings dated ______, 1995; (f) Indebtedness of Holdings or any Subsidiary incurred under Foreign Exchange Agreements and Interest Swap Obligations; (g) guarantees incurred in the ordinary course of business, by Holdings or a Subsidiary, of Indebtedness of any other person in aggregate not to exceed $25 million at any time outstanding; (h) guarantees by Holdings or a Subsidiary of Indebtedness incurred by a wholly-owned Subsidiary so long as the incurrence of such Indebtedness incurred by such wholly-owned 12 26 Subsidiary is permitted under the terms of this Indenture; (i) Refinancing Indebtedness; (j) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (k) Existing Indebtedness and other Indebtedness outstanding on the Issue Date (after giving effect to the Merger); (l) Indebtedness arising from guarantees of Indebtedness of Holdings or any Subsidiary or other agreements of Holdings or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by Holdings and its Subsidiaries in connection with such disposition; (m) obligations in respect of performance bonds and completion guarantees provided by Holdings or any Subsidiary in the ordinary course of business; (n) Indebtedness of Holdings with respect to the Senior Discount Notes, if any, the Senior Discount Debentures (including the accretion of the Senior Discount Notes and the Senior Discount Debentures up to their respective stated principal amount at maturity) and the Securities (including the issuance of Secondary Securities in lieu of cash interest payments pursuant to the terms of this Indenture); and (o) additional Indebtedness of Holdings or any Subsidiary in an amount not to exceed $200 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with Sections 4.3 and 4.11, (vi) Investments in any Subsidiary or by any Subsidiary in Holdings or any other Subsidiary in other Subsidiaries, and (vii) additional Investments in an aggregate amount not exceeding $5 million. "Permitted Payments" means any (i) payment by Holdings or any Subsidiary to The Yucaipa Companies or the principals or any Affiliates thereof for consulting, management, investment banking or similar services, or for reimbursement of losses, costs and expenses pursuant to the Consulting Agreement, (ii) payment by Holdings or any Subsidiary to Apollo Advisors, L.P. or the principals or any Affiliates thereof in an aggregate amount not to exceed $5 million as a commitment fee in connection with the purchase of equity securities of Holdings on the Issue Date, and (iii) payment by Holdings or any Subsidiary, (a) in connection with repurchases of outstanding shares of Holdings' common stock following the death, disability or termination of employment of management stockholders, and (b) of amounts required to be paid by Holdings or any Subsidiaries to participants in employee benefit plans upon any termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period). "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or bene- 13 27 ficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of Holdings, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person, and (v) any investment fund or investment entity that is a subsidiary of such person or a permitted transferee of such person. "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of such person's preferred or preference stock, whether outstanding on the date hereof or issued after the Issue Date, and including, without limitation, all classes and series of preferred or preference stock of such person. "principal" of any Indebtedness (including the Securities) means the principal of such Indebtedness plus the premium, if any, on such Indebtedness. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as interpreted by Holdings' chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Pro Forma Period" shall have the meaning set forth in the definition of Operating Coverage Ratio contained in this Section 1.1. "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock. "Ralphs Supermarkets" means Ralphs Supermarkets, Inc., a Delaware corporation, until a successor replaces it and thereafter means such successor. "Record Date" means the Record Dates specified in the Securities; provided that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. 14 28 "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Securities. "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Securities. "Reference Period" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.1. "Refinancing Indebtedness" means, with respect to any person, Indebtedness of such person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to clauses (b), (d), (e), (i), (k) and (n) of the definition thereof) incurred in accordance with this Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Registrar" shall have the meaning provided in Section 2.3. "Registration Rights Agreement" means the registration rights agreement dated as of the Issue Date by and among Holdings, the Company and the stockholders of Ralphs Supermarkets with respect to the Securities. "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by Holdings or any Subsidiary as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of Holdings and any Subsidiary as it is conducted as of the Issue 15 29 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 Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Indebtedness. "Restricted Debt Prepayment" means the purchase, redemption, acquisition or retirement for value by Holdings, prior to the scheduled maturity or prior to any scheduled repayment of principal or any sinking fund payment in respect of any Subordinated Indebtedness. "Restricted Payment" means any (i) Stock Payment or (ii) Investment (other than a Permitted Investment) or (iii) Restricted Debt Prepayment. "RGC" means Ralphs Grocery Company, a Delaware corporation, until a successor replaces it and thereafter means such successor. "SEC" means the Securities and Exchange Commission. "Secondary Securities" has the meaning set forth in Section 2.2. "Securities" means the 13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of Holdings, including any Secondary Securities issued in respect thereof, in each case, issued pursuant to this Indenture, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under this Indenture. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Senior Discount Debentures" means the 13-5/8% Senior Discount Debentures due 2005 of Holdings, issued pursuant to the Senior Discount Debenture Indenture, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under this Indenture. "Senior Discount Debenture Indenture" means the indenture between Holdings and United States Trust Company of New York, as trustee, dated as of the Issue Date, pursuant to which the Senior Discount Debentures were issued, as amended or supplemented from time to time in accordance with the terms thereof. "Senior Discount Notes" means the 15.25% Senior Discount Notes due 2004 of Food 4 Less Holdings, Inc., issued pursuant to the Senior Discount Note Indenture, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under this Indenture. 16 30 "Senior Discount Note Indenture" means the indenture between Holdings and United States Trust Company of New York, as trustee, dated as of December 15, 1992, pursuant to which the Senior Discount Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "Senior Indebtedness" means the principal of, premium, if any, and interest on (such Senior Indebtedness being deemed to include for all purposes of Article XI of this Indenture the amount required to fully secure in cash undrawn Letter of Credit Obligations under the Credit Agreement and such interest on Senior Indebtedness being deemed to include for all purposes of Article XI interest accruing after the filing of a petition initiating any proceeding pursuant to any Bankruptcy Law in accordance with and at the rate (including any rate applicable upon any default, to the extent lawful) specified in any document evidencing the Senior Indebtedness, whether or not the claim for such interest is allowed as a claim after such filing in any proceeding under such Bankruptcy Law) any Indebtedness of Holdings (and, in the case of the Credit Agreement, all obligations of Holdings for fees, expenses, indemnities and other amounts payable thereunder or in connection therewith), whether outstanding on the Issue Date or thereafter created, incurred, assumed or guaranteed or in effect guaranteed by Holdings (including, without limitation, Indebtedness under the Credit Agreement), unless, in the case of any particular Indebtedness, the instrument creating or evidencing such Indebtedness expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of Holdings from time to time owed or guaranteed by Holdings with respect to the Credit Agreement, the Senior Discount Debentures and the Senior Discount Notes, if any. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) any Pari Passu Indebtedness or any Subordinated Indebtedness, (ii) any Indebtedness constituting Disqualified Capital Stock, (iii) Indebtedness of Holdings to any Subsidiary, (iv) that portion of any Indebtedness which is incurred in violation of Section 4.12 of this Indenture, (v) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of Holdings or of any Subsidiary (including, without limitation, amounts owed for compensation), (vi) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, and (vii) any liability for federal, state, local or other taxes owed or owing by Holdings. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each Subsidiary that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the date hereof) or (b) material to the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. "Stock Payment" means, with respect to any person, (a) the declaration or payment by such person, either in cash or in property, of any dividend on (except, in the case of Holdings, dividends payable solely in Qualified Capital Stock of Holdings), or the making by 17 31 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 Holdings) or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), other than, in the case of Holdings, through the issuance in exchange therefor solely of Qualified Capital Stock of Holdings; provided, however, that in the case of a Subsidiary, the term "Stock Payment" shall not include any such payment with respect to its Capital Stock or warrants, rights or options to purchase or acquire shares of any class of its Capital Stock that are owned solely by Holdings or a wholly-owned Subsidiary. "Subordinated Indebtedness" means Indebtedness of Holdings that is subordinated in right of payment to the Securities. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than 50% of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of Holdings. "Term Loans" means the term loan facility under the Credit Agreement and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings outstanding under such facility or under any prior refunding, replacement or refinancing thereof (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership, or any successor thereto which is an Affiliate of Ronald W. Burkle or his Permitted Transferees and which has been established for the sole purpose of changing the form of The Yucaipa Companies from that of a partnership to that of a limited liability company or any other form of entity which is not materially adverse to the rights of the Holders under this Indenture. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as amended, as in effect on the date on which this Indenture is qualified under the TIA, except as otherwise provided in Section 9.3. 18 32 "Transaction Date" shall have the meaning provided in the definition of "Operating Coverage Ratio" contained in this Section 1.1. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "U.S. Government Obligations" shall have the meaning provided in Section 8.4. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "wholly-owned Subsidiary" means any Subsidiary all of the shares of Capital Stock of which (other than permitted Preferred Stock and directors' qualifying shares) are at the time directly or indirectly owned by Holdings. "Yearly Period" means each fiscal year of Holdings; provided that the first Yearly Period shall begin on the Issue Date and shall end on January 28, 1996. Section 1.2. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. 19 33 "obligor" on the indenture securities means Holdings or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. Section 1.3. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE II THE SECURITIES Section 2.1. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage or as required by the Registration Rights Agreement. Holdings and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, Holdings and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. 20 34 Section 2.2. Execution and Authentication. An Officer or an Assistant Secretary, shall sign (either of whom shall, in each case, have been duly authorized by all requisite corporate actions) the Securities for Holdings by manual or facsimile signature. If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities, excluding Secondary Securities, for original issue in the aggregate principal amount of up to $131,500,000 upon a written order of Holdings in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $131,500,000, except for any Securities that may be issued pursuant to the immediately following paragraph and except as provided in Section 2.7 and 2.8. Upon the written order of Holdings in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of Holdings. Holdings may, on each Interest Payment Date prior to (and including) [the Interest Payment Date five years after the Issue Date], at its option and in its sole discretion, pay interest in additional Securities ("Secondary Securities") in lieu of the payment in whole or in part of interest in cash on the Securities as provided in paragraph 1 of the Securities. Holdings shall give written notice to the Trustee of the amount of interest to be paid in Secondary Securities not less than five Business Days prior to the relevant Interest Payment Date, and the Trustee or an authenticating agent (upon written order of Holdings signed by an Officer of Holdings given not less than five nor more than 45 days prior to such Interest Payment Date) shall authenticate for original issue (pro rata to each Holder of any Securities of such record date) Secondary Securities in an aggregate principal amount equal to the amount of cash interest not paid on such Interest Payment Date. Except as set forth in the following paragraph each issuance of Secondary Securities in lieu of the payment of interest in cash on the Securities shall be made pro rata with respect to the outstanding Securities, and Holdings shall have the right to aggregate amounts of interest payable in the form of Secondary Securities to a Holder of outstanding Securities and issue to such Holder a single Secondary Security in payment thereof. Any Secondary Securities may be denominated a separate series if Holdings deems it necessary to do so in order to comply with any law or other applicable regulation or requirement, with appropriate distinguishing designations. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof except that Secondary Securities or Securities issued upon registration of transfer of such Secondary Securities may be in 21 35 denominations of other than $1,000; provided that Holdings may at its option pay cash in lieu of issuing Secondary Securities in any denominations of less than $1,000. The Trustee may appoint an authenticating agent reasonably acceptable to Holdings to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holdings and Affiliates of Holdings. Section 2.3. Registrar and Paying Agent. Holdings shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon Holdings in respect of the Securities and this Indenture may be served. Holdings may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve Holdings of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. Holdings may act as its own Registrar or Paying Agent except that for the purposes of Articles Three and Eight and Sections 4.4 and 4.14, neither Holdings nor any Subsidiary shall act as Paying Agent. The Registrar shall keep a register of the Securities and of their transfer and exchange. Holdings, upon notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional paying agent. Holdings initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. Holdings shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. Holdings shall notify the Trustee, in advance, of the name and address of any such Agent. If Holdings fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. Section 2.4. Paying Agent To Hold Assets in Trust. Holdings shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets and/or Secondary Securities held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by Holdings or any other obligor on the Securities), and shall notify the Trustee of any Default by Holdings (or any other obligor on the Securities) in making any such payment. If Holdings or a Subsidiary acts as Paying Agent, it shall segregate such assets and/or Secondary Securities and hold them as a separate trust fund. Holdings at any time may require a Paying Agent to distribute all assets and/or Secondary Securities held by it to the Trustee and account for any assets disbursed and 22 36 the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets and/or Secondary Securities held by it to the Trustee and to account for any assets so distributed. Upon distribution to the Trustee of all assets that shall have been delivered by Holdings to the Paying Agent, the Paying Agent shall have no further liability for such assets and/or Secondary Securities. Section 2.5. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, Holdings shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. Section 2.6. Transfer and Exchange. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of the Registrar are met. The Registrar need not transfer or exchange any Securities selected for redemption. Also, it need not transfer or exchange any Securities for a period of 30 days before a selection of Securities to be redeemed. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall make the exchange as requested if the requirements of the Registrar are met. Holdings shall cooperate with the Registrar in meeting its requirements. To permit transfers, registration and exchanges, the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any transfer, registration or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or 9.5. Section 2.7. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, Holdings shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or Holdings, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both Holdings and the Trustee, to protect Holdings, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. Holdings may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security shall constitute an additional obligation of Holdings. 23 37 Section 2.8. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee, including the Secondary Securities, except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because Holdings or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.7 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.7. If on a Redemption Date or the Maturity Date the Paying Agent (other than Holdings or any Subsidiary) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. Section 2.9. Treasury Securities. In determining whether the Holders of the required aggregate principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by Holdings or any of its Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows or has reason to know are so owned shall be disregarded. Notwithstanding the foregoing and except as otherwise provided by the TIA, a majority of Securities not owned by Holdings or any of its Affiliates shall be sufficient to approve any such direction, waiver or consent. Section 2.10. Temporary Securities. Until definitive Securities are ready for delivery, Holdings may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that Holdings considers appropriate for temporary Securities. Without unreasonable delay, Holdings shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Section 2.11. Cancellation. Holdings at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than Holdings or any Subsidiary), and no one else, shall cancel and, at the written direction of Holdings, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7, Holdings may not issue new 24 38 Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If Holdings or any Subsidiary shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. Section 2.12. Defaulted Interest. If Holdings defaults in a payment of interest on the Securities, it shall, unless the Trustee fixes another record date pursuant to Section 6.10, pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by Holdings for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, Holdings shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Section 2.13. CUSIP Number. Holdings in issuing the Securities may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. ARTICLE III REDEMPTION Section 3.1. Notices to Trustee. If Holdings elects to redeem Securities pursuant to Paragraph 5 of the Securities it shall notify the Trustee of the Redemption Date and aggregate principal amount of the Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders (at Holdings' expense) at least 30 days (unless a shorter notice shall be satisfactory to the Trustee) but not more than 60 days before the Redemption Date. Any notice given pursuant to this Section 3.1 may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. Section 3.2. Selection of Securities To Be Redeemed. If fewer than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata, by lot or by such other method as the Trustee considers to be fair and appropriate and in such manner as complies with applicable legal and stock exchange 25 39 requirements, if any; provided, however, that any redemption pursuant to paragraph 5(b) of the Securities shall be made on a pro rata basis. Securities in denominations of less than $1,000 shall be redeemed first. Thereafter the Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify Holdings in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the aggregate principal amount thereof to be redeemed. Securities in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.3. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, Holdings shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed at such Holder's registered address, with a copy to the Trustee. At Holdings' request, the Trustee shall give the notice of redemption in Holdings' name and at Holdings' expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) that, unless Holdings defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the aggregate principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof to be redeemed), as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. 26 40 Section 3.4. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price. Section 3.5. Deposit of Redemption Price. On or before the Redemption Date, Holdings shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date (other than Securities or portions thereof called for redemption on that date which have been delivered by Holdings to the Trustee for cancellation). The Paying Agent shall promptly return to Holdings any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of Holdings, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If Holdings complies with the preceding paragraph, then, unless Holdings defaults in the payment of such Redemption Price, interest on the Securities to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. If a Security is redeemed on or after a Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Security was registered at the close of business on such Record Date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of Holdings to comply with the first paragraph of this Section 3.5, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.1 hereof. Section 3.6. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV COVENANTS Section 4.1. Payment of Securities. Holdings shall pay the principal amount of, premium, if any, and interest on, as the case may be, the Securities on the dates and in the manner provided in the Securities. An installment shall be considered paid on the date it is due if the Trustee or Paying Agent (other 27 41 than Holdings or a Subsidiary) holds on that date U.S. Legal Tender and/or, to the extent permitted by Section 2.2, Secondary Securities designated for and sufficient to pay the installment. Holdings shall pay interest on overdue principal (including post-petition interest in any proceeding under any Bankruptcy Law, to the extent allowable as a claim in any such proceeding) at the same rate borne by the Securities and it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law, to the extent allowable as a claim in any such proceeding) on overdue installments of interest (without regard to any applicable grace period) at the same rate borne by the Securities, to the extent lawful. Section 4.2. Maintenance of Office or Agency. Holdings shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.3. Holdings shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time Holdings shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.2. Section 4.3. Limitation on Restricted Payments. Holdings shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) Holdings or such Subsidiary could not incur at least $1 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12, or (c) the aggregate amount expended for all Restricted Payments, including such 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 Holdings, which determination shall be evidenced by a Board Resolution), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income is a loss, minus 100% of such loss) of Holdings earned subsequent to the Issue Date and on or prior to the date the proposed Restricted Payment occurs (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by Holdings from any person (other than a Subsidiary) from the issuance and sale (including upon exchange or conversion for other securities of Holdings) subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from Holdings or any Subsidiary, until and to the extent such borrowing is repaid) plus (iii) 100% of the aggregate net cash proceeds received by Holdings as capital contributions to Holdings after the Issue Date, plus (iv) $25,000,000. Notwithstanding the foregoing, if no Default or Event of Default shall have occurred and be continuing as a consequence thereof, the provisions set forth in the immediately 28 42 preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of Holdings or the repurchase, redemption, or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of Holdings, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of Holdings with an Average Life 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 (x) the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (iii) of the definition of "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and (y) no amounts paid pursuant to clause (3) above or pursuant to clause (i) or (ii) of the definition of "Permitted Payments" shall be so counted. Prior to making any Restricted Payment under the first paragraph of this Section 4.3, Holdings shall deliver to the Trustee an Officers' Certificate setting forth the computation by which the amount available for Restricted Payments pursuant to such paragraph was determined. The Trustee shall have no duty or responsibility to determine the accuracy or correctness of this computation and shall be fully protected in relying on such Officers' Certificate. Section 4.4. Corporate Existence. Except as otherwise permitted by Article Five, Holdings shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each such Significant Subsidiary and the rights (charter and statutory) and franchises of Holdings and each such Significant Subsidiary; provided, however, that Holdings shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Significant Subsidiaries, any such existence, right or franchise, if the Board of Directors of Holdings or such Significant Subsidiary, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of Holdings or any such Significant Subsidiary. Section 4.5. Payment of Taxes and Other Claims. Holdings shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that Holdings shall not be required to pay or 29 43 discharge or cause to be paid or discharged any such tax, assessment, charge or claim if either (a) the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and an adequate reserve has been established therefor to the extent required by GAAP or (b) the failure to make such payment or effect such discharge (together with all other such failures) would not have a material adverse effect on the financial condition or results or operations of Holdings and its Subsidiaries taken as a whole. Section 4.6. Maintenance of Properties and Insurance. (a) Holdings shall cause all properties used or useful to the conduct of its business or the business of any Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times unless the failure to so maintain such properties (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole; provided, however, that nothing in this Section 4.6 shall prevent Holdings or any Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is either (i) in the ordinary course of business, (ii) in the good faith judgment of the Board of Directors of Holdings or the Subsidiary concerned, or of the senior officers of Holdings or such Subsidiary, as the case may be, desirable in the conduct of the business of Holdings or such Subsidiary, as the case may be, or (iii) is otherwise permitted by this Indenture. (b) Holdings shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of Holdings, are adequate and appropriate for the conduct of the business of Holdings and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of Holdings or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of Holdings, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries, taken as a whole. Section 4.7. Compliance Certificate; Notice of Default. (a) Holdings shall deliver to the Trustee within 120 days after the end of Holdings' fiscal year an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his knowledge Holdings during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no Default or Event 30 44 of Default occurred during such year or, if such signers do know of such a Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should Holdings elect to change the manner in which it fixes its fiscal year end. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, Holdings shall deliver to the Trustee within 120 days after the end of each fiscal year a written statement by Holdings' independent certified public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof. (c) Holdings shall, so long as the Securities are outstanding, deliver to the Trustee, within five Business Days after any officer becomes aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action Holdings is taking or proposes to take with respect thereto. Section 4.8. Compliance with Laws. Holdings shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. Section 4.9. SEC Reports and Other Information. (a) To the extent permitted by applicable law or regulation, whether or not Holdings is subject to the requirements of Section 13 or 15(d) of the Exchange Act, Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. Holdings shall file with the Trustee, within 5 days after it files the same with the SEC, copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to this Section 4.9. Holdings shall also comply with the other provisions of TIA Section 314(a). If Holdings is not permitted by applicable law or regulations to file the aforementioned reports, Holdings (at its own expense) shall file with the Trustee and mail, or cause the Trustee to mail, to Holders at their addresses appearing in the register of Securities maintained by the Registrar at the time of such mailing within 5 days after it would have been required to file such information with the SEC, all information and financial statements, including any notes thereto and with respect to annual reports, an auditors' report 31 45 by an accounting firm of established national reputation, and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," comparable to the disclosure that Holdings would have been required to include in annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if Holdings was subject to the requirements of such Section 13 or 15(d) of the Exchange Act. (b) At any time when Holdings is not permitted by applicable law or regulations to file the aforementioned reports, upon the request of a Holder of Securities, Holdings will promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of such Securities designated by such Holder, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act. Section 4.10. Waiver of Stay, Extension or Usury Laws. Holdings covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive Holdings from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) Holdings hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.11. Limitation on Transactions with Affiliates. (a) Neither Holdings nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities (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 Holdings or any Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under Section 4.11(b) and (y) Affiliate Transactions in the ordinary course of business, that are fair to Holdings or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided, that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such transaction or series of transactions complies with clause (y) above (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, Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such 32 46 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 Holdings or the Subsidiary, as the case may be, or, in the absence of any such approval by the disinterested members of the Board of Directors of Holdings or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of such Affiliate Transaction are fair to Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and that such Independent Financial Advisor has provided written confirmation of such determination to the Board of Directors and (C) with respect to Affiliates Transactions involving aggregate payments in excess of $15 million, Holdings or such Subsidiary, as the case may be, shall have delivered to the Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. (b) The provisions of Section 4.11(a) shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with the provisions of Section 4.3, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of Holdings or any Subsidiary, as determined by the Board of Directors of Holdings or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among Holdings and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture, (v) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders in any material respect, (vi) the existence of, or the performance by Holdings or any of its Subsidiaries of its obligations under the terms of, any stockholder agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by Holdings or any of its Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders in any material respect, (vii) transactions permitted by, and complying with, the provisions of Section 5.1, and (viii) 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 Holdings or any Subsidiary, in the reasonable determination of the Board of Directors or senior management of Holdings, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. 33 47 Section 4.12. Limitation on Incurrences of Additional Indebtedness.1/ Holdings will not, and will not permit any Subsidiary, directly or indirectly, to incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the Securities or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of any such Indebtedness, (i) Holdings may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of Holdings would be greater than 2.0 to 1.0 and (ii) the Company or any subsidiary of the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of the Company would be greater than 2.0 to 1.0. Section 4.13. Limitation on Liens. Holdings will not create, incur, assume or suffer to exist any Lien of any kind securing any Pari Passu Indebtedness, any Subordinated Indebtedness or any Affiliate Obligation upon any property or assets of Holdings owned on the Issue Date or acquired after the Issue Date, or any income or profits therefrom, unless the Securities are secured equally and ratably with (or prior to in the case of Subordinated Indebtedness) to the obligation or liability secured by such Lien, and except for any Lien securing Acquired Indebtedness created prior to the incurrence of such Indebtedness by Holdings, provided that any such Lien only extends to the assets that were subject to such Lien securing such Acquired Indebtedness prior to the related acquisition by Holdings. Section 4.14. Limitation on Change of Control. (a) Upon the occurrence of a Change of Control (the "Change of Control Date"), each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to the offer described in paragraph (b), below (the "Change of Control Offer"), at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Prior to the mailing of the notice to Holders provided for in paragraph (b) below, but in any event within 30 days following the Change of Control Date, Holdings shall cause the Company to either (a) repay in full and terminate all commitments under Indebtedness under the Credit Agreement to the extent the terms thereof require repayment upon a Change of Control (or offer to repay in full and terminate all commitments under all such Indebtedness under the Credit Agreement and repay the Indebtedness owed to each lender which has accepted such offer), or (b) obtain the requisite consents under the Credit Agreement, the terms of which require repayment upon a Change of Control, to permit the repurchase of the Securities as provided for in this Section 4.14. Holdings shall first comply with the covenant in the immediately preceding sentence before Holdings shall be required to repurchase Securities ____________________ 1. This Section 4.12 will conform to the covenant in the new public securities, as appropriately modified to be applicable to Holdings and its subsidiaries. 34 48 pursuant to this Section 4.14, and any failure to so comply shall constitute an Event of Default under this Indenture. Within 10 days after any Change of Control Date requiring Holdings to make a Change of Control Offer pursuant to this Section 4.14, Holdings shall so notify the Trustee. (b) The Change of Control Offer shall be made to all Holders and the notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. Within 30 days following any Change of Control Date, Holdings shall send, by first class mail, a notice to each Holder, with copies to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Securities tendered will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the aggregate principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Holder shall tender Securities, and each Security purchased and each such new Security issued by Holdings shall be, in a principal amount of $1,000 or integral multiples thereof (except for Secondary Securities that were issued in denominations other than $1,000); and 35 49 (8) the circumstances and relevant facts regarding such Change of Control, including information available to Holdings concerning the Person or Persons acquiring control and such historical or pro forma financial information as Holdings reasonably deems appropriate under the circumstances. (c) On or before the Change of Control Payment Date, Holdings shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by Holdings. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price; provided that each such new Security shall be in the principal amount of $1,000 or integral multiples thereof. Holdings will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 4.14, the Trustee shall act as the Paying Agent. (d) Holdings, to the extent applicable and if required by law, will comply with Rule 14e-1 under the Exchange Act and any other applicable provisions of the federal securities laws in connection with a Change of Control Offer. Section 4.15. Limitation on Asset Sales. (a) Neither Holdings nor any of its Subsidiaries will consummate an Asset Sale, unless (a) Holdings or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold and (b) upon consummation of an Asset Sale, Holdings or the applicable Subsidiary will, within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (1) a Related Business Investment (2) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, or (3) an investment in properties and assets that will be used in the business of Holdings and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto; (ii) apply or cause to be applied such Net Cash Proceeds to the repayment of Senior Indebtedness or Pari Passu Indebtedness of Holdings or any Indebtedness of any Subsidiary; (iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of Securities tendered to Holdings for purchase at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase pursuant to an offer to purchase made by Holdings as set forth below (a "Net Proceeds Offer"), provided, however, that if at any time any noncash consideration received by Holdings or any Subsidiary in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such cash shall constitute Net Cash Proceeds for purposes of this Section 4.15 and shall be applied in accordance with clause (b) above within 365 days of the receipt of such cash; and provided further, however, that if at any time any security deposits or other amounts used to secure Letter of Credit Obligations pursuant to clause (b) (iii) above are returned to Holdings or any Subsidiary, then such security deposits or other amounts shall constitute Net Cash Proceeds for 36 50 purposes of this Section 4.15 and shall be applied in accordance with clause (b) above within 365 days of the receipt of such security deposits or other amounts. A Net Proceeds Offer as a result of an Asset Sale made by the Company or one of its subsidiaries shall not be required to be in excess of the Net Cash Proceeds of such Asset Sale less the Net Cash Proceeds actually applied in accordance with clauses (b)(i), (ii) or (iii) above; provided, however, that Holdings shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, the proceeds of which are derived from the sale and substantially concurrent lease-back of one or more supermarkets and/or related assets or equipment which are acquired or constructed by Holdings or a Subsidiary subsequent to the Issue Date, provided that any 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. (b) Notice of a Net Proceeds Offer pursuant to this Section 4.15 shall be mailed, by first class mail, by Holdings not less than 305 days nor more than 335 days after the relevant Asset Sale to all Holders at their last registered addresses, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.15 and that all Securities tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Securities tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, Holdings shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by Holdings so that only Securities in denominations of $1,000 or multiples thereof shall be purchased, except for Secondary Securities that were issued in denominations other than $1,000); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Proceeds Purchase Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Proceeds Purchase Date; 37 51 (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; and (7) that Holders whose Securities were purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. On or before the Proceeds Purchase Date, Holdings shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(l) 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 Holdings. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price. Holdings will publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. (c) Holdings will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities pursuant to a Net Proceeds Offer. Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer shall be returned by the Trustee to Holdings. Section 4.16. Limitation on Senior Subordinated Indebtedness. Holdings will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that by its terms is subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the Securities. Section 4.17. Limitation on Preferred Stock of Subsidiaries. Holdings will not permit any of its Subsidiaries to issue any Preferred Stock (other than to Holdings or a wholly-owned Subsidiary), or permit any person (other than Holdings or a wholly-owned Subsidiary) to own or hold an interest in any Preferred Stock of any such Subsidiary, unless such Subsidiary would be entitled to incur Indebtedness in accordance with the provisions of Section 4.12 in the aggregate principal amount equal to the aggregate liquidation value of such Preferred Stock. 38 52 Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. Holdings shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Credit Agreement as in effect on the Issue Date, as any such Payment Restriction may apply to any present or future Subsidiary, (ii) this Indenture, the Senior Discount Note Indenture, the Senior Discount Debenture Indenture, the indentures with respect to Existing Indebtedness and any other agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to Section 4.12), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.12 and 4.13 that limit the right of the debtor to dispose of the assets securing such Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole, than those provided for in such Indebtedness being refinanced, refunded, extended or renewed, and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 4.12; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect of the Issue Date. ARTICLE V SUCCESSOR CORPORATION Section 5.1. When Holdings May Merge, Etc. (a) Holdings, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another person or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in either case: (1) either Holdings shall be the continuing person, or the person (if other than Holdings) formed by such consolidation or into which Holdings is merged or to which 39 53 all or substantially all of the properties and assets of Holdings as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (Holdings or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of Holdings under the Securities and this Indenture; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of Holdings immediately preceding the transaction and (B) the Surviving Person could incur at least $1 of additional Indebtedness other than Permitted Indebtedness pursuant to Section 4.12; and (3) immediately before and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of Holdings shall be deemed to be the transfer of all or substantially all of the properties and assets of Holdings. Section 5.2. Successor Corporation Substituted. Upon any consolidation or merger or any transfer of all or substantially all of the assets of Holdings or any adoption of a Plan of Liquidation by Holdings in accordance with Section 5.1, the surviving person formed by such consolidation or into which Holdings is merged or to which such transfer is made, (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, Holdings under this Indenture with the same effect as if such surviving person had been named as Holdings herein; provided, however, that solely for purposes of computing amounts described in subclause (c) of Section 4.3, any such surviving person shall only be deemed to have succeeded to and be substituted for Holdings with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. When a successor corporation assumes all of the obligations of Holdings hereunder and under the Securities and agrees to be bound hereby and thereby, the predecessor shall be released from such obligations. 40 54 ARTICLE VI DEFAULT AND REMEDIES Section 6.1. Events of Default. An "Event of Default" occurs if: (1) Holdings defaults in the payment of interest on the Securities when the same becomes due and payable and the default continues for a period of 30 days; (2) Holdings defaults in the payment of the principal of the Securities when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise (including the failure to repurchase Securities tendered pursuant to the requirements set forth in Sections 4.14 and 4.15), whether or not such payment shall be prohibited by the provisions of Article Eleven hereof; (3) Holdings fails to comply with any of its other agreements or covenants in, or provisions of, the Securities or this Indenture and the default continues for the period and after the notice specified below; (4) there shall be a default under any bond, debenture, or other evidence of Indebtedness of Holdings or of any Significant Subsidiary or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any such Indebtedness, whether such Indebtedness now exists or shall hereafter be created, if both (A) such default either (i) results from the failure to pay such Indebtedness at its stated final maturity (that is, the date of the last principal installment of any installment Indebtedness under the instrument or agreement pursuant to or under which such Indebtedness was created or is evidenced) or (ii) relates to an obligation (including any obligation to pay interest, to purchase such Indebtedness or to pay the principal of such Indebtedness, other than the obligation to pay any principal of such Indebtedness at its stated final maturity) and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated final maturity) and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $25 million or more at any one time outstanding; (5) Holdings or any Significant Subsidiary (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; 41 55 (6) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of Holdings or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of Holdings or any Significant Subsidiary, (B) appoint a Custodian of Holdings or any Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (7) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of Holdings and its Subsidiaries; or (8) any final judgment or order for payment of money in excess of $25 million shall be entered against Holdings or any Significant Subsidiary by a court of competent jurisdiction and shall remain undischarged for a period of 60 days after such judgment becomes final and nonappealable. A Default under clause (3) above (other than in the case of any Defaults resulting from any Default under Section 4.3, 4.14 or 5.1, which Defaults shall be Events of Default with the notice specified in this paragraph but without the passage of time specified in this paragraph) is not an Event of Default until the Trustee notifies Holdings, or the Holders of at least 25% in aggregate principal amount of the outstanding Securities notify Holdings and the Trustee, of the Default, and Holdings does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in aggregate principal amount of the Securities then outstanding. When a Default is cured, it ceases. Section 6.2. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 6.1(5) or (6) with respect to Holdings or any Significant Subsidiary) occurs and is continuing, the Trustee may, by notice to Holdings (and, if any Indebtedness is outstanding under the Credit Agreement or the Credit Agreement is otherwise in effect, to the Credit Agent), or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by written notice to Holdings and the Trustee, and the Trustee shall (with notice to the Credit Agent if any Indebtedness is outstanding under the Credit Agreement or the Credit Agreement is otherwise in effect), upon the request of such Holders, declare the aggregate principal amount of the Securities outstanding, together with accrued but unpaid interest thereon to the date of payment, to be due and payable and, upon any such declaration, the same shall become and be due and payable; provided, that so long as the Credit Agreement shall be in force and effect, if any such Event of Default shall have occurred and be continuing, any such acceleration shall not be effective until the earlier of (a) five Business Days following a notice of acceleration given to Holdings and the Credit Agent under the Credit Agreement and only if upon such fifth Business Day such Event of Default shall be continuing or (b) the acceleration 42 56 of any Indebtedness under the Credit Agreement. If an Event of Default specified in Section 6.1(5) or (6) occurs with respect to Holdings or any Significant Subsidiary, all unpaid principal and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. Upon payment of such principal amount, interest, and premium, if any, all of Holdings' obligations under the Securities and this Indenture, other than obligations under Section 7.7, shall terminate. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the non-payment of the principal and interest on the Securities which have become due solely by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, and (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. (b) In the event of a declaration of acceleration under this Indenture because an Event of Default set forth in Section 6.1(4) has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (ii) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. Section 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. Subject to Sections 6.7 and 9.2, the Holders of at least fifty four percent (54%) in aggregate principal amount of the outstanding Securities (or at least a majority in aggregate principal amount of the outstanding Securities in the event that EJDC shall cease to beneficially 43 57 own at least a majority in aggregate principal amount of the outstanding Securities), by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (1) and (2) of Section 6.1. When a Default or Event of Default is waived, it is cured and ceases. Section 6.5. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. Subject to Section 7.1, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.6. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee notice of a continuing Event of Default; (2) the Holder or Holders of at least 25% in aggregate principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holder or Holders of at least 25% in aggregate principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. Section 6.7. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. 44 58 Section 6.8. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against Holdings or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to Holdings or any other obligor upon the Securities, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.7; Second: if the Holders are forced to proceed against Holdings directly without the Trustee, to the Holders for their collection costs; Third: to the Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Fourth: to Holdings. 45 59 The Trustee, upon prior notice to Holdings, may fix a record date and payment date for any payment to the Holders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by a Holder or Holders of more than 10% in aggregate principal amount of the outstanding Securities. ARTICLE VII TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. Section 7.1. Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person could exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture that are adverse to the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. 46 60 (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1. (f) The Trustee shall not be liable for interest on any assets received by it except as the Trustee may agree with Holdings. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. Section 7.2. Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. 47 61 (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with Holdings, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. Section 7.4. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for Holdings' use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than the Trustee's certificate of authentication. Section 7.5. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on, any Security, including the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer, the Trustee may withhold the notice if and so long as its board of directors, the executive committee of its board of directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. Section 7.6. Reports By Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA Section 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Holders shall be mailed to Holdings and filed with the SEC and each stock exchange, if any, on which the Securities are listed. Holdings shall notify the Trustee if the Securities become listed on any stock exchange. 48 62 Section 7.7. Compensation and Indemnity. Holdings shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. Holdings shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it including, without limitation, any taxes imposed on the trust or on the income from the Securities. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. Holdings shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it except for such actions to the extent caused by any negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder. The Trustee shall notify Holdings promptly of any claim asserted against the Trustee for which it may seek indemnity. Holdings shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and Holdings shall pay the reasonable fees and expenses of such counsel; provided that Holdings will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between Holdings and the Trustee in connection with such defense as reasonably determined by the Trustee. Holdings need not pay for any settlement made without its written consent. Holdings need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure Holdings' payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal of, premium, if any, or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(5) or (6) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.8. Replacement of Trustee. The Trustee may resign by so notifying Holdings. The Holders of a majority in aggregate principal amount of the outstanding Securities may remove the Trustee by so notifying Holdings and the Trustee may appoint a successor Trustee with Holdings' consent. Holdings may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or 49 63 (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, Holdings shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by Holdings. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to Holdings. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, Holdings or the Holders of at least 10% in aggregate principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, Holdings' obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. Section 7.9. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. Section 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of Holdings are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. 50 64 Section 7.11. Preferential Collection of Claims Against Holdings. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance. Holdings may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article Eight. Section 8.2. Legal Defeasance. Upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.2, Holdings shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that Holdings shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of Holdings, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, payments in respect of the principal, of, premium, if any, and interest on such Securities when such payments are due, (b) Holdings' obligations with respect to such Securities under Article Two and Section 4.2 hereof and the rights, powers, trusts, duties and immunities of the Trustee and Holdings' obligations in connection therewith, and (c) this Article Eight. Subject to compliance with this Article Eight, Holdings may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. Section 8.3. Covenant Defeasance. Upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.3, Holdings shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from its obligations under the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the 51 65 Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Securities, Holdings may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon Holdings' exercise under Section 8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only to the extent it relates to a breach of any of the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V hereof), 6.1(4) and 6.1(7) hereof shall not constitute Events of Default. Section 8.4. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Securities: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Securities, cash in United States dollars, or direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged ("U.S. Government Obligations"), or a combination thereof, in such amounts and at such times as will be sufficient, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Securities to redemption or maturity provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities on the Maturity Date or such redemption date, as the case may be; (b) in the case of an election under Section 8.2 hereof, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that (A) Holdings has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the 52 66 outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and Legal Defeasance had not occurred; (c) in the case of an election under Section 8.3 hereof, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if deposit and such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Section 6.1(5) or 6.1(6) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit (it being understood that this condition shall not be deemed satisfied until after such 91st day); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which Holdings is a party or by which Holdings is bound (and in that connection, the Trustee shall have received a certificate from the administrative agent under the Credit Agreement to that effect with respect to such Credit Agreement if then in effect); (f) Holdings shall have delivered to the Trustee an Opinion of Counsel to the effect that, assuming that no Default or Event of Default shall occur and be continuing under Section 6.1(5) or 6.1(6) during the period ending on the 91st day after the date of deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) Holdings shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by Holdings with the intent of preferring the Holders over the other creditors of Holdings or with the intent of defeating, hindering, delaying or defrauding creditors of Holdings, or others; and (h) Holdings shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. 53 67 Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.6 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 8.4 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (excluding Holdings or any Affiliate thereof) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. Holdings shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Obligations deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to Holdings from time to time upon the request of Holdings any money or non-callable U.S. Government Obligations held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Covenant Defeasance. Section 8.6. Repayment to Holdings. Any money deposited with the Trustee or any Paying Agent in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to Holdings on its request or shall be discharged from such trust; and the Holder of such Security shall thereafter, as a creditor, look only to Holdings for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense of Holdings cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to Holdings. Section 8.7. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining 54 68 or otherwise prohibiting such application, then Holdings' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; provided, however, that, if Holdings makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, Holdings shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1. Without Consent of Holders. Holdings, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder; (2) to comply with Article Five; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as from time to time amended, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Internal Revenue Code of 1986, as from time to time amended; (4) to make any other change that does not adversely affect the rights of any Holders; or (5) to comply with any requirements of the SEC in connection with the qualification of this Indenture under the TIA; provided that Holdings has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.1. Section 9.2. With Consent of Holders. Subject to Section 6.7, Holdings, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least fifty four percent (54%) in aggregate principal amount of the outstanding Securities (or at least a majority in aggregate principal amount of the outstanding Securities in the event that EJDC shall cease to 55 69 beneficially own at least a majority in aggregate principal amount of the outstanding Securities), may amend or supplement this Indenture or the Securities, without notice to any other Holders. Subject to Section 6.7, the Holder or Holders of at least fifty four percent (54%) in aggregate principal amount of the outstanding Securities (or at least a majority in aggregate principal amount of the outstanding Securities in the event that EJDC shall cease to beneficially own at least a majority in aggregate principal amount of the outstanding Securities) may waive compliance by Holdings with any provision of this Indenture or the Securities without notice to any other Holder. Without the consent of each Holder affected, however, no amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may: (1) change the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture or the Securities; (2) reduce the rate or extend the time for payment of interest on any Security; (3) reduce the principal amount of any Security; (4) change the Maturity Date of any Security, or alter the redemption provisions contained in paragraph 5 of the Securities in a manner adverse to any Holder; (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on, or redemption payment with respect to, any Security; (6) make any changes in Section 6.4, 6.7 or this third sentence of this Section 9.2; or (7) make the principal of, or the interest on any Security payable with anything or in any manner other than as provided for in this Indenture and the Securities as in effect on the date hereof. Without the consent of the Holder or Holders of at least 75% of the aggregate principal amount of the outstanding Securities, 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 4.14 hereof in a manner adverse to any Holder or waive a Default or Event of Default resulting from a failure to comply with Section 4.14 hereof. Without the consent of the Holder or Holders of at least 66-2/3% of the aggregate principal amount of the outstanding Securities, no change may be made to the provisions of Article Eleven that adversely affects the rights of any Holder under Article Eleven. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. 56 70 After an amendment, supplement or waiver under this Section becomes effective, Holdings shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of Holdings to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. In connection with any amendment, supplement or waiver under this Article Nine, Holdings may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. Holdings agrees that no amendment, supplement or waiver under this Article Nine may make any change that adversely affects the rights under Article Eleven of any holders of Senior Indebtedness unless the holders of such Senior Indebtedness consent to the change. Section 9.3. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 9.4. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or Holdings received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. Holdings may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (7) of Section 9.2, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for 57 71 the enforcement of any such payment on or after such respective dates without the consent of such Holder. Section 9.5. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if Holdings or the Trustee so determines, Holdings in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 9.6. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. ARTICLE X MEETINGS OF SECURITYHOLDERS Section 10.1. Purposes for Which Meetings May Be Called. A meeting of Holders may be called at any time and from time to time pursuant to the provisions of this Article Ten for any of the following purposes: (a) to give any notice to Holdings or to the Trustee, or to give any directions to the Trustee, or to waive or to consent to the waiving of any Default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Holders pursuant to any of the provisions of Article Six; (b) to remove the Trustee or appoint a successor Trustee pursuant to the provisions of Article Seven; (c) to consent to an amendment, supplement or waiver pursuant to the provisions of Section 9.2; or (d) to take any other action (i) authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Securities under any other provision of this Indenture, or authorized or permitted by law or (ii) which the Trustee deems necessary or appropriate in connection with the administration of this Indenture. 58 72 Section 10.2. Manner of Calling Meetings. The Trustee may at any time call a meeting of Holders to take any action specified in Section 10.1, to be held at such time and at such place in New York, New York or elsewhere as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed by the Trustee, first-class postage prepaid, to Holdings and to the Holders at their last addresses as they shall appear on the registration books of the Registrar not less than 10 nor more than 60 days prior to the date fixed for a meeting. Any meeting of Holders shall be valid without notice if the Holders of all Securities then outstanding are present in person or by proxy, or if notice is waived before or after the meeting by the Holders of all Securities outstanding, and if Holdings, any Subsidiary and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3. Call of Meetings by Holdings or Holders. In case at any time Holdings, pursuant to a Board Resolution, or the Holders of not less than 10% in aggregate principal amount of the Securities then outstanding shall have requested the Trustee to call a meeting of Holders to take any action specified in Section 10.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then Holdings or the Holders in the amount above specified may determine the time and place in New York, New York or elsewhere for such meeting and may call such meeting for the purpose of taking such action, by mailing or causing to be mailed notice thereof as provided in Section 10.2, or by causing notice thereof to be published at least once in each of two successive calendar weeks (on any Business Day during such week) in a newspaper or newspapers printed in the English language, customarily published at least five days a week of a general circulation in New York, New York, the first such publication to be not less than 10 nor more than 60 days prior to the date fixed for the meeting. Section 10.4. Who May Attend and Vote at Meetings. To be entitled to vote at any meeting of Holders, a person shall (a) be a registered Holder of one or more Securities, or (b) be a person appointed by an instrument in writing as proxy for the registered Holder or Holders of Securities. The only persons who shall be entitled to be present or to speak at any meeting of Holders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of Holdings and its counsel. Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment. Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any action by or any meeting of Holders, 59 73 in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, and submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think appropriate. Such regulations may fix a record date and time for determining the Holders of record of Securities entitled to vote at such meeting, in which case those and only those persons who are Holders of Securities at the record date and time so fixed, or their proxies, shall be entitled to vote at such meeting whether or not they shall be such Holders at the time of the meeting. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by Holdings or by Holders as provided in Section 10.3, in which case Holdings or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote. At any meeting each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Securities challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman may adjourn any such meeting if he is unable to determine whether any Holder or proxy shall be entitled to vote at such meeting. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Holders. Any meeting of Holders duly called pursuant to the provisions of Section 10.2 or Section 10.3 may be adjourned from time to time by vote of the Holders of a majority in aggregate principal amount of the Securities represented at the meeting and entitled to vote, and the meeting may be held as so adjourned without further notice. Section 10.6. Voting at the Meeting and Record To Be Kept. The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amount of the Securities voted by the ballot. The permanent chairman of the meeting shall appoint two inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts, setting forth a copy of the notice of the meeting and showing that such notice was mailed as provided in Section 10.2 or published as provided in Section 10.3. The record shall be signed and verified by the affidavits of the permanent chairman and the secretary of the meeting and one of the duplicates shall be delivered to Holdings and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. 60 74 Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting. Nothing contained in this Article Ten shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Holders under any of the provisions of this Indenture or of the Securities. ARTICLE XI SUBORDINATION Section 11.1. Securities Subordinated to Senior Indebtedness. Anything herein to the contrary notwithstanding, Holdings, for itself and its successors, and each Holder, by accepting a Security, agrees, that the payment of the principal of and interest on and premiums, penalties, fees and other liabilities (including, without limitation, liabilities in respect of any indemnity, reimbursement, compensation or contribution obligations, the occurrence of a Change of Control, any liquidated damage provision, any breach of representation or warranty, or any rights of redemption or rescission under this Indenture, the Merger Agreement and the Registration Rights Agreement or by law or otherwise) ("Other Obligations") with respect to the Securities is subordinated, to the extent and in the manner provided in this Article Eleven, to the prior payment in full in cash of all Senior Indebtedness. This Article Eleven shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. Holders of Senior Indebtedness need not prove reliance on the subordination provisions hereof. Section 11.2. No Payment on Securities in Certain Circumstances. (a) No direct or indirect payment or distribution shall be made by or on behalf of Holdings (other than a payment in Secondary Securities) on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities (i) upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof and interest thereon shall first be paid in full in cash or (ii) upon the happening of any default in payment of any principal of or interest on any Senior Indebtedness when the same becomes due and payable (a "Payment Default"), unless and until such default shall have been cured or waived or shall have ceased to exist. 61 75 (b) Without limiting the effect of Section 11.2(a), upon the happening of a default or event of default (other than a Payment Default) (including any event which, with the giving of notice or lapse of time, or both, would become an event of default and including any default or event of default that would result upon any payment with respect to the Securities) with respect to any Senior Indebtedness, as such default or event of default is defined therein or in the instrument or agreement under which it is outstanding, and upon written notice thereof given to Holdings and the Trustee by any holders of such Senior Indebtedness or their Representative specifying an intent to effect a Payment Blockage Period hereunder ("Payment Notice"), then, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment or distribution (other than of Secondary Securities) shall be made by or on behalf of Holdings on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities; provided, however, that this paragraph (b) shall not prevent the making of any payment for a period of (a "Payment Blockage Period") of more than 179 days after a Payment Notice shall have been given (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and Holdings from the Credit Agent or the Representative which gave such Payment Notice, (ii) repayment in full of such Senior Indebtedness or (iii) because the default specified in the Payment Notice is no longer continuing). Subject to the provisions contained in Section 11.2(a) above, Holdings may resume payments on the Securities after such Payment Blockage Period expires. Notwithstanding the foregoing, (i) not more than one Payment Notice shall be given within a period of 360 consecutive days, and (ii) a Payment Notice may only be given (A) if Senior Indebtedness is outstanding under the Credit Agreement at the time of such notice, by the Credit Agent and (B) if no Senior Indebtedness is outstanding under the Credit Agreement at the time of such notice, by a holder or holders (or the Representative of holders) of at least $35,000,000 principal amount of such Senior Indebtedness. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Senior Indebtedness whether or not within a period of 360 consecutive days unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In furtherance of the provisions of Section 11.1, if, notwithstanding the foregoing provisions of this Section 11.2, any direct or indirect payment or distribution other than Secondary Securities on account of principal of or interest on or Other Obligations with respect to the Securities or to acquire, repurchase, redeem, retire or defease any of the Securities or on account of the redemption provisions of the Securities shall be made by or on behalf of Holdings and received by the Trustee, by any Holder or by any Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent, money for any such payment or distribution shall be segregated and held in trust), at a time when such payment or distribution was prohibited by the provisions of this Section 11.2, then, unless and until such payment or distribution is no longer prohibited by this Section 11.2, such payment or distribution (subject to the provisions of Sections 11.6 and 11.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent, as the case may be, for the benefit of, and shall be immediately paid over to, the holders of Senior Indebtedness or their 62 76 Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to all concurrent payments and distributions to or for the holders of Senior Indebtedness. Holdings shall give prompt notice to the Trustee of any default or event of default or any acceleration under any Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness may have been issued. Failure to give such notice shall not affect the subordination of the Securities to Senior Indebtedness provided in this Article Eleven. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or willful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Holdings. Upon any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, upon any dissolution, winding-up, total or partial liquidation or total or partial reorganization of Holdings (including, without limitation, in bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings and whether voluntary or involuntary): (a) the holders of all Senior Indebtedness shall first be entitled to receive payments in full in cash of the principal thereof and interest thereon before the Holders are entitled to receive any payment on account of the principal of or interest on or Other Obligations with respect to the Securities (whether by payment, acquisition, retirement, defeasance, redemption or otherwise) or any other payment or distribution of assets or securities by or on behalf of Holdings; (b) any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled except for the provisions of this Article Eleven, including any such payment or distribution that is payable or deliverable by reason of the payment of any other Indebtedness of Holdings being subordinated to the payment of the Securities (except for any such payment or distribution (x) authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of the Securities to the Senior Indebtedness, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law, (y) of securities that (i) are unsecured, (ii) have a Weighted Average Life to Maturity and final maturity that are no shorter than the Weighted Average Life to Maturity of the Securities or any securities issued to the holders of Senior Indebtedness under the Credit Agreement pursuant to a plan of reorganization or readjustment and (iii) are subordinated, to at least the same extent as the Securities, to the payment of all Senior Indebtedness then outstanding or (z) of Capital Stock), shall be paid by the liquidating trustee or agent or other person making such a payment or distribution, 63 77 directly to the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash, after giving effect to all concurrent payments and distributions to or for the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets or securities of Holdings of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent, money, assets or securities of any kind or character for any such payment or distribution shall be segregated or held in trust) on account of principal of or interest on or Other Obligations with respect to the Securities before all Senior Indebtedness is paid in full in cash, such payment or distribution (subject to the provisions of Sections 11.6 and 11.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash, after giving effect to all concurrent payments and distributions to or for the holders of Senior Indebtedness. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or wilful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay over such payment over to, the holders of Senior Indebtedness or their Representative. Holdings shall give prompt notice to the Trustee prior to any dissolution, winding-up, total or partial liquidation or total or partial reorganization of Holdings or assignment for the benefit of creditors by Holdings. Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash of all Senior Indebtedness, the Holders of Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of Holdings applicable to the Senior Indebtedness until all amounts owing on the Securities shall be paid in full in cash, and for the purpose of such subrogation no payments or distributions to the holders of Senior Indebtedness by or on behalf of Holdings, or by or on behalf of the Holders by virtue of this Article Eleven, which otherwise would have been made to the Holders, shall, as between Holdings and the Holders, be deemed to be payment by Holdings to or on account of the Senior Indebtedness, it being understood that the provisions of this Article Eleven are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. 64 78 If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Eleven shall have been applied, pursuant to the provisions of this Article Eleven, to the payment of all amounts payable under the Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of the Senior Indebtedness in full in cash. Section 11.5. Obligations of Holdings Unconditional. Nothing contained in this Article Eleven or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between Holdings and the Holders, the obligation of Holdings, which is absolute and unconditional, to pay to the Holders the principal of and interest on and Other Obligations in respect of the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of Holdings other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Eleven, of the holders of Senior Indebtedness in respect of cash, property or securities of Holdings received upon the exercise of any such remedy. Upon any payment or distribution of assets or securities of Holdings referred to in this Article Eleven, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of Holdings, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Eleven. Nothing in this Section 11.5 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.7. Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received written notice thereof from Holdings or from one or more holders of Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be entitled in all respects conclusively to assume that no such fact exists. Section 11.7. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Section 8.4 shall be for the sole benefit of Holders and, to the extent allocated for the payment of Securities, shall not be subject to the 65 79 subordination provisions of this Article Eleven. Otherwise, any deposit of assets or securities by or on behalf of Holdings with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on or Other Obligations with respect to any Securities shall be subject to the provisions of this Article Eleven; provided that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 11.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if Holdings or any Subsidiary or Affiliate of Holdings is acting as Paying Agent. Nothing contained in this Section 11.7 (except the first sentence of this Section 11.7) shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Eleven. Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce the subordination provisions contained in this Article Eleven shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Holdings or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by Holdings with the terms of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, restate, supplement, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with Holdings and its Subsidiaries all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. No provision in any supplemental indenture that affects the subordination of the Securities or other provisions of this Article Eleven shall be effective against the holders of the Senior Indebtedness who have not consented thereto. Each Holder by accepting a Security agrees that the Representative of any Senior Indebtedness (including without limitation, the Credit Agent), in its discretion, without notice or demand and without affecting any rights of any holder of Senior Indebtedness under this Article Eleven, may foreclose any mortgage or deed of trust covering interests in real property secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives any defense to the enforcement by the Representative (including without limitation, the Credit Agent) of any Senior Indebtedness or by any holder of any Senior Indebtedness against such Holder of this Article Eleven after a judicial or nonjudicial sale or other disposition of its interests in real property secured by such mortgage or deed of trust; and such Holder expressly waives any defense or benefits that may be derived from California Civil Code Section Section 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil Procedure Section Section 580a, 580d or 726, or comparable provisions of the laws of any other jurisdiction or any similar statute in effect in any other jurisdiction. 66 80 Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities. Each Holder by accepting a Security authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Eleven, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of Holdings (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings) tending towards liquidation or reorganization of the business and assets of Holdings, the immediate filing of a claim for the unpaid balance of its or his Securities and Other Obligations in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. Section 11.10. Right of Trustee to Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Eleven in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. Section 11.11. Article Eleven Not to Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article Eleven shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.1. Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall in good faith mistakenly pay over or deliver to the Holders of Securities or Holdings or any other person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Eleven or otherwise. Nothing in this Section 11.12 shall affect the obligation of any person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. 67 81 ARTICLE XII SATISFACTION AND DISCHARGE Section 12.1. Satisfaction and Discharge of the Indenture. This Indenture will be discharged and will cease to be of further effect as to all outstanding Securities when: (a) all Securities theretofore authenticated and delivered (except lost, stolen or destroyed Securities which have been replaced or paid and Securities for whose payment money has theretofore been deposited in trust and thereafter repaid to Holdings) have been delivered to the Trustee for cancellation; or (b) (1) all Securities not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and Holdings has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on the Securities not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (2) Holdings has paid all sums payable by it under this Indenture; and (3) Holdings has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Securities at maturity or the redemption date, as the case may be. Section 12.2. Conditions to Satisfaction and Discharge of the Indenture. Holdings shall deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. ARTICLE XIII MISCELLANEOUS Section 13.1. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed duties shall control. 68 82 Section 13.2. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to Holdings: c/o The Yucaipa Companies 10000 Santa Monica Boulevard Fifth Floor Los Angeles, California 90067 Attention: Mark A. Resnik if to the Trustee: ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ Attention: Corporate Trust Administration Each of Holdings and the Trustee by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to Holdings and the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 13.3. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. Holdings, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c). 69 83 Section 13.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by Holdings to the Trustee to take any action under this Indenture, Holdings shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 13.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.7, shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 13.6. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 13.7. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, Los Angeles, California or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. 70 84 Section 13.8. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. Section 13.9. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of Holdings or any Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of Holdings shall not have any liability for any obligations of Holdings under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Holder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. Section 13.11. Successors. All agreements of Holdings in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. Section 13.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 13.13. Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. 71 85 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the date first written above. Dated: ________ __, 1995 [SEAL] FOOD 4 LESS HOLDINGS, INC. Attest: By: ______________________________ Name: Mark A. Resnik Title: Vice President ____________________________ Dated: ________ __, 1995 [SEAL] _______________________________ _______________________________ as Trustee Attest: By: ______________________________ Name: Title: ____________________________ S-1 86 EXHIBIT A PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO ORIGINAL ISSUE DISCOUNT AND TREASURY REGULATIONS PROMULGATED THEREUNDER WITH RESPECT TO DEBT INSTRUMENTS ISSUED ON OR AFTER APRIL 4, 1994, THE FOLLOWING INFORMATION IS PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE AMOUNT OF $____ PER FACE AMOUNT; (2) THE ISSUE PRICE OF THIS SECURITY IS $___ PER FACE AMOUNT; (3) THE ISSUE DATE OF THIS SECURITY IS ______ __, ____; AND (4) THE YIELD TO MATURITY OF THIS SECURITY IS __%. FOOD 4 LESS HOLDINGS, INC. 13-5/8% Senior Subordinated Pay-in-Kind Debentures due ________ __, 2007 No. $ Food 4 Less Holdings, Inc., a Delaware corporation ("Holdings," which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of dollars, on ________ __, 2007. Interest payment dates: ________________ and _______________ commencing ________ __, ____. Record dates: _________ and _________. Reference is made to the further provisions of this security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, Holdings has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: ________ __, 1995 FOOD 4 LESS HOLDINGS, INC. By: _______________________________________ Name: Title: This is one of the Securities described in the within-mentioned Indenture. Dated: ________ __, 1995 __________________________________ as Trustee By: _______________________________________ Title: A-1 87 FOOD 4 LESS HOLDINGS, INC. 13-5/8% Senior Subordinated Pay-in-Kind Debenture due ________ __, 2007 1. Interest. FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Holdings may, in its sole discretion, issue additional Securities ("Secondary Securities") in lieu of a cash payment of any or all of the interest due on any Interest Payment Date occurring on or prior to [the Interest Payment Date five years after the Issue Date]. If Holdings issues Secondary Securities in lieu of cash payment, in whole or in part, of interest due on any Interest Payment Date occurring on or prior to [the Interest Payment Date five years after the Issue Date], pursuant to this paragraph, it shall give notice to the Trustee not less than 5 Business Days prior to the relevant Interest Payment Date, and shall instruct the Trustee (upon written order of Holdings signed by an Officer of Holdings given not less than 5 nor more than 45 days prior to such Interest Payment Date) to authenticate a Secondary Security, dated such Interest Payment Date, in a principal amount equal to the amount of interest not paid in cash in respect of this Security on such Interest Payment Date. Each issuance of Secondary Securities in lieu of cash payments of interest on the Securities shall be made pro rata with respect to the outstanding Securities. Any such Secondary Securities shall be governed by the Indenture and shall be subject to the same terms (including the maturity date and the rate of interest from time to time payable thereon) as this Security (except, as the case may be, with respect to the title, issuance date and aggregate principal amount). The term Securities shall include the Secondary Securities that may be issued under the Indenture. Holdings will pay interest semi-annually in arrears on ___________ and _________ of each year (the "Interest Payment Date"), commencing ___________, ____. Interest on this Security will accrue from the date of issuance or from the most recent date to which interest has been paid. Interest will be computed on the basis of a 360-day year of twelve 30-day months and actual number of days elapsed. Holdings shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at the rate per annum borne by the Securities. 2. Method of Payment. Holdings shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. Holdings shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender") (or, pursuant to A-2 88 Paragraph 1 hereof, in Secondary Securities). However, Holdings may pay principal and interest by its check payable in such U.S. Legal Tender or by wire transfer of federal funds (or, pursuant to Paragraph 1 hereof, in Secondary Securities). Holdings may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota, N.A. (the "Trustee"), will act as Paying Agent and Registrar. Holdings may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. Holdings or any Subsidiary may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. Holdings issued the Securities under an Indenture, dated as of ________ __, 1995 (the "Indenture"), between Holdings and the Trustee. This Security is one of a duly authorized issue of Securities of Holdings designated as its 13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Section Section 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of Holdings limited in aggregate principal amount to $131,500,000, except for Secondary Securities and except as otherwise provided in the Indenture. 5. Optional Redemption. (a) The Securities may not be redeemed at the option of Holdings prior to ________ __, 2000. Thereafter, upon at least 30 days' but not more than 60 days' notice to the Holders, Holdings may redeem all or any of the Securities at any time at redemption prices equal to the applicable percentage of the principal amount thereof set forth below, plus accrued interest, if any, to the Redemption Date (as defined in the Indenture) if redeemed during the 12-month period beginning ________ __ of the years indicated below: Applicable Year Percentage 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.8125% 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.1094% 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.4063% 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.7031% 2004 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.0000% (b) Notwithstanding the foregoing, prior to ________ __, 1998, Holdings may use the Net Proceeds (as defined in the Indenture) of an Initial Public Offering (as defined in the A-3 89 Indenture) of Holdings or the Company to redeem up to 35% of the Securities at a redemption price equal to 110% of the principal amount thereof plus accrued interest, if any, to the date of redemption. In order to effect the foregoing redemption, Holdings shall send the notice required by Section 3.3 of the Indenture not later than 30 days after the Initial Public Offering Consummation Date (as defined in the Indenture). 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless Holdings defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. In the event of a Change of Control, upon the satisfaction of the conditions set forth in the Indenture, Holdings shall be required to offer to purchase all of the then outstanding Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued interest, if any, to the date of purchase. Holders of Securities which are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. 8. Limitation on Disposition of Assets. Under certain circumstances Holdings is required to apply the net proceeds from Asset Sales to the repayment of Indebtedness of Holdings or any Subsidiary, to make Related Business Investments and certain other investments or to purchase in a Net Proceeds Offer at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest, if any, to the date of purchase, which shall in the aggregate equal the net proceeds required to be applied thereto. 9. Subordination. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of Senior Indebtedness of Holdings whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder, by accepting a Security, agrees to such subordination and authorizes the Trustee to give it effect. A-4 90 10. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000 (other than Secondary Securities which may be in denominations of less than $1,000). A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. No service charge shall be made for any transfer, registration or exchange, but Holdings may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or 9.5 of the Indenture. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agents will pay the money back to Holdings at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 13. Discharge Prior to Redemption or Maturity. If Holdings at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, Holdings will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the written consent of the Holders of at least fifty four percent (and, in some cases, a majority) in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of fifty four percent (and, in some cases, a majority) in aggregate principal amount, as the case may be, of the Securities then outstanding. Without the consent of the Holders of at least 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 4.14 of the Indenture in a manner adverse to any Holder or waive a A-5 91 Default or Event of Default resulting from a failure to comply with Section 4.14 of the Indenture. Without the consent of the Holders of at least 66-2/3% in aggregate principal amount of the Securities then outstanding, no change may be made to the provisions of Article Eleven of the Indenture that adversely affects the rights of any Holder under Article Eleven. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities, comply with Article Five of the Indenture or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not adversely affect the rights of any Holder of a Security. An amendment may not make any change that adversely affects the rights under Article Eleven of the Indenture of any holders of Senior Indebtedness unless the holders of Senior Indebtedness consent to the change. 15. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Holdings. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with Holdings, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of Holdings shall have any liability for any obligation of Holdings under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. A-6 92 19. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 20. Governing Law. The Laws of the State of New York shall govern this Security and the Indenture. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, Holdings will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Security, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. Holdings will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: FOOD 4 LESS HOLDINGS, INC., c/o The Yucaipa Companies, 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067, Attn: Mark A. Resnik. 24. Certain Information Obligations. To the extent permitted by applicable law or regulation, whether or not Holdings is subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. Holdings shall file with the Trustee copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to the Indenture. At any time when Holdings is not permitted by applicable law or regulations to file the aforementioned reports, Holdings shall furnish the Trustee and the Holders with the information that Holdings would have had to provide to the SEC if Holdings had been subject to Section 13 or 15(d) of the Exchange Act. A-7 93 25. Holdings Indebtedness. Each Holder acknowledges that Holdings is the sole obligor of the Securities and no Subsidiary of Holdings is a co-obligor or a guarantor of the Securities. A-8 94 [FORM OF ASSIGNMENT] I or we assign this Security to ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) Please insert Social Security or other identifying number of assignee _________________________________________ and irrevocably appoint _______________________ agent to transfer this Security on the books of Holdings. The agent may substitute another to act for him. Dated:____________________________ Signed:________________________________ ________________________________________________________________________________ (Sign exactly as your name appears on the front of this Security) Signature Guarantee:______________________________________________________ A-9 95 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Security purchased by Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, check the box: Section 4.14 [ ] Section 4.15 [ ] If you want to elect to have only part of this Security purchased by Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, state the amount: $ Date:_______________ Signature:_____________________________ (Sign exactly as your name appears on the front of this Security) Signature Guarantee:____________________________________________________ A-10 96 EXHIBIT I DESCRIPTION OF THE NEW DISCOUNT DEBENTURES GENERAL The 13 5/8% Senior Discount Debentures due 2005 (the "New Discount Debentures") will be issued under an indenture (the "New Discount Debenture Indenture"), to be dated as of , 1995, between New Holdings and United States Trust Company of New York, as trustee (the "New Discount Debenture Trustee"). The following summary of certain provisions of the New Discount Debentures and the New Discount Debenture Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the New Discount Debentures and the New Discount Debenture Indenture, including the definitions of certain terms therein and those terms made a part of the New Discount Debenture Indenture by reference to the TIA. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." A copy of the form of the New Discount Debenture Indenture may be obtained from New Holdings. As used below in this "Description of the New Discount Debentures," "New Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, as survivor of the FFL Merger and the Reincorporation Merger, but not any of its subsidiaries. PRINCIPAL, MATURITY AND INTEREST The New Discount Debentures will be limited in aggregate principal amount at maturity to $193,300,000 and will mature on , 2005. The New Discount Debentures will be issued at a substantial discount from their principal amount. Until , 2000, no interest will accrue on the New Discount Debentures, but the Accreted Value will accrete at a rate of 13 5/8% (representing the amortization of the original issue discount) from the date of original issuance until , 2000, on a semi-annual bond equivalent basis using a 360 day year comprised of twelve 30-day months and actual number of days elapsed, such that the Accreted Value shall be equal to the full principal amount of the New Discount Debenture on , 2000. The initial Accreted Value per $1,000 principal amount of New Discount Debentures will be $ (representing the original purchase price). Beginning on , 2000, cash interest on the New Discount Debentures will accrue at a rate of 13 5/8% per annum and will be payable semiannually in arrears on and of each year, commencing , 2000, to the Holders of record on the immediately preceding and . Interest is computed on the basis of a 360-day year comprised of twelve 30-day months and actual number of days elapsed. The New Discount Debentures will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the New Discount Debenture Trustee will act as Paying Agent and Registrar for the New Discount Debentures. The New Discount Debentures may be presented for registration of transfer and exchange at the offices of the Registrar, which initially will be the New Discount Debenture Trustee's corporate trust office. New Holdings may change any Paying Agent and Registrar without notice to holders of the New Discount Debentures (the "Holders"). New Holdings will pay principal, premium, if any, and interest on the New Discount Debentures at the Trustee's corporate office located in the Borough of Manhattan, The City of New York. At New Holdings' option, interest may be paid at the New Discount Debenture Trustee's corporate office or by check mailed to the registered holders of the New Discount Debentures at their respective addresses set forth in the register of Holders of New Discount Debentures. Unless otherwise designated by New Holdings, New Holdings' office or agency in New York is the office of the New Discount Debenture Trustee maintained for such purpose. 1 97 OPTIONAL REDEMPTION On or after , 2000, the New Discount Debentures may be redeemed, at the option of New Holdings, in whole at any time or in part from time to time, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, together with accrued and unpaid interest to the redemption date, if redeemed during the twelve-month period commencing on in the years set forth below:
REDEMPTION YEAR PRICE ---- ---------- 2000.............................................................. 106.8125% 2001.............................................................. 105.1094% 2002.............................................................. 103.4063% 2003.............................................................. 101.7031% 2004 and thereafter............................................... 100.0000%
Notwithstanding the foregoing, prior to 1998, New Holdings may use the net proceeds of an Initial Public Offering of New 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. NOTICES AND SELECTION In the event of a redemption of less than all of the New Discount Debentures at the option of New Holdings, such New Discount Debentures will be selected for redemption by the New Discount Debenture Trustee pro rata, by lot or by any other method that the New Discount Debenture Trustee considers fair and appropriate and in such manner as complies with applicable legal and stock exchange requirements, if any; provided, however, that any redemption pursuant to the provisions relating to an Initial Public Offering shall be made on a pro rata basis. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose New Discount Debentures are to be redeemed at such Holder's registered address. New Discount Debentures in denominations of $1,000 principal amount at maturity may be redeemed only in whole and the New Discount Debenture Trustee may select for redemption portions (equal to $1,000 principal amount at maturity or any integral multiple thereof) of the principal amount of New Discount Debentures that have denominations larger than $1,000 principal amount at maturity. If any New Discount Debenture is to be redeemed in part, the notice of redemption relating to such New Discount Debenture will state the portion of the principal amount (in integral multiples of $1,000 principal amount at maturity) to be redeemed and that a New Discount Debenture or New Discount Debentures in the principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon surrender of the original New Discount Debenture. On and after the redemption date, interest will cease to accrue on the New Discount Debentures or portions thereof called for redemption (unless New Holdings shall default in the payment of the redemption price or accrued interest). New Discount Debentures that are redeemed by New Holdings or that are purchased by New Holdings 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 New Holdings will be surrendered to the New Discount Debenture Trustee for cancellation. RANKING The New Discount Debentures will be senior unsecured obligations of New Holdings and will rank senior in right of payment to all Subordinated Indebtedness of New Holdings, including the Seller Debentures. The New Discount Debentures will rank pari passu in right of payment with all unsubordinated Indebtedness of New Holdings, including New Holdings' guarantees of the Company's obligations under the Credit Agreement and the Senior Discount Notes to the extent any remain outstanding following the Merger. In addition, the New Discount Debentures will effectively be subordinated to all liabilities (including trade payables) of the Company. 2 98 CHANGE OF CONTROL Upon the occurrence of a Change of Control (as defined below), each Holder will have the right to require the repurchase of such Holder's New Discount Debentures pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the Accreted Value thereof on the Change of Control Payment Date (as defined below) (if such date is prior to , 2000) or 101% of the principal amount thereof, plus accrued interest, if any, to the Change of Control Payment Date (if such date is on or after , 2000). Within 30 days following the date upon which the Change of Control occurred (the "Change of Control Date"), New Holdings must send, by first class mail, a notice to each Holder, with a copy to the New Discount Debenture Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a New Discount Debenture purchased pursuant to a Change of Control Offer will be required to surrender the New Discount Debenture, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the New Discount Debenture 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 New Discount Debenture Indenture will further provide that, notwithstanding the foregoing, prior to the mailing of the notice of a Change of Control Offer referred to above, within 30 days following any Change of Control, New Holdings will cause the Company to either (a) repay in full and terminate all commitments under Indebtedness under the Credit Agreement to the extent the terms thereof require repayment upon a Change of Control (or offer to repay in full and terminate all commitments under all such Indebtedness under the Credit Agreement and repay the Indebtedness owed to each lender which has accepted such offer) or (b) obtain the requisite consents under the Credit Agreement, the terms of which require repayment upon a Change of Control, to permit the repurchase of the New Discount Debentures as provided above. New Holdings shall first comply with the covenant in the immediately preceding sentence before New Holdings shall be required to repurchase New Discount Debentures pursuant to the provisions described above. New Holdings' failure to comply with the covenants described in this paragraph shall constitute an Event of Default under the New Discount Debenture Indenture. New Holdings will comply with the requirements of Rule 14e-1 under the Exchange Act and any other applicable provisions of the federal securities laws in connection with a Change of Control Offer. CERTAIN COVENANTS The New Discount Debenture Indenture will contain, among other things, the following covenants: Limitation on Restricted Payments. The New Discount Debenture Indenture will provide that New Holdings shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing, (b) New Holdings or such Subsidiary could not incur at least $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 New Holdings, which determination shall be evidenced by a Board Resolution), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income is a loss, minus 100% of such loss) of New Holdings earned subsequent to the Issue Date and on or prior to the date the proposed Restricted Payment occurs (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by New Holdings from any person (other than a Subsidiary) from the issuance and sale (including upon exchange or conversion for other securities of New Holdings) subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any 3 99 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 New Holdings or any Subsidiary, until and to the extent such borrowing is repaid), plus (iii) 100% of the aggregate net cash proceeds received by New Holdings as capital contributions to New Holdings after the Issue Date, 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 New Holdings or the repurchase, redemption, or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of New Holdings, (3) the repurchase, redemption or other repayment of any Subordinated Indebtedness in exchange for or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of Subordinated Indebtedness of New Holdings 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 (x) the declaration of each dividend paid in accordance with clause (1) above, each acquisition, repurchase, redemption or other repayment made in accordance with, or of the type set forth in, clause (2) above, and each payment described in clause (iii) of the definition of Permitted Payments shall each be counted for purposes of computing amounts expended pursuant to subclause (c) in the immediately preceding paragraph, and (y) no amounts paid pursuant to clause (3) above or pursuant to clause (i) or (ii) of the definition of "Permitted Payments" shall be so counted. Limitation on Incurrences of Additional Indebtedness. The New Discount Debenture Indenture will provide that New Holdings shall not, and shall not permit any Subsidiary, directly or indirectly, to incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the New Discount Debentures or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of any such Indebtedness, (i) New Holdings may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of New Holdings would be greater than 2.0 to 1.0 and (ii) the Company or any subsidiary of the Company may incur Indebtedness if immediately before and immediately after giving effect to the incurrence of such Indebtedness the Operating Coverage Ratio of the Company would be greater than 2.0 to 1.0. Limitation on Liens. The New Discount Debenture Indenture will provide that New Holdings shall not create, incur, assume or suffer to exist any Liens upon any of its assets unless the New Discount Debentures are equally and ratably secured by the Liens covering such assets, except for (i) existing and future Liens securing Indebtedness and other obligations of New Holdings and its Subsidiaries under the Credit Agreement and related documents or any refinancing or replacement thereof in whole or in part permitted under the New Discount Debenture Indenture, (ii) Permitted Liens, (iii) Liens securing Acquired Indebtedness; provided that such Liens (x) are not incurred in connection with, or in contemplation of, the acquisition of the property or assets acquired and (y) do not extend to or cover any property or assets of New Holdings or any Subsidiary other than the property or assets so acquired, (iv) Liens existing on the Issue Date (after giving effect to the Merger), (v) Liens to secure Capitalized Lease Obligations and certain other Indebtedness that is otherwise permitted under the New Discount Debenture Indenture; provided that (A) any such Lien is created solely for the purpose of securing such other Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, the purchase (whether through stock or asset purchase, merger or otherwise) or construction or improvement of the property subject thereto (whether real or personal, including fixtures and other equipment), (B) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs and (C) such Lien does not extend to or cover any property other than such item of property and any improvement on such item; (vi) Liens in favor of the New Discount Debenture Trustee under the New Discount Debenture Indenture and any substantially equivalent lien granted to any trustee or similar institution under any indenture for Indebtedness permitted by 4 100 the terms of the New Discount Debenture Indenture; and (vii) any replacement, extension or renewal, in whole or in part, of any Lien described in this or the foregoing clauses, including in connection with any refinancing of the Indebtedness, in whole or in part, secured by any such Lien; provided that if any such clauses limit the amount secured by 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 New Discount Debenture Indenture will provide that neither New Holdings nor any of its Subsidiaries shall consummate an Asset Sale unless (a) New Holdings or the applicable Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold and (b) upon consummation of an Asset Sale, New Holdings or the applicable Subsidiary will, within 365 days of the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (1) a Related Business Investment (2) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale or (3) an investment in properties and assets that will be used in the business of New Holdings and its Subsidiaries existing on the Issue Date or in a business reasonably related thereto; (ii) apply or cause to be applied such Net Cash Proceeds to the repayment of Pari Passu Indebtedness of New Holdings or any Indebtedness of any Subsidiary; (iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the purchase of New Discount Debentures tendered to New Holdings pursuant to an offer to purchase made by New Holdings as set forth below (a "Net Proceeds Offer") for purchase at a price equal to 100% of the Accreted Value thereof on the date of purchase, if such date is prior to , 2000 or 100% of the principal amount thereof, plus accrued interest to the date of purchase if such date is on or after , 2000; provided, however, that if at any time any non-cash consideration received by New Holdings or any Subsidiary in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such cash shall constitute Net Cash Proceeds for purposes of this covenant and shall be applied in accordance with clause (b) above within 365 days of the receipt of such cash; and provided further, however, that if at any time any security deposits or other amounts used to secure Letter of Credit Obligations pursuant to clause (b)(iii) above are returned to New Holdings or any Subsidiary, then such security deposits or other amounts shall constitute Net Cash Proceeds for purposes of this covenant and shall be applied in accordance with clause (b) above within 365 days of the receipt of such security deposits or other amounts. A Net Proceeds Offer as a result of an Asset Sale made by the Company or one of its subsidiaries shall not be required to be in excess of the Net Cash Proceeds of such Asset Sale less the Net Cash Proceeds actually applied in accordance with clauses (b)(i), (ii) or (iii) above; provided, however, that New Holdings shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, the proceeds of which are derived from the sale and substantially concurrent lease-back of one or more supermarkets and/or related assets or equipment which are acquired or constructed by New Holdings or a Subsidiary subsequent to the Issue Date, provided that any 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. Each Net Proceeds Offer will be mailed to record Holders of New Discount Debentures as shown on the register of Holders not less than 305 nor more than 335 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 New Discount Debenture Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender the New Discount Debentures in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender New Discount Debentures in an amount exceeding the Net Proceeds Offer, New Discount Debentures of tendering Holders will be repurchased on a pro rata basis (based on amounts tendered). New Holdings will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of New Discount Debentures pursuant to a Net Proceeds Offer. 5 101 Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The New Discount Debenture Indenture will provide that New Holdings shall not, and shall not permit any Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of its Subsidiaries, except for (a) any such restrictions contained in (i) the Credit Agreement as in effect on the Issue Date, as any such Payment Restriction may apply to any present or future Subsidiary, (ii) the New Discount Debenture Indenture, the Seller Debenture Indenture, the Senior Discount Note Indenture, the indentures with respect to Existing Indebtedness and any other agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of a person existing at the time such person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in connection with, or in contemplation of, such person becoming a Subsidiary, (y) such restriction is not applicable to any person, or the properties or assets of any person, other than the person so acquired and (z) such Indebtedness is otherwise permitted to be incurred pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenants described under "-- Limitation on Incurrences of Additional Indebtedness" and "-- Limitation on Liens" above that limit the right of the debtor to dispose of the assets securing such Indebtedness; (b) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Subsidiary; (c) customary net worth provisions contained in leases and other agreements entered into by a Subsidiary in the ordinary course of business; (d) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (e) customary provisions in joint venture agreements and other similar agreements; and (f) restrictions contained in Indebtedness incurred to refinance, refund, extend or renew Indebtedness referred to in clause (a) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole than those provided for in such Indebtedness being refinanced, refunded, extended or renewed and (g) Payment Restrictions contained in any other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "-- Limitation on Incurrences of Additional Indebtedness" above; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances) and, in any event, no more restrictive than the most restrictive Payment Restrictions in effect on the Issue Date. Limitation on Transactions with Affiliates. The New Discount Debenture Indenture will provide that neither New Holdings nor any of its Subsidiaries shall (i) sell, lease, transfer or otherwise dispose of any of its properties or assets or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities (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 New Holdings 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 New Holdings or such Subsidiary, as the case may be, and on terms at least as favorable as might reasonably have been obtainable at such time from an unaffiliated party; provided, that (A) with respect to Affiliate Transactions involving aggregate payments in excess of $1 million and less than $5 million, New Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the New Discount Debenture 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, New Holdings or such Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the New Discount Debenture 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 New Holdings or the Subsidiary, as the case may be, or, in the absence of any such approval by the disinterested members of the Board of Directors of New Holdings or the Subsidiary, as the case may be, that an Independent Financial Advisor has reasonably and in good faith determined that the financial terms of 6 102 such Affiliate Transaction are fair to New Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as might reasonably have been obtained at such time from an unaffiliated party and that such Independent Financial Advisor has provided 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, New Holdings or such Subsidiary, as the case may be, shall have delivered to the New Discount Debenture Trustee, a written opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to New Holdings or such Subsidiary, as the case may be, or that the terms of such Affiliate Transaction are at least as favorable as those that might reasonably have been obtained at the time from an unaffiliated party. 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 New Holdings or any Subsidiary, as determined by the Board of Directors of New Holdings or any Subsidiary or the senior management thereof in good faith, (iv) transactions exclusively between or among New Holdings and any of its wholly-owned Subsidiaries or exclusively between or among such wholly-owned Subsidiaries, provided such transactions are not otherwise prohibited by the New Discount Debenture Indenture, (v) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders in any material respect, (vi) the existence of, or the performance by New Holdings or any of its Subsidiaries of its obligations under the terms of, any stockholder agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by New Holdings or any Subsidiaries of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders in any material respect, (vii) transactions permitted by, and complying with, the provisions of the covenant described under "-- Limitation on Mergers and Certain Other Transactions" below, and (viii) transactions with suppliers or other purchases or sales of goods or services, in each case, in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the New Discount Debenture Indenture which are fair to New Holdings, in the reasonable determination of the Board of Directors or senior management of New Holdings, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Limitations on Preferred Stock of Subsidiaries. The New Discount Debenture Indenture will provide that New Holdings will not permit any of its Subsidiaries to issue any Preferred Stock (other than to New Holdings or a wholly-owned Subsidiary), or permit any person (other than New Holdings or a wholly-owned Subsidiary) to own or hold an interest in any Preferred Stock of such Subsidiary, unless such Subsidiary would be entitled to incur Indebtedness in accordance with the provisions described above under "-- Limitation on Incurrence of Additional Indebtedness" in the aggregate principal amount equal to the aggregate liquidation value of such Preferred Stock. No Amendment to Subordination Provisions of Seller Debentures. The New Discount Debenture Indenture will provide that New Holdings will not amend, modify or alter the Seller Debenture Indenture in any way that would (i) increase the principal of, advance the final maturity date of or shorten the Weighted Average Life to Maturity of any Seller Debentures such that the final maturity date of the Seller Debentures is earlier than the 91st day following the final maturity date of the New Discount Debentures or (ii) amend the provisions of Article Eleven of the Seller Debenture Indenture (which relates to subordination) or certain of the defined terms used therein in a manner that would be adverse to the Holders of the New Discount Debentures. Limitations on Mergers and Certain Other Transactions. The New Discount Debenture Indenture will provide that New Holdings, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other person, or transfer (by lease, assignment, sale or 7 103 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 New Holdings shall be the continuing person, or the person (if other than New Holdings) formed by such consolidation or into which New Holdings is merged or to which all or substantially all of the properties and assets of New Holdings as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any person to which assets are transferred) (New Holdings or such other person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations of New Holdings under the New Discount Debentures and the New Discount Debenture Indenture; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the incurrence or anticipated incurrence of any Indebtedness to be incurred in connection therewith, (A) the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of New Holdings immediately preceding the transaction, and (B) the Surviving Person could incur at least $1 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of the covenant described under the heading "-- Limitation on Incurrences of Additional Indebtedness" above; and (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. Notwithstanding the foregoing, the consummation of the Merger on the Issue Date need only comply with clauses (1) and (3) of the foregoing paragraph. The New Discount Debenture Indenture will provide that upon any consolidation or merger or any transfer of all or substantially all of the assets of New Holdings or any adoption of a Plan of Liquidation by New Holdings in accordance with the foregoing, the surviving person formed by such consolidation or into which New Holdings is merged or to which such transfer is made (or, in the case of a Plan of Liquidation, to which assets are transferred) shall succeed to, and be substituted for, and may exercise every right and power of, New Holdings under the New Discount Debenture Indenture with the same effect as if such surviving person had been named as New Holdings 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 New Holdings with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. When a successor corporation assumes all of the obligations of New Holdings under the New Discount Debenture Indenture and under the New Discount Debentures and agrees to be bound thereby, the predecessor 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 Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of New Holdings shall be deemed to be the transfer of all or substantially all of the properties and assets of New Holdings. EVENTS OF DEFAULT The following events constitute "Events of Default" under the New Discount Debenture Indenture: (i) failure to make any payment of interest on the New Discount Debentures when due and the continuance of such default for a period of 30 days; (ii) failure to pay principal of, or premium, if any, on the New Discount Debentures when due, whether at maturity, upon acceleration, redemption or otherwise (including the failure to repurchase New Discount Debentures tendered pursuant to the requirements set forth in the covenants described under the headings "-- Certain Covenants -- Change of Control" and "-- Certain Covenants -- Limitation on Asset Sales"), (iii) failure to comply with any other agreement or covenant contained in, or provisions of, the New Discount Debentures or the New Discount Debenture Indenture, if such failure continues unremedied for 30 days after notice given by the New Discount Debenture Trustee or the Holders of at least 25% in principal amount of the New Discount Debentures then outstanding (except in the case of a default with respect to the covenants described under the headings "-- Certain Covenants -- Limitation on Restricted Payments," "-- Change of Control," "-- Certain Covenants -- Limitation 8 104 on Asset Sales" 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 bond, debenture, or other evidence of Indebtedness of New Holdings or of any Significant Subsidiary or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any such Indebtedness, whether such Indebtedness now exists or shall hereafter be created, if both (A) such default either (1) results from the failure to pay such Indebtedness at its stated final maturity or (2) relates to an obligation (other than the obligation to pay any principal of such Indebtedness at its stated final maturity) and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated final maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, aggregates $25 million or more at any one time outstanding; (v) New Holdings or any Significant Subsidiary (a) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (b) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (c) consents to the appointment of a Custodian of it or for substantially all of its property, (d) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (e) makes a general assignment for the benefit of its creditors, or (f) takes any corporate action to authorize or effect any of the foregoing; (vi) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of New Holdings or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law, which shall (a) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of New Holdings or any Significant Subsidiary, (b) appoint a Custodian of New Holdings or any Significant Subsidiary or for substantially all of its property or (c) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (vii) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of New Holdings and its Subsidiaries; or (viii) any final judgment or order for payment of money in excess of $25 million shall be entered against New Holdings or any Significant Subsidiary by a court of competent jurisdiction and shall remain undischarged for a period of 60 days after such judgment becomes final and nonappealable. If an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency, receivership or reorganization of New Holdings or any Significant Subsidiary) occurs and is continuing, the New Discount Debenture Trustee or the Holders of at least 25% in aggregate principal amount of the New Discount Debentures then outstanding may declare the Default Amount due and payable by notice in writing to New Holdings and the New Discount Debenture 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 New Holdings 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 shall occur with respect to New Holdings or a Significant Subsidiary, the Default Amount shall ipso facto become immediately due and payable without any declaration or other act on the part of the New Discount Debenture Trustee or any of the Holders of the New Discount Debentures. Subject to certain conditions, the Holders of a majority in principal amount of the New Discount Debentures then outstanding, by notice to the New Discount Debenture Trustee, may rescind an acceleration if all existing Events of Default are remedied. In certain cases the Holders of a majority in principal amount of outstanding New Discount Debentures may waive any past default and its consequences, except a default in the payment of principal of or interest on any of the New Discount Debentures. The New Discount Debenture Indenture provides that if a Default or an Event of Default occurs and is continuing thereunder and if it is known to the New Discount Debenture Trustee, the New Discount Debenture Trustee shall mail to each Holder of the New Discount Debentures notice of the uncured 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 principal of, premium, if any, or interest on, any New Discount Debenture, including the failure to make payment on the Change of Control Payment 9 105 Date pursuant to a Change of Control Offer or payment when due pursuant to a Net Proceeds Offer, the New Discount Debenture Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders. The New Discount Debenture Indenture provides that no holder may pursue any remedy thereunder unless the New Discount Debenture 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 written request to act by Holders of at least 25% in principal amount of the New Discount Debentures 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 on the New Discount Debentures. Under the New Discount Debenture Indenture, two officers of New Holdings are required to certify to the New Discount Debenture Trustee within 120 days after the end of each fiscal year of New Holdings whether or not they know of any Default or Event of Default that occurred during such fiscal year and, if applicable, describe such Default or Event of Default and the status thereof. DEFEASANCE OF INDENTURE New Holdings may, at its option and at any time, elect to have New Holdings' obligations discharged with respect to the outstanding New Discount Debentures. Such Legal Defeasance means that New Holdings shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding New Discount Debentures except for (i) the rights of Holders of outstanding New Discount Debentures to receive payments in respect of the principal of, premium, if any, and interest on such New Discount Debentures when such payments are due solely from the funds held by the New Discount Debenture Trustee in the trust referred to below; (ii) New Holdings' obligations to issue temporary New Discount Debentures, register the transfer or exchange of New Discount Debentures, replace mutilated, destroyed, lost or stolen New Discount Debentures and maintain an office or agency for payments in respect of the New Discount Debentures and money for security payments held in trust in respect of the New Discount Debentures; (iii) the rights, powers, trusts, duties and immunities of the New Discount Debenture Trustee and New Holdings' obligations in connection therewith; and (iv) the Legal Defeasance provisions of the New Discount Debenture Indenture. In addition, New Holdings may, at its option and at any time elect to have the obligations of New Holdings released with respect to certain covenants described above under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the New Discount Debentures. In order to exercise either Legal Defeasance or Covenant Defeasance with respect to the New Discount Debentures, (i) New Holdings must have irrevocably deposited with the New Discount Debenture Trustee, in trust, for the benefit of the Holders of the New Discount Debentures, cash in U.S. dollars, U.S. Government Obligations (as defined in the New Discount Debenture Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding New Discount Debentures to redemption or maturity provided that the New Discount Debenture Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the New Discount Debentures on the Maturity Date or such redemption date, as the case may be; (ii) in the case of Legal Defeasance, New Holdings shall have delivered to the New Discount Debenture Trustee an opinion of counsel stating that (A) New Holdings has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of outstanding New Discount Debentures 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, New Holdings shall have delivered to the New Discount Debenture Trustee an opinion of counsel stating that the Holders of outstanding New Discount Debentures 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 10 106 occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as clauses (v) and (vi) under the first paragraph under "-- Events of Default" above are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the New Discount Debenture Indenture or any other material agreement or instrument to which New Holdings is a party or by which it is bound (and in that connection, the New Discount Debenture Trustee shall have received a certificate from the Agent under the Credit Agreement to that effect with respect to such Credit Agreement if then in effect); (vi) New Holdings shall have delivered to the New Discount Debenture 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; (vii) New Holdings shall have delivered to the New Discount Debenture Trustee an Officer's Certificate stating that the deposit was not made by New Holdings with the intent of preferring the Holders of the New Discount Debentures over other creditors of New Holdings or with the intent of defeating, hindering, delaying or defrauding creditors of Holdings, or others; and (viii) New Holdings shall have delivered to the New Discount Debenture Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or Covenant Defeasance, have been complied with. SATISFACTION AND DISCHARGE The New Discount Debenture Indenture will be discharged and will cease to be of further effect as to all outstanding New Discount Debentures when either (a) all New Discount Debentures theretofore authenticated and delivered (except lost, stolen or destroyed New Discount Debentures which have been replaced or paid and New Discount Debentures for whose payment money has theretofore been deposited in trust and thereafter repaid to New Holdings) have been delivered to the New Discount Debenture Trustee for cancellation; or (b)(i) all New Discount Debentures not theretofore delivered to the New Discount Debenture Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise and New Holdings has irrevocably deposited or caused to be deposited with the New Discount Debenture Trustee as trust funds in trust for the purpose an amount of money sufficient to pay and discharge the entire indebtedness on the New Discount Debentures not theretofore delivered to the New Discount Debenture Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (ii) New Holdings has paid all sums payable by it under the New Discount Debenture Indenture; and (iii) New Holdings has delivered irrevocable instructions to the New Discount Debenture Trustee to apply the deposited money toward the payment of the New Discount Debentures at maturity or the redemption date, as the case may be. In addition, New Holdings must deliver an Officers' Certificate and an Opinion of Counsel to the New Discount Debenture Trustee stating that all conditions precedent to satisfaction and discharge have been complied with. MODIFICATION OF THE NEW DISCOUNT DEBENTURE INDENTURE The New Discount Debenture Indenture and the New Discount Debentures may be amended or supplemented (and compliance with any provision thereof may be waived) by New Holdings, the New Discount Debenture Trustee and the Holders of not less than a majority in aggregate principal amount of the New Discount Debentures then outstanding, except that (i) without the consent of each Holder of New Discount Debentures affected, no such amendment, supplement or waiver may (1) change the principal amount of New Discount Debentures whose Holders must consent to an amendment, supplement or waiver of any provision of the New Discount Debenture Indenture or the New Discount Debentures; (2) reduce the rate or extend the time for payment of interest on any New Discount Debenture; (3) reduce the Accreted Value of any New Discount Debenture; (4) reduce the principal amount of any New Discount Debenture; (5) change the Maturity Date of any New Discount Debenture, or alter the redemption provisions in a manner adverse to any Holder; (6) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on, or redemption payment with respect to, any New Discount Debenture, or (7) make the principal of, or the interest on, any New Discount Debentures payable with anything or in any manner other than as provided for in the New Discount Debenture Indenture and the New Discount Debentures as in effect on the date of the New 11 107 Discount Debenture Indenture and (ii) without the consent of Holders of not less than 75% in aggregate principal amount of New Discount Debentures then outstanding, no such amendment, supplement or waiver may change the Change of Control Payment Date or the purchase price in connection with any repurchase of New Discount Debentures 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. In addition, New Holdings and the New Discount Debenture Trustee may amend the New Discount Debenture Indenture and the New Discount Debentures (a) to cure any ambiguity, defect or inconsistency therein; provided, that such amendment or supplement does not adversely affect the rights of any Holder or (b) to make any other change that does not adversely affect the rights of any Holder thereunder in any material respect. THE NEW DISCOUNT DEBENTURE TRUSTEE The Holders of a majority in principal amount of the outstanding New Discount Debentures may remove the New Discount Debenture Trustee and appoint a successor trustee with New Holdings' consent, by so notifying the New Discount Debenture Trustee to be so removed and New Holdings. In addition, the Holders of a majority in principal amount of the outstanding New Discount Debentures have the right, subject to certain limitations, to direct the time, method and place of conducting any proceeding for any remedy available to the New Discount Debenture Trustee or of exercising any trust or power conferred on the New Discount Debenture Trustee. The New Discount Debenture Indenture provides that, in case a Default or an Event of Default has occurred and is continuing, the New Discount Debenture Trustee thereunder shall exercise such of the rights and powers vested in it by the New Discount Debenture 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 his own affairs. Subject to the latter provision, the New Discount Debenture Trustee is under no obligation to exercise any of its rights or powers under the New Discount Debenture Indenture at the request, order or direction of any of the Holders, unless they shall have offered to the New Discount Debenture Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred thereby. If New Holdings fails to pay such amounts of principal of, or interest on, the New Discount Debentures as shall have become due and payable upon demand as specified in the New Discount Debenture Indenture, the New Discount Debenture Trustee thereunder, at the request of the Holders of a majority in aggregate principal amount of the New Discount Debentures at the time outstanding, and upon being offered such reasonable indemnity as it may be required against the costs, expenses and liabilities incurred by it, except as a result of its negligence or bad faith, shall institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and collect in the manner provided by law the monies adjudged or decreed to be payable. The New Discount Debenture Indenture contains limitations on the rights of the New Discount Debenture Trustee, should it become a creditor of New Holdings, to obtain payment of claims in certain cases or to be realized on certain property received by it in respect of any such claims, securities or otherwise. The New Discount Debenture Trustee is permitted to engage in other transactions; however, if the New Discount Debenture Trustee acquires any "conflicting interest," it must eliminate such conflict or resign. The New Discount Debenture Trustee is also the trustee for (a) the % Senior Subordinated Notes due 2005 of the Company; (b) the 9% Senior Subordinated Notes due 2003 of the Company; (c) the 10 1/4% Senior Subordinated Notes due 2002 of the Company; (d) the 13.75% Senior Subordinated Notes due 2005 of the Company; and (e) the 13.75% Senior Subordinated Notes due 2001 of the Company. REPORTS The New Discount Debenture Indenture will provide that to the extent permitted by applicable law or regulation, whether or not New Holdings is subject to the requirements of Section 13 or 15(d) of the Exchange Act, New Holdings shall file with the SEC all quarterly and annual reports and such other information, documents or other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to such provisions of the Exchange Act. New 12 108 Holdings shall file with the New Discount Debenture Trustee, within 15 days after it files the same with the SEC, copies of the quarterly and annual reports and the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that it is required to file with the SEC pursuant to the New Discount Debenture Indenture. New Holdings shall also comply with the other provisions of TIA sec. 314(a). If New Holdings is not permitted by applicable law or regulations to file the aforementioned reports, New Holdings (at its own expense) shall file with the New Discount Debenture Trustee and mail, or cause the New Discount Debenture Trustee to mail, to Holders at their addresses appearing in the register of New Discount Debentures maintained by the Registrar at the time of such mailing within 5 days after it would have been required to file such information with the SEC, all information and financial statements, including any notes thereto and with respect to annual reports, an auditors' report by an accounting firm of established national reputation, and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," comparable to the disclosure that Holdings would have been required to include in annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if New Holdings was subject to the requirements of such Section 13 or 15(d) of the Exchange Act. At any time when New Holdings is not permitted by applicable law or regulations to file the aforementioned reports, upon the request of a Holder of New Discount Debentures, New Holdings will promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of such New Discount Debentures designated by such Holder, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act. CERTAIN DEFINITIONS "Accreted Value" means, as of any date of determination prior to , 2000, the sum of (a) the initial purchase price of each New Discount Debenture and (b) the portion of the excess of the principal amount of each New Discount Debenture over such initial purchase price which shall have been accreted through such date, such amount to be so accreted on a daily basis and compounded semi-annually on each and at the rate of 13 5/8% per annum from the date of issuance of the New Discount Debentures through the date of determination, computed on the basis of a 360-day year of twelve 30-day months. "Acquired Indebtedness" means Indebtedness of a person or any of its subsidiaries existing at the time such person becomes a Subsidiary or assumed in connection with the acquisition of assets from such person and not incurred by such person in connection with, or in anticipation or contemplation of, such person becoming a Subsidiary or such acquisition. "Affiliate" means, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the New Discount Debenture Indenture, neither BT Securities Corporation nor any of its Affiliates shall be deemed to be an Affiliate of New Holdings or any of its Subsidiaries. "Asset Sale" means, with respect to any person, any sale, transfer or other disposition or series of sales, transfers or other dispositions (including, without limitation, by merger or consolidation or by exchange of assets and whether by operation of law or otherwise) made by such person or any of its subsidiaries to any person other than such person or one of its wholly-owned subsidiaries (or, in the case of a sale, transfer or other disposition by a Subsidiary, to any person other than New Holdings or a directly or indirectly wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries including, without limitation, assets consisting of any Capital Stock or other securities held by such person or any of its subsidiaries, and any Capital Stock issued by any subsidiary of such person, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of related sales, transfers or other dispositions (i) involving only Excluded Assets, (ii) resulting in Net Proceeds to New Holdings or any 13 109 Subsidiary of $500,000 or less, (iii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of New Holdings or any Subsidiary with a Lien on such assets, which Lien is permitted under the New Discount Debenture Indenture, provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law, or (iv) the proceeds of 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 principle payments of such debt security multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means, with respect to any person, the Board of Directors of such person or any committee of the Board of Directors of such person duly authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such person. "Board Resolution" means, with respect to any person, a duly adopted resolution of the Board of Directors of such person. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such person, including Preferred Stock. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii) and (v) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means (I) the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any person or entity (other than any Permitted Holder) or (ii) any group of persons or entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), in either case, of any securities of New Holdings such that, as a result of such acquisition, such person, entity or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, 40% or more of the then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of New Holdings (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, a greater percentage of such voting securities than such other person, entity or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of New Holdings' Board of Directors or (II) New Holdings ceasing to own 100% of the outstanding voting securities entitled to vote on a regular basis to elect a majority 14 110 of the Board of Directors of the Company (other than in connection with a merger of New Holdings and the Company). "Company" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and its successors, including, without limitation, Ralphs Supermarkets, Inc. (to be renamed Ralphs Grocery Company) following the Merger. "Consolidated Net Income" means, with respect to any person, for any period, the aggregate of the net income (or loss) of such person and its subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other person in which such person or any of its subsidiaries has an interest (which interest does not cause the net income of such other person to be consolidated with the net income of such person and its subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to such person or such subsidiary by such other person in such period; (b) the net income of any subsidiary of such person that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received by, such person or a subsidiary of such person not subject to any Payment Restriction; provided, however, that with respect to the net income of New Holdings, the net income of the Company and its wholly-owned subsidiaries shall not be so excluded, notwithstanding the existence of any such Payment Restriction, so long as the terms of any such consensual Payment Restriction limiting the payment of dividends are not materially more restrictive at the time of determination of Consolidated Net Income than the most restrictive Payment Restriction limiting the payment of dividends in effect on the Issue Date and so long as the Company continues to be a wholly-owned subsidiary of New Holdings; 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 New Holdings or any of its Subsidiaries in connection with the Merger, including, without limitation, the divestiture of the Excluded Assets, (viii) losses incurred by New Holdings and its Subsidiaries resulting from earthquakes and (ix) with respect to New Holdings and its Subsidiaries, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded. "Consolidated Net Worth" means, with respect to any person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such person and its subsidiaries determined on a consolidated basis in accordance with GAAP. "Consulting Agreement" means that certain Consulting Agreement dated as of the Issue Date, between the Company, New Holdings and The Yucaipa Companies, as such Consulting Agreement may be amended or replaced, so long as any amounts paid under any amendment or replacement agreement do not exceed the amounts payable under such Consulting Agreement as in effect on the Issue Date. "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among the Company as borrower, New Holdings as guarantor, certain of the Company's subsidiaries, the Lenders referred to therein and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or any such prior agreement as 15 111 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. New Holdings shall promptly notify the New Discount Debenture 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. "Default Amount" means (i) if the Date of Declaration (as defined below) is prior to , 2000, the unpaid Accreted Value of the New Discount Debentures then outstanding as of the date on which the New Discount Debentures are declared to be due and payable (the "Date of Declaration"), and (ii) if the Date of Declaration is on or after , 2000, the aggregate principal amount of the New Discount Debentures then outstanding as of the Date of Declaration, plus accrued and unpaid interest thereon to the Date of Declaration. "Disqualified Capital Stock" means, (i) with respect to any person, any Capital Stock of such person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security into which it is convertible, putable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased by such person or its subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the Maturity Date or any other Capital Stock of such person or its subsidiaries designated as Disqualified Capital Stock by such person at the time of issuance; provided, however, that if such Capital Stock is either (a) redeemable or repurchasable solely at the option of such person or (b) issued to employees of New Holdings or its Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated; and (ii) with respect to any Subsidiary of New Holdings, any Preferred Stock issued by a Subsidiary of New Holdings other than Preferred Stock issued to New Holdings. "EBDIT" means, with respect to any person, for any period, the Consolidated Net Income of such person for such period, plus, in each case to the extent deducted in computing Consolidated Net Income of such person for such period (without duplication) (i) provisions for income taxes or similar charges recognized by such person and its consolidated subsidiaries accrued during such period, (ii) depreciation and amortization expense of such person and its consolidated subsidiaries accrued during such period (but only to the extent not included in Fixed Charges), (iii) Fixed Charges of such person and its consolidated subsidiaries for such period, (iv) LIFO charges (credit) of such person and its consolidated subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Merger, and (vi) any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of or a cash reserve for cash charges for any future period), less, without duplication, (i) non-cash items increasing Consolidated Net Income of such person for such period (excluding any such items which represent the reversal of any accrual of, or cash reserve for, anticipated 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). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Excluded Assets" means assets of New Holdings or any Subsidiary required to be disposed of by applicable regulatory authorities in connection with the Merger. 16 112 "Existing Indebtedness" means the following indebtedness of the Company outstanding on the Issue Date after giving effect to the Merger: (a) the % Senior Notes due 2004 issued pursuant to an indenture dated as of the Issue Date; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (c) the % Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of the Issue Date; (d) the 9% Senior Subordinated Notes due 2003 issued pursuant to an indenture dated as of March 30, 1993; (e) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to an indenture dated as of July 29, 1992; (f) the 13.75% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated as of the Issue Date; and (g) the 13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated as of June 15, 1991. "Fixed Charges" means, with respect to any person, for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such person and its consolidated subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of New Holdings, any original issue discount on the New Discount Debentures, the Senior Discount Notes and the Seller Debentures but excluding amortization of debt issuance costs and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period, but excluding the amortization of debt issuance costs) and (ii) dividend requirements on Capital Stock of such person and its consolidated subsidiaries declared or paid in cash or required to be declared or paid in cash, during such period, and excluding items eliminated in consolidation. For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Board of Directors of such person (as evidenced by a Board Resolution) to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Fixed Charges are being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a Eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as New Holdings may designate, and (d) Fixed Charges shall be increased or reduced by the net cost (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is the amount of such dividend requirements and the denominator of which is one (1) minus the applicable actual combined federal, state, local and foreign income tax rate of such person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "GAAP" means generally accepted accounting principles as in effect in the United States of America as of the Issue Date. "Holdings" means Food 4 Less Holdings, Inc., a California corporation, and its successors, including, without limitation, New Holdings, following the Reincorporation Merger. "Indebtedness" means with respect to any person, without duplication, (i) all liabilities, contingent or otherwise, of such person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such person in the ordinary course of business of such person in connection with obtaining goods, materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the incurrence thereof, which account is not overdue by more than 90 days, according 17 113 to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such person or, if there is no such maximum fixed repurchase price, the liquidation preference of such Disqualified Capital Stock, plus accrued but unpaid dividends; (iii) reimbursement obligations of such person with respect to letters of credit; (iv) obligations of such person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is otherwise its legal liability, and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such person are subject, whether or not the obligations secured thereby shall have been assumed by such person or shall otherwise be such person's legal liability (provided that if the obligations so secured have not been assumed by such person or are not otherwise such person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the New Discount Debenture Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person, which determination shall be evidenced by a Board Resolution. For purposes of the New Discount Debenture 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 New Holdings, 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 a nationally recognized investment banking firm that is, in the reasonable judgment of the Board of Directors of New Holdings, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to New Holdings and its Affiliates. "Initial Public Offering" means an underwritten primary public offering of common stock of New Holdings at a time when New Holdings has not previously issued or sold any equity securities in an underwritten transaction pursuant to a registration statement filed pursuant to the Securities Act. "Interest Swap Obligation" means any obligation of any person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any person in any other person means any investment by such person in such other person, whether by share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances, or to permit the purchase of Qualified Capital Stock of New Holdings or any Subsidiary and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other person, and any guarantee of Indebtedness of any other person. "Issue Date" means the date of original issuance of the New Discount Debentures pursuant to the New Discount Debenture Indenture. 18 114 "Letter of Credit Obligations" means Indebtedness of the Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of the provisions of the New Discount Debenture Indenture summarized under the heading "Limitations on Incurrences of Additional 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 hereunder. "Maturity Date" means , 2005. "Merger" means (i) the merger of Food 4 Less Supermarkets, Inc. into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger) pursuant to the Merger Agreement and (ii) immediately following the merger described in clause (i) of this definition, the merger of Ralphs Grocery Company into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger and changing its name to "Ralphs Grocery Company" in connection with such merger). "Merger Agreement" means the Agreement and Plan of Merger, dated as of September 14, 1994, by and among New Holdings, Holdings, FFL, Food 4 Less Supermarkets, Inc., RSI and the stockholders of RSI, as such agreement is in effect on the Issue Date. "Net Cash Proceeds" means Net Proceeds of (i) the sale of Qualified Capital Stock of New Holdings or (ii) any Asset Sale, in each case, in the form of cash or Cash Equivalents. "Net Proceeds" means (a) in the case of any Asset Sale or any issuance and sale by any person of Qualified Capital Stock, the aggregate net proceeds received by such person 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 New Holdings, the sum of (i) the fair market value of the proceeds received by New Holdings in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the Holder to New Holdings upon such conversion or exchange. "New Discount Debentures" means the 13 5/8% Senior Discount Debentures due 2005 of New Holdings issued pursuant to the New Discount Debenture Indenture, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under the New Discount Debenture Indenture. "New Discount Debenture Indenture" means the indenture between New Holdings and United States Trust Company of New York, as trustee, dated as of the Issue Date, pursuant to which the New Discount Debentures will be issued, as amended or supplemented from time to time in accordance with the terms thereof. "New Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and its successors. "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 19 115 financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors of such person to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Merger, EBDIT for the Pro Forma Period shall be calculated, in the case of New Holdings, after giving effect on a pro forma basis to the Merger as if it had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, EBDIT shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other person that, as a result of such Investment, becomes a subsidiary of such person, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by 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 New Holdings, Indebtedness that ranks pari passu in right of payment to the New Discount Debentures (whether or not secured by any Lien) including the Senior Discount Notes, to the extent any remain outstanding following the Merger. "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 New Holdings or any Subsidiary, or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of New Holdings or any Subsidiary or (v) any Permitted Transferee of any of the foregoing persons. "Permitted Indebtedness" means (a) Indebtedness of the Company and its subsidiaries pursuant to (i) the Term Loans (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $750 million or such lesser amount as may be actually funded under the Term Loans on or within 91 days following the Issue Date (with any such amounts funded after the Issue Date to be used to finance the repurchase of up to $224.5 million aggregate principal amount of Old RGC Notes pursuant to the "change of control purchase offer" provision set forth in section 1014 of the indentures pursuant to which the Old RGC Notes were issued, plus related fees and expenses) less the aggregate amount of all principal repayments thereunder pursuant to 20 116 and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above subsequent to the Issue Date and (ii) the revolving credit facility under the Credit Agreement (and the Company and each Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness) in an aggregate principal amount at any time outstanding not to exceed $325 million, less all permanent reductions thereunder pursuant to and in accordance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales" above; (b) any guarantee by New Holdings of the Indebtedness referred to in the foregoing clause (a); (c) Indebtedness of New Holdings or a Subsidiary owed to and held by New Holdings or a Subsidiary; (d) Indebtedness incurred by New Holdings or any Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the incurrence thereof, such Indebtedness, together with any other Indebtedness incurred during the most recently completed four fiscal quarter period in reliance upon this clause (d) does not exceed, in the aggregate, 3% of net sales of New Holdings and its Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the first anniversary of the Merger) and (ii) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon this clause (d) does not exceed, in the aggregate, 3% of the aggregate net sales of New Holdings and its Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of incurrence is prior to the third anniversary of the Merger); (e) Indebtedness incurred by New Holdings or any Subsidiary in connection with capital expenditures in an aggregate principal amount not exceeding $150 million, provided that such capital expenditures relate solely to the integration of the operations of RSI, Food 4 Less Supermarkets, Inc. and their respective subsidiaries as described in this Prospectus; (f) Indebtedness of New Holdings or any Subsidiary incurred under Foreign Exchange Agreements and Interest Swap Obligations; (g) guarantees incurred in the ordinary course of business, by New Holdings or a Subsidiary, of Indebtedness of any other person in aggregate not to exceed $25 million at any time outstanding; (h) guarantees by New Holdings or a Subsidiary of Indebtedness incurred by a wholly-owned Subsidiary so long as the incurrence of such Indebtedness incurred by such wholly-owned Subsidiary is permitted under the terms of the New Discount Debenture Indenture; (i) Refinancing Indebtedness; (j) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (k) Existing Indebtedness and other Indebtedness outstanding on the Issue Date (after giving effect to the Merger); (l) Indebtedness arising from guarantees of Indebtedness of New Holdings or any Subsidiary or other agreements of New Holdings or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by New Holdings and its Subsidiaries in connection with such disposition; (m) obligations in respect of performance bonds and completion guarantees provided by New Holdings or any Subsidiary in the ordinary course of business; (n) Indebtedness of New Holdings with respect to the Senior Discount Notes, if any, New Discount Debentures (including the accretion of the Senior Discount Notes and the New Discount Debentures up to their respective stated principal amount at maturity) and Seller Debentures (including the issuance of secondary securities in lieu of cash interest payments pursuant to the terms of the Seller Debenture Indenture); and (o) additional Indebtedness of New Holdings or any Subsidiary in an amount not to exceed $200 million at any time outstanding. "Permitted Investment" by any person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale or any other disposition of assets not constituting an Asset Sale by reason of the $500,000 threshold contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with the provisions of the New Discount Debenture Indenture summarized under "Limitation on Restricted Payments" and "Limitation on Transac- 21 117 tions with Affiliates," (vi) Investments by any Subsidiary in other Subsidiaries, and (vii) additional Investments in an aggregate amount not exceeding $5 million. "Permitted Liens" shall mean (i) Liens for taxes, assessments and governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (ii) statutory Liens of landlords and carriers, warehouseman, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business, deposits made to obtain the release of such Liens, and with respect to amounts not yet delinquent for a period of more than 60 days or being contested in good faith by an appropriate process of law, and for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (iii) Liens incurred or pledges or deposits made in the ordinary course of business to secure obligations under workers' compensation, unemployment insurance and other types of social security or similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, zoning or other restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of New Holdings 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) judgement 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 New Holdings 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 New Holdings 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 New Holdings 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 New Holdings 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 New Holdings or any Subsidiary of its obligations under such lease; (xv) Liens arising from filing UCC financial statements for precautionary purposes in connection with true leases of personal property that are otherwise permitted under the New Discount Debenture Indenture and under which New Holdings or any Subsidiary is lessee; and (xvi) additional Liens securing Indebtedness of the Company at any one time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the aggregate Consolidated Net Income of the Company earned subsequent to the Issue Date and on or prior to such time. "Permitted Payments" means (i) any payment by New Holdings or any Subsidiary to The Yucaipa Companies or the principals or any Affiliate 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 New Holdings or any Subsidiary to Apollo Advisors, L.P. or the principals or Affiliates thereof in an aggregate amount not to exceed $5 million as a commitment fee in connection with the purchase of equity securities of New Holdings on the Issue Date, and (iii) any payment by New Holdings or any Subsidiary (a) in connection with repurchases of outstanding shares of New Holdings common stock following the death, disability or termination of employment of management stockholders, and (b) of amounts 22 118 required to be paid by New Holdings or any Subsidiaries to participants in employee benefit plans upon any termination of employment by such participants, as provided in the documents related thereto, in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided that any unused amounts may be carried over to any subsequent Yearly Period subject to a maximum amount of $20 million in any Yearly Period). "Permitted Transferees" means, with respect to any person, (i) any Affiliate of such person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such person, (iii) a trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general or limited partners of which, include only such person or his or her spouse or lineal descendants, in each case to whom such person has transferred the beneficial ownership of any securities of New Holdings, (iv) any investment account whose investment managers and investment advisors consist solely of such person and/or Permitted Transferees of such person and (v) any investment fund or investment entity that is a subsidiary of such person or a Permitted Transferee of such person. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of such person's preferred or preference stock, whether outstanding on the date hereof or issued after the Issue Date, and including, without limitation, all classes and series of preferred or preference stock of such person. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of the New Discount Debenture Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act as interpreted by New Holdings' chief financial officer or Board of Directors in consultation with its independent certified public accountants. "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 (b), (d), (e), (i), (k) and (n) of the definition thereof) incurred in accordance with the New Discount Debenture Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default 23 119 provisions no less favorable in any material respect to Holders than those contained in such repaid or amended Subordinated Indebtedness. "Reincorporation Merger" means the merger, prior to the Merger, of Holdings with and into New Holdings. "Related Business Investment" means (i) any Investment by a person in any other person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by New Holdings or any Subsidiary as of the Issue Date; (ii) any Investment by such person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of New Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment in each case reasonably related to the business of New Holdings and any Subsidiary as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Restricted Debt Prepayment" means the purchase, redemption, acquisition or retirement for value by New Holdings, prior to the scheduled maturity or prior to any scheduled repayment of principal or any sinking fund payment in respect of any Subordinated Indebtedness. "Restricted Payment" means any (i) Stock Payment or (ii) Investment (other than a Permitted Investment) or (iii) Restricted Debt Prepayment. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of New Holdings, including any secondary securities issued in respect thereof, in each case, issued pursuant to the Seller Debenture Indenture, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under the New Discount Debenture Indenture. "Seller Debenture Indenture" means the indenture between New Holdings and Norwest Bank Minnesota, N.A., as trustee, dated as of the Issue Date, pursuant to which the Seller Debentures will be issued, as amended or supplemented from time to time in accordance with the terms thereof. "Senior Discount Notes" means the 15.25% Senior Discount Notes due 2004 of Holdings issued pursuant to the Senior Discount Note Indenture, as the same may be modified or amended from time to time and refinancings thereof, to the extent such refinancing indebtedness is permitted to be incurred under the New Discount Debenture Indenture. "Senior Discount Note Indenture" means the indenture between Holdings and United States Trust Company of New York, as trustee, dated as of December 15, 1992, pursuant to which the Senior Discount Notes were issued, as amended or supplemented from time to time in accordance with the terms thereof. "Significant Stockholder" means, with respect to any person, any other person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such person that are entitled to vote on a regular basis for the election of directors of such person. "Significant Subsidiary" means each subsidiary of New Holdings that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the date hereof) or (b) material to the financial condition or results of operations of New Holdings and its Subsidiaries taken as a whole. "Stock Payment" means, with respect to any person, (a) the declaration or payment by such person, either in cash or in property, of any dividend on (except, in the case of New Holdings, dividends payable solely in Qualified Capital Stock of New Holdings), or the making by such person or any of its subsidiaries of any other distribution in respect of, such person's Qualified Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), or (b) the redemption, repurchase, retirement or other acquisition for value by 24 120 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 New Holdings) or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such person), other than, in the case of New Holdings, through the issuance in exchange therefor solely of Qualified Capital Stock of New Holdings, provided, however, that in the case of a Subsidiary, the term "Stock Payment" shall not include any such payment with respect to its Capital Stock or warrants, rights or options to purchase or acquire shares of any class of its Capital Stock that are owned solely by New Holdings or a wholly owned Subsidiary. "Subordinated Indebtedness" means Indebtedness of New Holdings that is subordinated in right of payment to the New Discount Debentures, including Indebtedness under the Seller Debentures. "subsidiary" of any person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such person, by one or more subsidiaries of such person or by such person and one or more subsidiaries of such person or (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, but only if such person or its subsidiary is entitled to receive more than 50% of the assets of such partnership upon its dissolution, or (iii) any other person (other than a corporation or a partnership) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. "Subsidiary" means any subsidiary of New Holdings. "Term Loans" means the term loan facility under the Credit Agreement and any agreement governing Indebtedness incurred to refund, replace or refinance any borrowings outstanding under such facility or under any prior refunding, replacement or refinancing thereof (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). "The Yucaipa Companies" means The Yucaipa Companies, a California general partnership, or any successor thereto which is an Affiliate of Ronald W. Burkle or his Permitted Transferees and which has been established for the sole purpose of changing the form of The Yucaipa Companies from that of a partnership to that of a limited liability company or any other form of entity which is not materially adverse to the rights of the Holders under the Indenture. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "wholly-owned Subsidiary" means any Subsidiary all of the shares of Capital Stock of which (other than directors' qualifying shares) are at the time directly or indirectly owned by New Holdings. "Yearly Period" means each fiscal year of New Holdings; provided that the first Yearly Period shall begin on the Issue Date and shall end on January 28, 1996. 25 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) AUDITED CONSOLIDATED BALANCE SHEETS AND AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 52 WEEKS ENDED JANUARY 29, 1995. 1,000 U.S. DOLLARS YEAR JAN-29-1995 JAN-29-1995 1 35,125 0 43,597 0 221,388 319,903 624,724 0 1,509,914 439,403 883,020 0 0 0 27,187 1,509,914 2,724,604 2,724,604 2,101,033 2,101,033 478,018 0 112,651 32,118 0 32,118 0 0 0 32,118 0 0 PP&E, net
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